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My father-in-law, while certainly not a wealthy man, holds assets in the mid six-figure range. The subject of inheritance came up during a recent visit to his home in Spain, sparked by a conversation that my wife, Suzie, and I had just finalized updates to our own will due to the sale of my business.
I raised a specific suggestion for his estate planning: given that his three children are all financially secure and truly don’t need the inheritance money, would it make sense to skip a generation?
The primary benefit of this “generation-skipping” strategy is maximizing impact over mere convenience. Since the children are financially comfortable, an inheritance would likely be absorbed into their existing wealth with little perceptible change. By contrast, a potential distribution of maybe $75,000 to each of the seven grandchildren—whose ages range from 4 to 28—creates a foundational, life-altering impact. This approach transforms the bequest from a simple transfer of assets into a powerful, lasting legacy, helping the younger ones with university costs or providing a down payment on a first home for the older ones.
After thinking about my suggestion for a few weeks, he’s had conversations with my wife Suzie and his two other children, and they are all in agreement that it’s a good idea and it seems likely that this is the pathway my father-in-law is going to follow.
While the family is fully on board, it’s not a straight path forward. Because my father-in-law’s assets are in Spain, we’ve learned there are some complications due to Spanish inheritance law, often called ‘forced heirship.’ Essentially, the law there limits how much of the estate he can freely bequeath, meaning we’ll have to work closely with a local Spanish lawyer to ensure this generation-skipping plan can be legally executed.
Although it’s maybe an unusual idea, and not suitable for most families, his goal is to turn this future inheritance into a foundational life boost for the grandchildren. I was wondering if anyone in the humble dollar community has thought about this generation-skipping strategy, or been a beneficiary of one, and what specific impact it had on your early financial stability or key life milestones.
My wife and I agree that any inheritances that we might receive will go to our kids. The positive impact for them will be far greater than it might be for us.
This is a “problem” that I will not have, since neither of my children has children. I have jokingly said to them that I feel they conspired together to not give their mother and me grandchildren, so we would spend all of our money on them.
I retired in January 2024, and after reading Bill Perkins’ book, “Die with Zero,” I have begun giving our children cash gifts. My daughter received her first gift as a lump sum, while my son asked to receive his as a monthly inflow. (He was wise enough to consider that, as a lump sum, he might spend it unwisely.)
Some would say they can’t do that, because they don’t know whether they will need the money to support themselves, and if that is true for you, then act accordingly. However, as a 75 year old, married to a 71 year old and having a 47 year old daughter and 41 year old son, we are confident that giving cash gifts in the $10,000 – $15,000 range to both of them annually will not impact our ability to enjoy our own retirement. Should we experience a bad year or two in the markets, the gifts can be smaller those years, but as we are only taking 4% of our portfolio as income, that is also not a real concern. The majority of our income is Social Security (which covers 111% of our annual expenses) and annuity dollars, which equals @50% of our Social Security benefits, and which are 72% income tax free.
Our “estate” does not require any special level of estate planning, beyond common sense. Having the benefit of having been a financial services professional for over 50 years, and having a written plan, I am set in that area. I am also a firm believer in a statement Perkins made in his book, “It’s better to give with a warm hand than a cold one,” referring to the joy you can experience in still being here to see the enjoyment your children receive from your gifts. Waiting until you die to give your children (or charities) gifts denies you the joy of being here when the gifts are received and being enjoyed by your loved ones..
Something to think about!
I actually wrote an article last year for HD about receiving an inheritance from my grandfather’s trust, some 20 years after he passed. His wife, my father’s stepmother, was the beneficiary until she died in 2005. My father would have received the bulk of it, but he died before his stepmother did, so it was divided among my two siblings and me. For us, the windfall was extremely well timed because our older daughter was about to go to college.
My brother was single and benefited from an inheritance. He had neither wife nor kids. His thought was that neither my sister nor I needed his money, so he left it to his nephews – my two sons and my sister’s son. My brother unfortunately passed away about eight years ago, when the nephews were in their late 20’s.
After receiving the inheritance, I know that one of my sons used much of that windfall to relieve debt that he and his wife accumulated. My other son pretty much still has it in a Schwab account. I don’t know for sure about my sister’s son, but if he is like his parents, he still has it all.
My plan is much more complicated, because my wife and I both have kids from previous marriages. Very few of our assets are jointly owned. We have wills and trusts that are designed to protect assets for passage to our respective children.
My kids are getting my money, though I suspect it will filter down to the grands. I suspect most of the grand-kids won’t need the money either, still, there’s always that one kid…. 😁
I think the most surprising thing for my father-in-law was the fact his kids didn’t want his money. But discovering the fact let him really consider the alternative with the grandkids.
This is a great idea for your FIL. I plan a nice inheritance for our two children. One would probably be ok without it, but the other one will need it.
We have a special needs grandchild who is now 24. I am considering a special needs trust for her. Not sure about the other two grandchildren. One is a recent college grad who has started her own business and other one will graduate in the Spring from South Carolina with a marketing degree. We have contributed to their college tuition. They no doubt could benefit from an inheritance or perhaps sizable gifts now. I may defer those decisions to my daughter.
We gave each child $15k last year and I will likely do the same this year. We put no conditions on the money but encourage them to save some and spend it wisely. They are both in their 50s and the money now can be very helpful to them.
In certain situations, life insurance can be useful in funding a special needs trust. (This may be a better option for a younger parent)
Mark,
As I have written before when we inherited money from my parents we did something similar. My parents passed within months of each other and as a result we inherited money in September. That Christmas we gave each of our two children a significant amount as a final Christmas present from my parents. One child used the money for a down payment on a house just as COVID hit and has seen his property value nearly double. The other child was able to pay off her school loans and thus increase her retirement contributions by that amount annually.
David. That’s a great outcome, possibly as best as could be imagined.
Definitely makes sense given generational factors. I think most of Gen X probably hope to be at or near retirement when the last parent passes and it is the youngest generation that probably benefits most from a boost.
Possible care costs probably prevent unfettered lifetime giving for most.
Having an inheritance as a retirement plan always seemed pretty hopeful planning for me but I’ve no doubt there will be many who still need it. So in the end it will be highly family specific.
I think this is a good idea if you can do it. My spouse’s dad and stepmom gave a few thousand dollars when the dad inherited. We just added it to our emergency fund. When they turned 80, they started giving us a similar amount yearly and we used some of it to pay off our house. We hope to do the same for our children in future years, but we are newer retirees. We are not expecting any inheritance from our parents b/c of end of life care costs. Chris
This is certainly something to consider. I think this comes down to not taking an all or nothing approach and letting the inheritance do the most good. Obviously all ‘good ideas’ will come with its downsides such as will there be more grandchildren, what if some are more financially secure than others and then what if some are misbehaving. Goodnight though.
There’s certainly the chance of misbehaving grandkids. The thing that comes to mind: receiving an inheritance from their grandfather will let us parents observe how they handle the windfall… might give us an idea how they will react to the main inheritance from their parents down the road.
We think about it quite a bit, but with 11 grandchildren from ages 10 to 21, it’s a bit complicated. Our children are all in their 50s, all with relatively young children and facing college costs. None with pensions. Two have faced uncontrollable financial hardships over the years.
At least two and maybe three are going to need some inheritance in the future to be able to retire.
In the meantime we are doing our best to keep funding college plans monthly for all the grandchildren. We also give a portion of annual required distributions from retirement funds to each of our children.
Yeah, I think your situation is too complex. I suspect that’s the case for most.