Many parents like the idea of leaving their children an inheritance, but they may wonder whether doing so is a good idea. Here’s a look at whether leaving an inheritance is required, the pros and cons of an inheritance, as well as whether leaving an inheritance to children is potentially a good move.
Do You Have to Leave an Inheritance to Your Children?
Legally, parents aren’t required to leave their children an inheritance. For parents with only adult children, the focus should undeniably be on living comfortably, not leaving money behind for their kids. That way, parents get to enjoy their lives and ensure their needs are met.
For parents with minor children, many would like to make sure that their kids’ needs are covered at least until they reach adulthood (or potentially longer if a child has a disability). That ensures any remaining parent isn’t overburdened by being the sole income source for the family and can decrease the odds that the children will need to adopt a lower standard of living as they grow up.
However, an inheritance of any type is entirely optional. If you consider it a priority, then you can certainly set up your financial life to make one happen. However, if doing so would cause you undue financial hardship, or you don’t think doing it is necessary – regardless of whether it’s potentially affordable – not giving them an inheritance is something you can do.
Pros and Cons of an Inheritance
Pro: Financially Provide for Your Children
Generally, the biggest reason to provide an inheritance to your children is to give them some financial security. This could be particularly important for families with young kids, school-age children, or even college-age young adults who aren’t yet old enough to handle all of the monetary side of life alone. Similarly, if a child has a disability that highly limits their ability to earn an income, an inheritance could provide financial security.
Con: Stymying Financial Independence
In some cases, a sizeable inheritance may stymy some children as they journey toward handling their own financial lives. For example, it could cause a failure to launch, leading a kid to move toward adulthood without any plan for managing their long-term monetary needs. Depending on how long the inheritance lasts, the child could then find themselves ill-equipped to take care of themselves once the money runs out.
Whether this is an issue that may or may not be a concern depends on the children’s ages, their general demeanor, the size of the inheritance, and other factors. However, it’s worth factoring in when deciding whether leaving an inheritance is wise.
Pro: Demonstrating Your Love
Many people consider the ability to leave an inheritance as a demonstration of their love and caring for their children. In this situation, the benefit is primarily emotional for the parent leaving the inheritance. Essentially, it makes them feel like they’re able to care for their children after they pass away, and that can provide some peace of mind.
Children may also deem an inheritance as a demonstration of their parent’s love for them. It’s seen as a sign that a parent cared enough to not just take care of them as they grew up but also provide support after the parent’s passing.
Con: Supporting Undesirable Behavior
Most inheritances are received as windfalls, and for children with certain undesirable habits, that could be problematic. For example, a child with a gambling, drug, shopping, or other kind of addiction that leads to potentially high amounts of spending may use the inheritance to support their habit.
At times, children may simply handle the inheritance irresponsibly, even if they don’t have an addiction. This isn’t unlikely in essentially all cases, but the chance is particularly high if a kid isn’t overly financially literate or otherwise doesn’t have a tendency toward responsible financial decisions. In those situations, the kid may overestimate how far the inheritance would go, causing them to spend it much more rapidly than a parent may expect.
Pro: Assisting with Challenging Goals
There are situations where an inheritance isn’t necessary to ensure the financial security of one’s children, but it could serve as a path toward achieving a more challenging goal. For example, it could allow a child to earn a new degree or more professional credentials that would otherwise be out of reach. Similarly, it could make homeownership or starting a business a possibility.
Con: Limiting Your Spending
In order to leave an inheritance, a parent has to spend less than they’ve managed to save. As a result, it could mean living on a restrictive budget when it isn’t technically necessary, as the parent technically has the funds available to live more comfortably.
Essentially, it can mean a parent is sacrificing their quality of life in hopes of providing their children with something better. While some parents may be okay with that choice, others may find it oppressive or that the decision causes them to have to struggle. In the latter cases, that could cause a parent to resent their children for a decision the parent made, which is never ideal.
Should You Leave an Inheritance to Your Children?
Ultimately, whether you leave your children an inheritance is a personal decision. As mentioned above, an inheritance does help your kids handle their financial burdens, which can be beneficial. Plus, many consider an inheritance a sign of your love for your children, and it’s a demonstration that your finances were in order enough to leave something behind for your family.
However, there are times when leaving an inheritance could be problematic. As a result, choosing not to provide one is an option. Just make sure that, no matter which approach you use, you have a formal estate plan outlining your wishes clearly. That way, your assets go where you want.
Do you think that leaving an inheritance to your children is a good idea? Can you think of any other pros and cons of an inheritance parents may want to consider? Share your thoughts in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is a former AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.