058 PFFAP-PYP-23-1018-Wrong Way to Think About Inheritance
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Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need.
Nate: Hello, physician moms and dads. I am Nate Reneke, certified financial planner and primary advisor here at Physician Family Financial Advisors. And
Ben: I am Ben Utley, certified financial planner and service team leader here at Physician Family.
Nate: Today we are going to talk about the wrong way to think about your physician inheritance.
So, Ben, let's talk, let's start by talking about all the possible ways you could consider the, your physician inheritance. I think that should help us get to the bottom of the wrong way to, to actually consider inheritance. So, [00:01:00] uh, one of the ways you could do this, and I would consider this actually doing something about your inheritance, like a way to actually consider it would be just to ignore it.
Hmm. So, uh, I, I don't think. Um, you would expect that, but let's talk about some of the reasons why it would be a good idea to ignore your
Ben: inheritance. So let me see if I got this squared up first. So I'm, I'm a physician, uh, I know there's an inheritance out there and I'm just being like, nope, nope. I was, you know, no parents in my life, no money in my parents life, just totally ignoring
Nate: it.
Totally ignore it. I think there are good reasons to do that. And that doesn't mean that. Give me one. Yeah. So, uh, one reason that I've seen in the past is that maybe this physician doesn't trust [00:02:00] their parents will actually deliver the inheritance to them. That doesn't necessarily mean they don't trust their parents, but it's.
The way the inheritance is set up or the way that their parents act with their money, uh, might give them reason to pause, uh, you know, before expecting the money will actually make it into their pockets at some point.
Ben: Hmm. Hmm. So this is, uh, maybe like parents who don't handle money well?
Nate: Uh, that could be.
That could be. You know, things change as life goes on. I know that we've experienced, uh, remarried. parents who have married somebody that is not someone that the families we grew up with. Have you seen that before?
Ben: I like to call it the acquisitive new spouse. Yes. They're married and they're kind of like Okay.
Let's decorate things or let's go on lavish trips. Let's, let's live it up and not that that's a bad thing, but it could be, [00:03:00] uh, could be impactful to a future inheritance such that it might cause you to just like turn your head and completely ignore it.
Nate: Right. Right. Yeah. Not definitely don't want to count on it at that point.
Right. Um, you know, another, another thing that I actually saw this month was an inheritance. Well, when you don't talk about your inheritance a lot with you, with your parents, which most people don't, but when you don't talk about it a lot, you kind of have to make some assumptions about the way your parents live and whether or not that means you have a reasonable inheritance.
Um, so, uh, there was a. I believe it was a doctor in Connecticut made great money, so they didn't like to think about their inheritance all that much. But they eventually got into a conversation with his dad about their investments and come to find out that they live a pretty good life. So he assumed there was an inheritance, but his dad had used [00:04:00] most of his cash or most of his investments to buy annuities.
Mm hmm. So mostly annuities that die
Ben: with you. Yeah, so the good news about an annuity is you get cash until you die. The bad news about an annuity is when you die, there's nothing left. So there's literally nothing to inherit. Right. We talked about annuities before. It's insurance product, so it's a dirty word.
But yeah, that would kind of spell the the end of an inheritance. There'd be literally nothing there.
Nate: Right. Yeah. Yeah. So, there, there, there was something for this family, and I think that's a common theme. There will usually be something, but it was, it came in the form of splitting whatever their, the family home value was with the rest of the siblings.
So, that's,
Ben: that's, that's the other reason to ignore it, right? Like, you got nine brothers and sisters. Mm hmm. [00:05:00] I mean, even if there's five million dollars there. You're still looking at, you know, a half mil, which is a lot of money, but when you're in your, you know, your late fifties or sixties, usually when physician parents pass, um, that's not going to be a game changer for you,
Nate: right?
Yeah, certainly not something you want to plan on. Um, especially early on, but yeah.
Ben: And that assumes everything's civil and there's no fights between the siblings.
Nate: Exactly. Yeah. And we'll get that. That's another reason. People choose to ignore it for good reason. I've got one. I've got one.
Ben: Yeah, go ahead. So, the carefully planned, but poorly planned estate.
So, um, I had one client where the parents took pains to put together the estate. There were, uh, houses in, you know, different countries. Uh, there were collections of things. There were, uh, you know, it was a multi million dollar estate. But the [00:06:00] person that they entrusted to run the state, the trustee, was, um, crooked.
And was spending the money. And it, uh, Long story short, it cost the client over a million dollars to boost that person out of the seat of spending down their inheritance. Like, never seen anything like that before, but, uh, weird things do happen. So, another reason you might, you might ignore or not plan on your inheritance.
