Do you secretly count the days until dear, generous Aunt Mabel departs this world for greener pastures, confident that you, her favorite nephew/neice, will be remembered fondly in her will?
Expecting an inheritance can make an otherwise rational person swoon with giddy excitement. You may be salivating over the prospect of an instant college fund, a lush retirement, or a plain-ole' giant pile of disposable cash. You may even consider it as your "financial plan."
But don't count your inheritance before you have it. OK, that's not quite as catchy as the timeworn adage, "Don't count your chickens before they hatch," but you just can't trust eggs with a trust fund.
Even if you've had explicit conversations with your relatives about the amount of money you can expect to inherit, it doesn't pay to rely on that money to fulfill your lifetime goals. Let's examine a few obstacles that could get in the way:
Timing. Unless you have a red telephone that's linked to the great beyond, you can't be sure when an inheritance will come your way. If you're counting on Grandma's bequest to pay your toddler's college bills, what will do you if Grandma's still here to attend the graduation ceremony? Resist the urge to earmark any known inheritance for a time-sensitive goal, even if it's one in the distant future. You can't be sure the money will be there when you need it.
Volatility. While we're on the subject of timing, let's make a note of market volatility. As a Foolish investor, you probably don't watch the stock market's daily roller coaster. You might start prudently selling stock investments long before you need to spend your savings. But Uncle Mort -- thinking to capitalize on the real estate boom -- invests your inheritance in mortgage companies like Countrywide Financial (NYSE:CFC), Impac Mortgage Holdings (NYSE:IMH), and Accredited Home Lenders (NASDAQ:LEND). The bottom falls out, President Bush starts talking bailout, and dear Uncle Mort unexpectedly kicks the bucket. Suddenly you start feeling seasick -- you can't retire early after all.
Restrictions. Some wills come with more loopholes and restrictions than an airline's miles redemption program. Or family elders may use their wills to keep controlling their money from the afterworld. The money you hoped to spend on beachfront property may be available only for educating your children. The extra cash you had hoped would pad your retirement fund may be accessible only for health expenses. Maybe your penny-pinching grandfather will release his bequest after you've conquered all your credit card bills. These qualifications may put a damper on your plans.
Taxes. If you're expecting a serious pile of money, you can probably assume that Uncle Sam wants his share. Right now, however, you can't be sure of the size of that share. Estate tax laws, which have been steadily decreasing the amount of an inheritance subject to tax, expire at the end of this decade. If the laws are left as is, that will cause a spike in the number of people who owe the IRS. Lawmakers have promised to get around to this issue eventually, but they do have a tendency to procrastinate. Who knows when they'll get around to settling the issue.
Old age. Medical advances mean we live longer, and that can mean expensive care. Many who had planned to leave a tidy nest egg behind end up spending that sum on nursing care or other medical costs.
Human nature. Sure, you've heard Grandpa say a million times that he's reusing his tea bags so he can leave his grandsons a little something. Then one day, Grandpa comes home from his weekly bingo game with stars in his eyes for the fetching lady volunteer at the veterans' hall. Next thing you know, they run away to Bermuda and get married. You can't predict the twists and turns in life that may divert your expected inheritance to someone else.
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