Member Sign In

Don't Make This Financial Move Until You're on Your Deathbed

Talking about money isn’t most people’s idea of a good time. Talking about death? That’s even more of a buzzkill. 

But when it comes to inheritance plans, some people — especially parents — suddenly become a Chatty Cathy.

And who can blame them? These folks are proud of what they’ve achieved and are excited to leave a legacy for the people they care about. And since they won’t be around to see the smiling faces for themselves, they end up telling their loved ones to expect these generous inheritances.

That’s where the trouble starts.

“The Hardest Conversations I Have to Have With Clients”

Wanting to leave someone an inheritance is a wonderfully generous thing, and the reasons why people tell their future heirs what to expect makes perfect sense.

For some, the ability to leave a substantial legacy is a testament to their life's work, a symbol of the success they've achieved. This sense of pride and achievement can drive them to disclose their plans early, hoping to instill a sense of gratitude and respect for the family legacy.

For others, telling their heirs about a future inheritance is about providing reassurance and security. They want their children and grandchildren to feel safe and supported, knowing that there will be financial resources available to them in the future. This can be especially important in families where financial stability has been a struggle. By sharing their intentions, they aim to alleviate any worries about the future, fostering a sense of peace and stability within the family.

But there are two potential downsides many retirees never consider when they start making specific promises to heirs.

The first is that circumstances change in retirement, and the retiree no longer has the ability to make good on their promise.

A friend of mine, who specializes in helping retirees manage their budgets throughout their golden years, says this is the hardest conversation he ever has with clients.

“Now they have to go back to their adult kids and say, ‘The good news is your mother and I are still going strong, but there’s not going to be any money left for you or the grandkids. Hope you’ve been saving all this time for Johnny’s college fund, because we’re not going to be able to pay for it like we initially thought.’”

In fact, the financial planners I talked to all say this happens far more often than most people think, and that it’s almost always due to unexpected financial curveballs that are difficult to predict. Unforeseen health issues, economic downturns, or other financial emergencies can drastically alter your financial situation. Many of the expenses for end-of-life care are enough to drain even a substantial nest egg all on their own.

And then there’s the problem of longevity. Modern medicine and improved living conditions mean people are living longer than ever. While it’s wonderful to enjoy more years with your loved ones, it also means you might outlive your financial projections if you planned for a comfortable retirement that got you to 85 and you’re still thriving at 92.

And if you’ve promised a large inheritance to your children or grandchildren, you might find yourself needing to have a tough conversation about reducing or canceling that inheritance. By keeping your plans to yourself, you can avoid setting up unrealistic expectations that might lead to disappointment.

But disappointment is far from the worst potential outcome. If your heirs have started their own financial planning based on the assumption that their inheritance is guaranteed, it can actually hurt their long-term security.

In many cases, the decision to disclose inheritance plans early is a well-intentioned but misguided attempt to aid in their heirs' financial planning. They believe that by revealing the details of the inheritance, they can help their loved ones make informed decisions about their own finances. They might think that knowing about the future windfall will allow their heirs to plan better, invest wisely, or take certain financial risks they otherwise wouldn't consider.

Unfortunately, this approach can backfire. Big time.

Telling your heirs about their future inheritance can impact their financial choices in ways you might not foresee — like neglecting their own retirement contributions or taking on unnecessary investment risk — leading to a reliance on their future inheritance.

Then, if the anticipated inheritance doesn't materialize as expected due to unforeseen circumstances, the heirs could find themselves in a precarious financial situation, undermining the very security you, as benefactor, intended to provide.

Assuming a manageable 6% rate of return, someone who starts saving for retirement at age 20 can contribute only $4,500 each year and still reach $1 million by 65. But if they wait to start saving at 50 (because they just found out the sizable inheritance they were relying on isn’t coming), they’ll need to put away more than $40,000 every year to accomplish the same thing.

No one wants that to be the legacy they leave behind.

How to Discuss Inheritances While Ensuring the Legacy You Want

Ultimately, the desire to share inheritance plans ahead of time often comes from a place of love, pride, and a genuine wish to provide for the people we love most. However, it's important to balance these good intentions with the potential risks; no one wants their generous intentions to warp into something that ends up doing more harm than good.

By waiting until you’re on your deathbed to disclose the specifics of your inheritance plans, you can prevent a lot of unnecessary stress and potential financial pitfalls.

While it’s fine to reveal to your potential heirs that you hope to leave something behind for them, a good rule of thumb is to avoid too many specifics or guarantees. “If there’s money left over after I pass, I’ve made plans to split it evenly between you and your sister” is a very different commitment than “When your father and I have both shuffled off to the great pickleball court in the sky, you’ll be getting our home, which is currently valued at $750,000.”

As much as we hope things go according to plan, life is unpredictable, and your financial needs might change over time. By keeping your plans private, you retain the flexibility to adapt to whatever comes your way without the added stress of managing your heirs’ expectations. It's easier to surprise them with an unexpected windfall than to explain why the money they counted on has vanished.

While keeping the specifics of your inheritance plans under wraps, it’s still important to have open discussions about financial planning. You can help your children and grandchildren along the road of financial independence by encouraging them to save and invest wisely, rather than relying on a potential inheritance. This way, they are prepared for their future, regardless of any promised funds.

Remember, the goal is to support your loved ones in becoming financially independent and secure. By maintaining a level of discretion about your inheritance plans, you can help them achieve this goal without setting up unrealistic expectations. So next time you consider sharing your will, consider the benefits of keeping it close to the chest until the very end.