Nate: Yeah, that's a... It's an interesting point because I think in my experience working with clients and my experience with, you know, even my parents, um, that generation, you know, people who are in their older, old age now, that generation pretty much chooses a financial guy and sticks with them forever. So if they chose the wrong one.
Yeah, your inheritance is kind of in trouble.
Ben: I guess you could say [00:07:00] what's funny in this case is they didn't even have a financial guy It was a friend That did this to them. Oh, yeah, they chose a friend as a trustee and it didn't work out. But yeah. Yeah Okay, we're weird. I have weird happens
Nate: It certainly does.
I have another interesting case that I came across recently Parents had Um, quite a big estate. I mean, like, um, Deca millionaires and they are just huge, hugely into giving their money away. So that's tons of donations. Yeah. And sure, sure it is. Um, but it, it, it was to the point where the, uh, physician. was just uncomfortable with, with planning on getting anything.
They assume they'll get something, but nothing that will change the trajectory of their
Ben: retirement. Nothing they could count on or plan on. [00:08:00] Right. Okay. Do we have one more horror story for this?
Nate: I do. Do you?
Ben: Uh, no, I'm, I'm, I'm fresh out of horror stories. You're like, okay, you're the horror story man today.
Nate: Yeah, they, I've, I've seen some bad ones, but at the end of the day, I just want to say it's not all bad. I mean, just like you said, it is there, right? And that's actually not the tone of the conversation that I have with people. They, they view this money as their parents and part of wanting to ignore it is just not wanting to view it as their own money, which we can get into that.
But, um, There there's another kind of thing at play here specifically for Physicians, which is that if your parents have seen you be a physician for 30 years or 20 years There's just this underlying feeling that maybe you don't need an inheritance. Yeah, so Estate plans can change You know, I, I've seen one recently that last minute sort of looked at the kids [00:09:00] and said, they're all doing well.
Let's just change this to giving all the money to nieces, nephews, grandchildren.
Ben: I've seen that where the, the parents, let's say that they have three children, the physicians, one of the children, the other two children maybe are not doing so well either because of natural causes or just because they're idiots.
And, uh, you know, the, the physician gets something, but they get just a little tiny bit, which I call that the success penalty. You know, you're, uh, as a successful penalty, a physician who worked hard and, uh, didn't go to all the frat parties and sat at home, busted your hump, you know, studying, uh, Ochem, uh, you know, you get less.
And I don't know if that's right or wrong. I think that's a real parenting question. Every parent gets to face that, that question themselves, but success penalty. Um, You know, uh, and then also there's the acquisitive brother and sister where they're slowly draining the estate Yeah. Yeah. Well, this is really [00:10:00] sanguine Stuff help me out here to cast me a line.
Give me a reason to yeah on the yeah
Nate: There's definitely good reasons to plan for it. And so that's the next way to consider this So I think there's a lot of good reasons just to ignore your inheritance Which like I said that it may sound bad, but most people They get it and it's not a huge deal to them.
They can still retire and send their kids to college But there are also really good reasons to plan to get something something that is not You know, I guess is big enough to actually make a difference like the whole thing. So yeah, exactly So a really good reason would be an estate plan That is solid.
It's kind of a buttoned up, good communications with your parents so that you actually can see what you're going to get. That's kind of the best case scenario because it's actually plannable. I mean, part of the reason to ignore it is you just don't know what you're [00:11:00] going to get. And in this case, you do know what you're going to get.
So, sometimes, uh, I find that physicians still don't want to plan on it even though they know what they're going to get. And I think that comes down to not wanting to think. about what needs to happen in order to get your inheritance. But, um, that, that's a really good reason to include something in your retirement plan is, is if you just have a lot of information and it's good information.
Ben: I've had, uh, two opportunities in 20 plus years of my career to work with both my client who is the would be inheritor and their parents. So, you know, today we serve over 200 physicians, and probably in my career I've served way more than that at a deep level. And that's a really rare thing, right? I mean, out of 200 or 300 situations, I've seen two where I get to see both sides, the delivering and the receiving side of the [00:12:00] inheritance.
When that happens, it's really sweet. I mean, if you can get your parents to come to the table with you, uh, with an estate planning attorney, then you have all kinds of opportunities because you can, you can save, uh, income taxes. You can save estate taxes. Um, it gives you the ability to, to see clearly about what might be coming.
