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Inheritance Insights For Investors: How Much Is Too Much?

5 November 2015 in Investing Insights

Do you dream about receiving a large inheritance someday and never having to work again? It’s unlikely you’ll receive enough money to retire early since the average American inheritance is $177,000.1 But, there’s a decent chance you could inherit something or have assets you want to pass down.

According to a study by the Center on Wealth and Philanthropy at Boston College, nearly 94 million American estates could transfer approximately $59 trillion between 2007 and 2061.2 That’s a lot of assets changing hands and many people aren’t prepared.

Inheritance can be quite a touchy subject even if you’re close to your family. Try not to let fears of awkward conversations prevent you from preparing and communicating, however. Proper planning can save money on taxes. And talking things through can avoid painful misunderstandings.

Whether you’re trying to gain more clarity on your parents’ distribution thought process or preparing how to dole out your own wealth, added awareness can help. Let’s examine how wealthy families are approaching inheritance.

Who Comes First?

Merrill Lynch Private Banking and Investment Group surveyed 206 high-net-worth individuals last year about their asset distribution plans. The participants were all aged 21 and older with one or more children and $5 million or greater in assets. Here are some interesting finds.3

An overwhelming 91 percent of participants placed their family as the first priority when distributing wealth. Giving to friends and donating to philanthropic interests contributed to the other nine percent.

What else besides family influences people’s decision making process regarding inheritance? Personal values, fairness and minimizing estate taxes rank high on the list.


Source: Merrill Lynch Private Banking and Investment Group

The factors that people consider when determining who and how much to give can naturally change over time. However, research shows that many people aren’t proactive or prepared.

Eighteen percent of participants say they need to rethink their allotment. And 20 percent have yet to document their distribution percentages or have put off thinking about it at all.

Timing And Tax Concerns

Deciding how to distribute one’s wealth is a very personal decision. But one aspect most people agree on is the importance of minimizing estate taxes. When you choose to distribute your assets can have a significant impact on how much the government collects in taxes. Generally, giving while you are still alive is more tax advantageous than waiting until your death.

Let’s take a look with an example. If a couple has already used up their lifetime gift-tax exemption of $10.86 million, choosing to give an additional $1 million during their lifetime versus after they pass could save over 11 percent in taxes.


What’s interesting is that despite the tax savings potential, many wealthy individuals don’t plan to give away their assets until after their death. Forty-two percent of participants with a net worth over $10 million said they plan to distribute the vast majority of their wealth when they pass away. Perhaps minimizing confrontation and avoiding disappointment supersede their desire to save on taxes.

How Much Inheritance Is Too Much?

It’s natural for parents to worry that giving too much money to their heirs could cause them to become entitled and lazy. Receiving sudden wealth at a young age can be detrimental to one’s desire to achieve his or her full potential. For example, immature recipients could fall into reckless spending habits and lose all motivation to advance their careers and succeed on their own.

How do you determine how much inheritance is too much for one individual to receive? Some people believe that if a sum is large enough to enable a recipient to live a perpetual life of luxury, you’re giving too much. Others gauge their beneficiaries’ individual maturity levels and appreciation for wealth, which changes over time. Ultimately, deciding how much inheritance is too much is a personal choice unique to your family. The amount can vary greatly depending on tangible data points like how many dependents you have, where they live, how much they’ve achieved, and how well off they are financially. Subjective influences include the recipients’ levels of maturity, compassion and gratitude.

Curious what the rich perceive as too much inheritance? Merrill Lynch surveyed wealthy families with estates worth $100 million and found that on average, $63 million was perceived to be too much inheritance for one child and $26 million was too little. The responses fell across the entire range from $0 to $100 million, confirming that there is no perfect answer even for the rich and everyone’s situation is different.4

Suggestions To Consider When Preparing An Inheritance

Don’t Run Away From Difficult Conversations. Why does talking about inheritance make so many people uncomfortable? Here are several reasons why:

• Uncomfortable and anxious feelings about death.
• Worries about disrupting family accord and unity.
• Spousal disagreements on how and when to distribute assets.
• Lack of clarity on one’s giving purposes.
• Feeling overwhelmed and emotional.
• Unsure of how to communicate one’s intentions.
• Fear and procrastination.

Making excuses and trying to avoid estate planning is neither in your best interests nor your heirs’. Sitting down and having a conversation about how much you plan to distribute to your beneficiaries and when is a starting point. It’s important to talk about your values and the purposes of your gifts too. Otherwise, your good intentions could be perceived quite differently than you expect.

Run an experiment. If you’re worried about how a recipient would handle a large sum of money, run an experiment first. Consider gifting him or her a smaller amount of money and observing their response. You can take into consideration the 2015 gift tax exclusion limit of $14,000 per person when deciding how much to give in your experiment.5 Perhaps you will be inspired to increase their future share if they are incredibly grateful and use the money to pay off debt.

Utilize incentives. You can be as creative as your imagination when it comes to setting incentive rules on assets held in a trust. For example, you could set restrictions that only release funds to a recipient upon completion of certain events such as reaching a specific age, getting a college degree, or having a child.

Give indirectly. Instead of handing out large sums of money to a recipient and hoping they use it wisely, retain control through indirect giving. For example, you could help pay off your child’s student loans by depositing funds at their financial institution on their behalf.

Start a private foundation. Another way to distribute your wealth is by forming a non-profit family foundation or charity. You can appoint beneficiaries as co-directors, empowering them to decide which charitable organizations receive funds. Teaching them the rewards of helping others could have long-lasting positive results, increase their appreciation for money and instill your values in philanthropy.

Keep On Growing Your Wealth

Whether you’re trying to decide how to distribute your wealth or wondering what you might be receiving in inheritance, remember there’s no right or wrong way to allocate your assets.

Motif Investing is an innovative trading platform designed to help you invest for your future and your heirs’. Sign up for a free account and get started today.

Motif Investing does not provide tax, legal, or estate planning information.

1 Ellis, Blake, “Average American inheritance: $177,000,” CNN Money, December 13, 2013.
2 McMahon, Madeline, Margaret Collins, “Rich Parents Agree: $63 Million Is Too Much Inheritance,” Bloomberg Business, April 30, 2015.
3 Allred, Stacy, Michael Liersch, “How Much Should I Give To My Family? On The Risks And Rewards Of Giving,“ Merrill Lynch Private Banking and Investment Group, 2015.
4 McMahon, Madeline, Margaret Collins, “Rich Parents Agree: $63 Million Is Too Much Inheritance,” Bloomberg Business, April 30, 2015.
5 IRS, “Frequently Asked Questions On Gift Taxes,” Internal Revenue Service, 2015.

  1. Colleen
    8 Nov at 11:39 pm

    Gosh I wish I was getting an inheritance but I highly doubt it. My parents have never been good with money. But at least that has motivated me to save, save, save!

  2. Brian
    17 Nov at 5:08 pm

    Man I want an inheritance! I read Auzzie’s get the most inheritance by country.