Average Inheritance and Five Tips for Leaving One to an Heir
Will you be leaving the average inheritance for your heirs? Have you considered the best way to leave one? The guide below will help you use — and give — your money in an inheritance as wisely as possible.
For many, receiving an inheritance can seem like a dream come true. Giving an inheritance, on the other hand, can be a less-than-thrilling experience if not done carefully.
One study by Ameriprise Financial found that while 83 percent of people want to leave an inheritance, only 64 percent feel they are on track to do so. This is potentially due to the enormity of the task. There’s not only pressure of leaving an above-average inheritance for your heirs, but also the uncertainty of what you should leave for different people.
This guide will walk you through the average inheritance, tips for leaving one and how to know when it’s the right time to pass along your assets.
- The average inheritance in the U.S. between 2016 to 2019 was $46,200.
- Inheritance from parents with a college degree is over $10,000 greater than an inheritance from parents without a degree.
- Only inherited estates over $11,700,000 are subject to an estate tax, but inheritors may be responsible for paying a gift tax for anything over $15,000.
Average Inheritance in the U.S.
The average inheritance from parents, grandparents or other benefactors in the U.S. is roughly $46,200, also according to the Survey of Consumer Finances. The average for the most wealthy one percent reaches upwards of $719,000, while the average for the next nine percent experiences a steep decline at $174,200.
- Average inheritance: $46,200
- Average expected inheritance: $72,200
Aside from the average inheritance, data from the Federal Reserve also highlights key differences in the median inheritance among race and ethnic groups:
- Median inheritance among white families: $88,500
- Median inheritance among Black families: $85,800
- Median inheritance among Hispanic families: $52,200
Accumulated data from the Organisation for Economic Cooperation and Development shows that inherited wealth in the U.S. has accounted for roughly 50 to 60 percent of private wealth since the early 1900s.
Inheritance From Parents
According to the most recent data available from the Federal Reserve, the average inheritance received from parents with a college degree was $92,700 from 2016 to 2019. This number is $16,500 more than an average inheritance received from parents without a degree.
Similarly, children of parents with a degree are also two times more likely to expect an inheritance. Only 9.5 percent of individuals who have parents without a college degree expect an inheritance, while 23.6 percent of individuals who have parents with a degree expect to receive assets passed down to them.
Taxes From Inheritance
Depending on the type of inheritance, the required taxes vary. For example, most of the time heirs aren’t required to file an estate tax return upon inheriting an estate. This is true unless that estate exceeds $11,700,000 in 2021, according to the Internal Revenue Service.
While inheritors may not be subject to an estate tax, you’ll likely have to pay some form of gift tax. From 2018 to 2021, the annual exclusion limit for this tax is $15,000, according to the IRS.
If you’re unsure what your inheritance tax will look like, talk with a financial advisor or other financial professional who can give you a better idea of what to expect.
What Is Considered a Large Inheritance?
There are varying sizes of inheritances, but a general rule of thumb is $100,000 or more is considered a large inheritance. Receiving such a substantial sum of money can potentially feel intimidating, particularly if you’ve never previously had to manage that kind of money.
Before spending it on a new sports car or vacation home, consider how you can make the most of your inheritance. You may decide to spend it on these items, but you should sit down with a financial advisor to go over your options and make a plan before making any quick choices.
An advisor can help you understand how much you should invest, put away in savings and spend freely. They can also advise you on whether purchasing an annuity for guaranteed income in the future is a good option for you.
Five Tips for Leaving an Inheritance to Your Loved Ones
Leaving an inheritance to your heirs is a process that most likely won’t happen overnight. Take time to consider who would benefit most from certain assets and the best way to give those items to each individual.
You should also consider how much to give your heirs — be it a large, small or average inheritance. It’s wise to determine the individual needs and level of understanding toward money by each person as well. This might greatly impact how much you give or your method for doing so.
1. Manage Your Expectations
First and foremost, you should understand what assets you can afford to leave behind. Be sure to subtract any retirement savings or other financial vehicles that you’ll rely on until you pass away.
It’s always better to give realistically than to give over-generously. If you end up giving too much, your heirs may be left to use their inherited money to pay for your end-of-life costs. This can lead to family arguments and tension around who should be responsible for paying these bills later on.
2. Evaluate the Inheritor’s Understanding of Money
Before giving an heir $1 million dollars or even $50,000, you should make sure they won’t spend it without planning. To get a better understanding of how your heir will handle a large sum of money, give them a small test run with a few thousand dollars. Observe if they invest it, spend it or pay off debt.
