Should You Accept an Early Inheritance? What to Consider
In his book Die With Zero, one of the topics Bill Perkins explores is the idea of giving early inheritance. As he notes, giving your children funds when they’re in their 20s or 30s may make more sense than making them wait until their in their 50s or 60s. After all, during those youthful years, they may want the money to buy a house, allow compound interest to work its magic, or just enjoy experiences they might not be able to have otherwise.
Of all the interesting perspectives that Perkins points out in the book, this concept was the one that really stuck with me — to the point where I’ve talked it up to several people since. However, while I’m largely a fan of this idea, I understand that it’s not right for everyone. Furthermore, even if someone is willing to offer an early inheritance to their loved ones, that doesn’t mean that those on the receiving end should always feel compelled to accept.
So, if offered, should you take an early inheritance? Let’s look at a few questions I think you should consider first.
4 Questions to Consider Before Accepting an Early Inheritance
Can you trust yourself?
This is a huge one. How many times have we read about people who win the lottery and ruin their lives as a result? Sure there are plenty of reasons for this phenomenon — but an inability to properly manage their newfound fortune is often at the core. And while your inheritance might not be as lucrative as a lottery jackpot, some similar concerns may apply.
In my opinion, the point of taking an early inheritance should be to enrich your life and better set you up for future success. So, if you’re a known splurger and fear that you’ll just blow through the money, it’s better to simply decline the offer rather than run amuck. Instead, perhaps you can try working on budgetary restraint first and then seeing if you might be able to accept the money once you’ve gained greater control of your spending ways.
How would you use it?
Do you have a plan for what you would do with a sudden windfall? Seeing as that’s essentially what an early inheritance would be, it’s an undoubtedly good idea to figure out how you would allocate the money before it comes into your possession.
For some, the answer may be obvious as they might be looking to buy a home, send a child to college, or jumpstart their retirement investment. But, for others, their financial goals may be less defined. The good news is that, even for them, there may still be reasons why an early inheritance may make sense. For example, with interest rates at multi-year highs (as of August 2023, at least), just putting your money in a high-yield savings account could mean you’re suddenly earning hundreds of dollars in interest just for parking your inherited funds.
While you probably don’t need to have a plan for every dollar you plan on receiving, having a general idea of what you want to do with your proposed early inheritance will help make sure it’s put to its best use — or non-use.
Are there strings attached?
A big difference between an early inheritance and a traditional one (for lack of a better, non-morbid phrase) is that, with the former, the person giving you the money is still alive. In turn, they may have a thing or two to say about how you utilize it. While this may not necessarily be a bad thing, it could lead to strife within the family.
Because of this, before accepting any inheritance, it’s probably a good idea to find out if there are any strings attached. If there are, are they ones you can live with? Again, being honest with yourself about these constraints is key, as failure to live up to your end of the bargain could cause trouble among your loved ones. In other words, always know what you’re getting yourself into.
Can your loved one truly afford it?
Finally, while I think that the concept of early inheritance could be truly great for all involved, there are instances where the person offering the payout may not actually be in a place to give it. While a lump sum of money may seem large at a given moment, when you consider that this nest egg may need to last your loved one years or even decades, depending on how much money they have, it may be better to play it safe.
Of course, no one ever said that you need to either do an early inheritance or a traditional one — they’re not mutually exclusive. If there’s a concern about making funds last, a hybrid approach is always an option. Perhaps a few thousand could still make a major impact in a young person’s life now, while the rest can wait for later when things are more, shall we say, final. Honestly, this approach may make the most sense for many people.
As odd as the idea of an early (or “hybrid”) inheritance may sound to some, when you think about it, there could be plenty of benefits. But, admittedly, there could also be some pitfalls to such a plan. Therefore, when considering whether an early inheritance is right for your family, you’ll want to discuss each of these items. In fact, above all, communication on the matter is what’s most important as it will lead to a decision that’s best for everyone.