And so, you know, there's that prevailing thought that people have, like, well, what if mom and dad need it? What if mom and dad spend it down to zero? Well, if mom and dad have, uh, long term care insurance. Or if they have, you know, five million plus dollars and their house is paid off, there's practically no way they're going to spend that down, you know, so you know, at the end of the day, there's gonna be some real money there and it might be a couple to 3 million.
And that is a game changer. So, um, Let's talk about circumstances where maybe it's not as, as, uh, as sweet as that, where, you know, you have both sides of the table, but where there's an eye to eye understanding between the parent and the child physician that money is [00:13:00] coming at some point. And we have some kind of idea about how much it is, you know, give or take a mil.
Um, let's talk about that scenario because that's, that's, to me, it looks like a scenario where a physician really should be considering the, the inheritance. What, what does that make possible in a physician's life and in their family's life and in the lives of their children?
Nate: Hmm. Yeah. So in this, in that situation, which I think what you're essentially saying is there's no good reason not to plan for it at that point.
Um, Um, this is money is a resource and you can trade resources, uh, with each other. So when I hear about money and I actually get this gut feeling that we're not balancing our resources well enough, what that actually means is that you're not balancing or you're not getting enough time with your family that you could.[00:14:00]
Because you're trading time for money as a physician, right? So, um, you know, when you do, when there's no good reason not to plan for getting something in your inheritance, uh, and you do plan for it, you get to make decisions now about your life and how you spend your time.
Ben: Hmm. So if I'm hearing you correctly, um, if I know that, You know, when I'm in my 60s, I'm going to get a couple mil.
That lets me do things differently than if I felt like I had to work to make that couple mil. Right. So let's say that I'm, I'm targeting retirement. I need. And a four and a half million dollars, uh, mom and dad are, are pretty sure to leave me a mil and a half based on, you know, their, their circumstances, what they communicated, the status of their health, the way their estate is built.
So there's maybe a mil and a half I'm going to get. So instead of saving a total [00:15:00] of four and a half mil, I get to save 3 million. If I get, if I get to save less, what does that make possible for my family and me?
Nate: Yeah, well, you could potentially work less. Um, and that doesn't always mean work halftime or something like that.
Like, um, working a lot less, but you could just take less call, work less overtime. You know, you don't have to, you don't have to pretend that you're desperate to build up your retirement accounts for freedom.
Ben: What if, what if I don't want to work less? I want to work the same amount, but maybe, um, instead of being in a for profit organization, it gives me a shot at academia, maybe.
Nate: That's a great, that's a great way to think about this. There's, there's a lot of flexibility and freedom that comes with, you know, getting a third of the way to retirement, like in your example.
Ben: Or, or maybe I stay for profit, [00:16:00] and I don't go into academia, and I still stay fully employed, um, I could see a situation where just knowing that there is an inheritance coming a little bit, a little bit like a safety net where when I was at work, I could kind of relax a little bit about work and know that work is kind of optional for me.
Like, I don't have to put up with a lot of garbage from administrators. I don't have to worry so much about that. I can just relax a little bit and kind of maybe be more present at work, which I would think would be kind of. Part and parcel of not, of not worrying about burnout, you know, that might, that might be right just, just to take the pressure off, you know, not even really to tip the scales in favor of, uh, you know, saving less, but just knowing that, Hey, I've, I've got this cause, you know, and, and I guess, um, along those lines, another way would, would be to know that maybe I could take more risk and of course that could be, um, in your investments, you could take more risk.
But, also, more risk in, in things in [00:17:00] life. You could make some decisions that, uh, that, that have an optimal outcome other than just money. Like, they could be, they could be decisions that really bring quality of life and happiness or opportunity for your children that, that don't have to do with just money.
Building net worth or filling up accounts,
Nate: right? Yeah, yeah, those are, those are really valuable ways to look at this rather than just a big pile of cash. The difference in your life. So let's talk a little bit about how you would actually plan for this. So imagine you have a plannable situation. Um, what are some of the ways that you have taken that?
Windfall that you're expecting and made a material difference in the way that Physicians can see their future retirement.
Ben: I was gonna ask you the same thing if you have you actually been in a Scenario where you've been able to do that kind of work with a physician. [00:18:00]
Nate: I have it The way that I look at this it because it you know, we're planners.
So I'm looking at it through the lens of a real You know, a hard copy of a plan that someone could put in their pocket and feel good about and a lot of times Physicians don't feel good about planning for all of it But when you have when we've set the stage like you've just said where you actually know what what money is there?
