Patriarch/Matriarch Assets Earmarked for Next Generation Inheritance


Anna, a widow, is 68 and in good health. She has a sizable estate including liquid investments of roughly $7MM. Anna leads a modest lifestyle and has little debt so she expects the bulk of her estate will eventually pass to her two children.

When we met Anna, her portfolio was conservatively positioned, largely invested in high grade medium term bonds plus a small amount of REITs and individual equities. Her advisor counseled that there was no reason to take undue risk at this point. The small REIT and equity allocation served as a hedge against inflation. If she followed this advice she could live a comfortable lifestyle, provide a meaningful gift to her church, and leave a sizable inheritance for her children.

We arranged a follow up meeting and requested that Anna’s children join us. The existing plan was reviewed and, with permission from Anna, we explained to her children that if we maintained the existing investment plan and continued to earn roughly the rate of inflation they would each likely inherit the equivalent of $1MM-$3MM in value today. This appeared to be very good news to the children.

We then presented a possible alternative plan. Given Anna’s health, she could easily live many years to come. Earmark $3MM to remain conservatively invested. Dividend and interest payments could easily cover her annual living expenses indefinitely and she could access the principal should an unexpected need arise. Invest the remaining $4MM for long term growth, with permission from the children. The children were gainfully employed and had a fair amount of savings, more than enough for emergencies. Based on historical returns and current valuations, we would expect meaningful long term growth.

Before sharing a range of future values we explained that there were risks. If unusual circumstances required liquidating the investments in the short run, the value could be much less should we do so after a bad stock market correction. As unlikely as that might seem, such a need could arise and the result could be half of the cited amount.

Barring such a condition, the upside would likely be very substantial. Over any rolling 30 year period the worst the broad stock market has grown since WW2 is about 12X, implying $48MM. The average has been about 22X, generating $88MM.