Whatever they use the money for will give you a good idea of how they might use larger amounts of money. If they use it wisely, you may consider gifting the money outright. However, if they don’t quite understand how to use money effectively, you may consider placing the money in a trust or purchasing a single-premium deferred annuity in their name.
If going through a test run isn’t an option, ask yourself the following questions to get a better sense of your heirs’ relationship with money.
- Do they spend money on a whim?
- Do they rely on debt?
- Do they have a stable job?
- Do they stick to a budget each month?
- Do they have money set aside for emergencies?
3. Consider Your Options
While you can give your heirs a lump sum of money, there are also other ways to give an inheritance. As previously mentioned, not every method is right for every individual. Because of this, you should know all the options available to you, including:
- Basic trust account
- A legal transferring of property from one person to another
- Annual cash gift installments
- Giving cash gifts each year to avoid heavy taxation on a large sum of money
- Grantor Retained Annuity Trust (GRAT)
- A specific type of trust that enables you to give large inheritances without the tax consequences
There are numerous ways you can leave an inheritance for a loved one. Creating an estate plan will help you understand what is best for them and can help you determine the method for passing along your assets.
4. Manage Your Heirs’ Expectations
It’s easy to get carried away when you know there’s a possibility of inheriting any type of asset. However, this can cause disappointment and frustration if you don’t set clear expectations ahead of time.
Consider what expectations your heirs may have, and use those to guide a thoughtful conversation with each loved one. Preparing for problems ahead of time, including potential disappointment toward a smaller-than-average inheritance, can help you know how to handle the situation in the best way possible.
Keep in mind that you don’t have to explicitly disclose what you’re giving to each individual and how much you’re giving to charity or other organizations. However, it is important to explain to your heirs what they can realistically expect.
5. Communicate Clearly
Clear communication can eliminate confusion and hostility between loved ones later on. Who you decide to share your financial information with is ultimately up to you. However, if your children’s inheritances look different, explaining your reasoning to each child individually can go a long way.
When To Give Inheritance Money to Your Kids or Grandkids
Deciding when to give an inheritance depends on a variety of factors, but there is no single right answer. Every situation is different and should be treated as such. If you’re giving an inheritance to multiple people, determine the best time for each individual to receive it.
For example, if you plan to give $1 million dollars each to your two children, consider each of their circumstances, personalities and money skills individually. Say your older child struggles to maintain a job and is always asking for money. Rather than giving their inheritance all at once, consider spreading it out over a period of time.
Similarly, if your younger child fluently and successfully handles money, maybe giving their inheritance as a lump sum would be a smart decision.
When deciding whether to give inheritance money to your kids or grandkids, be cautious of doing so before you pass away. Waiting to release their inherited assets after your death can help you ensure you have enough resources to pay for end-of-life care and its associated costs.
Whether you’re leaving an above average, below average or average inheritance, take time to plan out the best method and time for giving it. After doing so, you may decide to go against your initial thought and annuitize the money or put it in a trust. Whatever you decide, make sure it’s the right decision for you and your family.
8 Cited Research Articles
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- Ameriprise Financial. (2017, March 15). Ameriprise Study: Family Financial Discussions Go Smoother Than Anticipated, But Unrealistic Inheritance Expectations Persist. Retrieved from:
- Bricker, J. et al. (2020, September 28). Wealth and Income Concentration in the SCF: 1989–2019. Retrieved from: https://www.federalreserve.gov/econres/notes/feds-notes/wealth-and-income-concentration-in-the-scf-20200928.htm
- Bhutta, N., et al. (2020, September 28). Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances. Retrieved from: https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm
- IRS.gov. (2021, September 15). Estate Tax. Retrieved from: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
- IRS.gov. (2021, July 30). Frequently Asked Questions on Gift Taxes. Retrieved from: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
- Federal Reserve. (2020, September). Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances. Retrieved from: https://www.federalreserve.gov/publications/files/scf20.pdf
- OECD. (n.d.) Inheritance Taxation in OECD Countries. Retrieved from: https://www.oecd-ilibrary.org/sites/e2879a7d-en/1/2/1/index.html?itemId=/content/publication/e2879a7d-en&_csp_=629b9a65616a4d96ca81e8985e607a2f&itemIGO=oecd&itemContentType=book