I see a lot of options for how to include it in your plan So one this is just real quick and dirty easy way to do this. You could just assume you're getting half Mm hmm Right. I mean, that's, it's not a real number. Like there's no statistics to say half, but that makes people comfortable with actually using
Ben: it.
It could be half of anything. I mean, if it's, if your folks have a, you know, let's say they have a 2 million state that they're, they're planning to pass to you and you have a sibling, right? So [00:19:00] uh, your half of that 2 million is 1 million, but if you're not certain that you're going to get it, you could just plan on getting a half mill.
Right? I mean, just literally pretend like, and this is kind of like striking the middle ground, right? So you're, you're kind of ignoring half of it. You're, you're planning on the half. There's a, uh, there's a middle path here. So that's what I hear you saying, right? Is that where we're going?
Nate: Uh, yes. I mean, there is a middle path, um, and that, that's another way to look at this, which is just the in between, in between planning the full boat and ignoring it altogether.
But no matter which way you go. whatever amount you get to put in there, um, you can play with that amount. So before, before we get into the kind of half measures here, um, uh, the way that you can actually use that half is goes like this in the planning process is I've seen this work a few times and it is actually been really helpful, which is you plan for a retirement.
Like imagine you're planning for [00:20:00] your retirement and you have all these goals. that you want to accomplish for your dream retirement. So that's spending enough without really worrying about it. Uh, health care, maybe a reasonable travel goal. But then maybe you waited a little bit longer to have children and because you're a physician, you're really Busy in your thirties and you have a couple of children that you need to pay for their weddings Or you want to buy a family lake house or ski house that you haven't been able to enjoy While you're working because you work so much
Ben: kind of a legacy.
Those
Nate: are those are really difficult to Achieve to for the average physician to just drop a million dollars on a ski house Mm hmm the day they retire But what you could do is say, this is sort of a dream. This is my dream retirement. But if you back that down to what you actually just need for retirement, sort of a baseline [00:21:00] boilerplate spend X dollars a month and health care, maybe a little travel, then whatever you get for an inheritance can determine the, I guess.
The square footage of your ski house or how nice your trips are. And that way you actually feel the security that I can get here on my own, but how much I actually spend on these sort of extra things will be determined by how much I get from mom and dad.
Ben: Oh, I got one. I got one. So, uh, one of the things that I've enjoyed throughout my adulthood, or parenthood, I should say, is taking my kids on vacation.
Um, we recently took our kids on vacation that was actually, uh, celebrating our anniversary, right? So we don't, we don't even leave them at home for anniversary trips. I know it's cray cray, but we've always had really good memories. And uh, so what would be really cool is if you were, uh, a retired physician and you wanted to be able to take the whole family on vacation.
So, [00:22:00] you know, and it doesn't have to be a lavish vacation, but imagine if you could not only pay for, you know, the cost of you and your spouse, but you could also take your children with you and maybe even their grandchildren. You could go someplace once a year, same place, different place, you know, have some kind of experience and really build those memories.
That can be a pretty high ticket thing, especially if you do it every year for, you know, a decade or two. Um, I actually know a family. These are just friends of friends, uh, where the patriarch takes the entire family and friends once or twice a year on international trips, and they have so much fun when they go.
And they've built so many memories. They've literally traveled around the world. So this is the patriarch and matriarch, you know, the grandparents, the, uh, both of the children, the children's spouses, and the grandchildren, and occasionally some friends. It's just this huge cavalcade of, you know, [00:23:00] 10 or 15 people going places and having experiences and sharing meals and laughing a lot and celebrating birthdays.
It's magic, and I don't know if that's going to be within the average physician's reach, but, you know, with, uh, I guess the best would be if, you know, Grandma and Grandpa realized that they have that kind of money, and they kind of instituted that, and that the family kept that going once they passed, kind of as a legacy family experience, you know, as opposed to like a legacy boathouse.
Um, they'll cut on the boathouse, love the boathouse. Another, another way to, to plan to continue to enjoy family.
Nate: Yes. Yes. So with the things that are sort of a bit out of your reach, don't, you know, I, I don't like the idea of killing yourself during your working years to try to achieve that because you won't get the memories on your way.
That's right. You know, you, if you can create a reasonable retirement and then Inheritance determines how many years you get to have those [00:24:00] great trips in retirement. It seems like a good, a good way to go about this. You know,
Ben: it's funny because I, as I hear you, it's like, I've always thought about financial planning as a way to balance current money with future money.
