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Preparing to Leave an Inheritance

Take time to plan and avoid unexpected consequences.

The ability to leave children, grandchildren or other family members a large inheritance provides a very rewarding feeling. Many people who are setting up inheritances—particularly large inheritances—find that this feeling becomes complicated by questions about whether the inheritance could have unexpected consequences. Taking time to contemplate the following issues can help you feel secure that the inheritance will help your family in the manner you intend.

In order to gain insight into the types of considerations that can benefit people preparing an inheritance, it is helpful to examine some recent research completed by Merrill Lynch’s Private Banking and Investment Group. The group analyzed the results of a recent survey that included 206 high-net-worth parents who had net investable assets of at least $5 million. The majority of these parents were planning on leaving most of their assets to family members.

Regardless of your own net worth, the concerns that these parents had are applicable to anyone leaving an inheritance of any size to family members. Everyone wants what is best for their family.

How can I gain confidence in the process?

The results of the study highlighted the fact that people leaving a large inheritance want to feel sure that they are doing the most good possible for their family members. They sought a way to assess the potential results of the inheritance and adjust their financial plans to create the biggest benefit.

The study found that parents gained the most confidence about the process when they sought the assistance of a financial advisor to help them form and map out a plan of wealth transfer strategies. These strategies included general guidelines for the inheritance. In certain cases, they also included ways to create accountability or restrictions, for added peace of mind.

How much should I leave?

The ability to leave an inheritance is truly a wonderful thing, but it typically doesn’t ease all concerns about your family members’ futures. Many of the study’s participants were worried that it might be possible to actually leave too much money. Even if you aren’t planning on leaving a large amount of wealth, this is a normal concern for parents who have spent their lives looking out for the best interests of their children and other dependents.

“When asked at what point an inheritance is considered too much, 46 percent responded ‘when the money creates a disincentive to achieve one’s full potential,’” reports Wendy Connett for Investopedia.

There clearly isn’t a specific math formula for determining what is “too much,” but you can trust in the knowledge you have of your family members. An inheritance shouldn’t completely change who they are and how they act, and you can therefore plan accordingly.

“Too often, people think only about dollar amounts, not impact, when deciding how much is too much to give,” states Michael Liersch, head of behavioral finance and goals-based development at Merrill Lynch Wealth Management. “There is no silver bullet answer or one-size-fits-all approach to gifting assets. The process of meaningful, intentional giving, whether to family, friends or philanthropy, should be highly personalized. It requires honesty, humility and a willingness to face this all-important topic head on.”

So, have a frank discussion with your family members about how they feel an inheritance would impact them and then talk to your financial advisor about wealth transfer strategies. After doing these things, you should be well on your way to having a good plan that you and your family members can feel confident about.