It’s not a lot, as the data shows. It doesn’t go as far as people think…
A survey in the United Kingdom revealed a disconnect between inheritance expectations and inheritance reality:
Millennials have hugely unrealistic expectations about when and how much they will inherit, according to new research.
According to the investment management firm Charles Stanley, millennials expected to be left an average £129,380 ($168,450) — but official statistics showed that the average inheritance in the U.K. is currently £48,000, while the median inheritance is £11,000.
Millennials are people are born between 1981 and 1996.
The study revealed another disconnect between when the children expect to receive their inheritance and when the inheritance is actually distributed:
While the average millennial expected to receive their inheritance at the age of 50, one in seven expected to inherit money before the age of 35. But according to data from the U.K.’s Office for National Statistics, peak inheritance age is currently between 55 and 64, while researchers found the average inheritance age for today’s millennials was likely to be 61.
The numbers in the United States aren’t too different. Data on the average size of an inheritance is drastically skewed because the wealthiest Americans receive so much more in their inheritance than the typical American does. This is why looking at the median value of an inheritance is more illuminating, which means 50 percent of the population receives more, and 50 percent receives less:
Looking at what it called a ‘more accurate assessment of the central tendency, or typical inheritance,’ United Income found that the median is $55,000, once adjusted for inflation, an increase of $15,000 over the same 30 year period.
‘Most inheritances are going to older adults who have little in the way of retirement savings,’ said Fellowes, a former Brookings Institution scholar. ‘People receiving inheritances are pretty middle class’.
Surprisingly, the article reports that just nine percent of estates included a house or property of any kind.
One reason for this could be that some parents take out reverse mortgages instead of leaving their house to their children. A reverse mortgage is an option for a person aged 62 or older. Reverse mortgages convert home equity into cash to help cover expenses:
You can use reverse mortgage proceeds however you like. They’re often earmarked for expenses such as:
Helping children with college
Buying another home that might better meet your needs as you age
Reverse mortgages peaked during the Great Recession years. There have been over 50,000 initiated a year since about 2003:
A reverse mortgage is a loan. If parents take out a reverse mortgage without telling their children, the children will be surprised with a debt to repay:
If one spouse has died but the surviving spouse is listed as a borrower on the reverse mortgage, he or she can continue to live in the home, and the terms of the loan do not change. At the death of the last borrower, though, adult children and other nonspouse heirs must pay off the loan. They can keep the property, sell the property or turn the keys over to the lender—and their decision is “usually driven by whether there’s equity left in the property,” says Joseph DeMarkey, a principal member of Reverse Mortgage Funding.
The children may simply decide to hand the property over to the lender instead of repaying the loan, which is most likely what the lender is hoping for because they get to buy a house at a significant discount. The parents will have effectively disinherited their children.
Another reason an inheritance may be so small, or may not go as far as imagined, is because it is so expensive to pay other people to care for the elderly and infirm:
“One of the most likely reasons why you might not receive an inheritance is because of end-of-life health care expenses,” said Linda P. Jones, a self-made millionaire and host of the Be Wealthy and Smart podcast. Your parents could live a long time in a nursing home or require round-the-clock home health care, which can be very expensive, she pointed out.
Genworth’s Cost of Care Survey for 2017 shows that the national average cost of a private room in a nursing home was $97,455 per year. Hiring a home health aide for 44 hours per week year-round costs an average of $49,192.1 A year of chemotherapy in a hospital outpatient department costs an average of $102,395, and three months of radiation therapy cost an average of $35,761, according to a 2015 analysis by DrugWatch.com, a patient advocacy website.2 Another study found that in the last five years of life, the costs of a person with dementia, on average, total more than $287,000 (in 2010 dollars).3
Even if parents do not burn through their savings on end-of-life care, they might spend most of their money on living expenses and checking items off their bucket list during retirement. (Calculator: How long will retirement savings last?)
Even in the best cases, the amount of wealth normally left behind by most parents to children is meager. The money likely will not solve many financial problems the children could be having. However, it could be enough to pay off some debt.
That’s why something is better than nothing, and nothing is better than a debt.
If asked for advice on retirement strategies, deacons should usually not recommend reverse mortgages. If there are living children involved, or even grandchildren, the parents and the children need to come up with a plan to keep the house in the family. It can be used as a rental property to generate monthly income for the children after the parents have died.
Another way to increase the size of the inheritance is for children to take care of their parents in their old age instead of sending them into a nursing home or hiring a nurse to stop in several days a week. It is expensive to pay other people to take care of your parents.
This is the Biblical way. Children have a moral obligation to care for their parents (1 Timothy 5:4-8). Deacons should remind their members of this. Only with the rise of the modern welfare state have hospice care and nursing homes become so popular. For thousands of years, parents have moved in with their children when they get old, or vice versa. Once the welfare state collapses, we will return to this arrangement. It is better for families to plan for this now.
Lastly, parents should discuss their inheritance and finances with their children before they die. It is taboo today for parents to talk about their finances with their children. Biblically, this is outrageous. In the Old Testament, children knew exactly how much they would receive because the oldest eligible child received a double portion for taking care of his parents and the family farm. In the New Testament, the principle of proportionality still governs inheritance distributions. More should be allocated to the child who takes on more responsibility than his siblings to care for their parents. It should not be a surprise. The details should be discussed and arranged while the parents are still cognizant.
This will also help reduce the fighting that occurs between siblings over who gets what. It will bring everyone to terms up front. If one sibling decides they want a greater portion, then they can agree to take on more responsibility to share the burden of caring for their parents. Greater wealth should come with greater responsibility.
Children should not be surprised when their parents die, and they certainly shouldn’t be surprised with a hidden debt they must pay off on their parents’ behalf.