But what I just heard you say is, um, you know, when you, when you think about these inheritances and you possibly bring it in, it could be a way of balancing, uh, present joy. With future joy, kind of seeing joy as a resource. And what I think I just heard you say is that, you know, you don't want to push all your joy out to the future.
You want to have some joy now, because I mean, A, you might not make it out there and B, it makes life worth living.
Nate: Yeah, it gives you a longevity and just joy and happiness.
Ben: And you know, when you think about it, joy, kind of like, you know, everybody knows that when you invest earlier, you wind up with with more money, right?
Um, I think the same is true about joy. So uh, if you are able to travel earlier or do that, [00:25:00] that meaningful thing earlier with your kids, then you make memories, but you have those memories for the rest of your life as opposed to waiting 30 or 40 years to form those memories and then you have them for less time.
Wow. Mm hmm. Okay, folks, I want to let you know, we did not prep that. It's just like, that's on the spot in situ, uh, realization and discovery of how cool this really can be.
Nate: Yes. Yeah. Yeah. Joy compounds, too, is what you're saying, if you want to put it in play.
Ben: Yeah. Joy compounds, too. Yes. Joy brings returns.
Yeah. We can't guarantee those returns, of course, but joy does bring returns. Yeah.
Nate: So there isn't a, sort of, we, we, we touched on this, but we can go over it quickly since we're sort of already talked about it, but the, the in between version is. We sort of label this as sort of a safety net. So, go a little bit deeper into the things that you can do in life if you [00:26:00] have a backstop.
Like, what can you do at work? What can you do, um, with your investments? If you know there's something coming, um, but you're still planning to pay for your own retirement.
Ben: So, this scenario I would describe as not planning on inheritance and not, not planning on inheritance. Yeah. Right? So, it's, the inheritance is not in your plan.
It's, it's out of your plan, not in your plan, but it's, it's not out of your mind. Right? So, um, if it functions as a safety net, then maybe what you could do is you could make yourself like a bare bones retirement. It's, it's the one that doesn't have the lavish travel in it. It definitely still has health care in it.
Um, your plan is to spend a reasonable amount. Um, you know, not, not scraping by, but nothing lavish. You know, kind of on the lower end of the, of the annual amounts that we typically see. So that's like your, um, kind of your, your bare bones retirement. [00:27:00] And then you could kind of think of the inheritance as, uh, kind of a, A nice surprise, is the way that I put it.
Right. And, and that way, um... Of course, you know, mom and dad would have to pass that's that is, of course, sad. So I want to acknowledge that. But in the, in the wake of that, this would be, uh, kind of a cushion or a buffer or a safety net, or, uh, you could look at it as kind of a reward for having done the right things with your money.
There's all, all kinds of ways to consider it without actually putting it in your written, you know, brass tacks, analytical, got the numbers, financial plan.
Nate: So, in practice, I see that as maybe taking a job that has slightly less money but more balance. Yeah. I would say so. Yeah. Yeah. Uh, potentially using, uh, an inheritance as a, as more of a backstop rather than, A whole bunch of bonds, [00:28:00] you know, be a little bit more aggressive in your investments.
It
Ben: might be permission for a spouse to, uh, work part time, especially during those, those times when, you know, your, your kids are young from the time they're born until, you know, let's say school age or thereabout. Um, it might be, you know, if you have a child who's struggling. And it would be better for one of you to spend some time at home that could be, uh, part time.
It could be full time at home to be able to provide care and make sure that they're okay. Uh, you know, you're having your baseline, uh, retirement plan in place. Kind of, you can figure out if those things are, are possible and what it looks like. And knowing that, you know, that inheritance might be there, um, kind of softens the, softens the blow of realizing that you would have less at retirement.
As a result of those, those life decisions, right?
Nate: So you can ignore, you can plan like a heavy plan, [00:29:00] or you can go anywhere in between depending on your situation. But this is one of those things. It's really personal. That's right. Are
Ben: you, are you winding up for the take home here? Nate? Yes.
Nate: I got a, I got a good take home.
A good takeaway. What's the takeaway? So, the takeaway is, it's, it's, Planning for an inheritance is not about planning your parents death, and it's not about how much money you plan to get out of it. It's about how these thoughts influence the way you live your life today. Perfect. So
Ben: that's all for today, folks.
I think Nate has just led us into the perfect segue for the end. Remember, you're not just making a living, you're making a life.
Voicevoer: Thank you for listening to the Physician Family Financial Advisors podcast. Are you getting all the tax breaks you really deserve? To find out, get your copy of the Overtaxed Doctor's Retirement Investing Checklist, available at physicianfamily.
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