The Family Dollar: Should you bank on it?

In the ordinary course of our lives, most people in the upper half of the socio-economic spectrum will have an opportunity to touch a chunk of six figure, or seven figure, money. Whether it's a big tort settlement or a small lottery winning, I've seen beau coup families receive "sudden wealth." And it usually comes only once in a lifetime. Even though you don't play the lottery, and you'd never dream of suing someone, as a physician family, you too will likely see a large windfall in your lifetime. I'm talking about your inheritance.

After all, it takes a great deal of financial strength to put a kid through med school, and some of the physicians I've met have parents who themselves were doctors, or operated businesses and managed to accrue significant sums over the course of their lives.

Of course, nobody wants to talk about their inheritance. After all, your parents must die before you receive the bulk of it, and given the taboos surrounding both death and money, the subject is often too gruesome to tackle.

But quietly - even secretly - I've heard a few 40-something physician families admit that they're counting on "their" inheritance, as if it were a sure thing.

So you have to ask yourself, is it a good idea to bank on the family dollar? Most physicians don't dwell on the topic, so here are some thoughts for you to consider as you begin to ponder the idea:

  • The money may never come. Sure, everyone's going to die some day, including your parents. But not everyone dies with the same financial grace that befits kings and queens. In the last two estates I've helped clients settle, at least one child was intentionally or accidentally disinherited, receiving a tiny fraction of what was expected.
  • It may be less than what you expected. While estate taxes consume a smaller portion of estates than they did in the past, they may still take a sizeable bite none the less. And lets not forget income taxes. If you inherit an IRA, you're inheriting a tax liability, too. If the estate is contested, it may be tied up in the legal system for a while, where the attorney's fees take a toll.
  • There's usually a "catch." Most physicians seem to hail from larger families, which means brothers and sisters will be splitting the estate equally at best, or inequitably at worst. It is common for estate settlement proceedings to roil family ties, and the strife can last for years.

And after reading this, you might be saying to yourself, "I'm an only child, and I know there's a big pile of money there and my parents love me dearly and have promised to leave their hard-earned money to me." So let's run with that thought for a moment.

In theory, this is a slam dunk. In fact, you might expect someone in this situation to feel fortunate that - some day - they would receive an inheritance and "have enough not to have to worry about money any more" (as I've heard it said often in my office).

But in practical fact, observed in real time, an expected inheritance has an insidious effect on the way people handle money on a day-to-day basis. Knowing that "some day" they'll have enough, people (even hard working people like physicians) tend to spend more than they should, and save less than they would otherwise. It's almost like they're discounting or pre-spending their inheritance. And it seldom ends well.

In cases where I've actually gone so far as to include an inheritance in a client's written financial plan, the inherited money seldom if ever solves the problem of having to save diligently and prepare for the future. And in actual practice, inheritance proceeds are often only enough to allow a smart saver to retire earlier than expected (sometimes as many as five years earlier).

So here's the bottom line: Don't let your thoughts about other people's money in the future impair your actions with your family's money today.