Do Your Heirs Want an Inheritance?

Depending on how your loved ones look at it, an inheritance may be a financial blessing or a financial burden — and there are legitimate reasons for viewing it either way.

An inheritance is an emotionally-charged topic, often meeting family members with mixed feelings of gratitude, loss, grief, anxiety — as well as relief and financial freedom. It’s the promise of a fresh financial windfall wrapped in the reality of losing a loved one. For many, that can put them off the idea of an inheritance entirely.

If you haven’t spoken to your family about your legacy plans, don’t assume everyone’s on board with receiving an inheritance after your passing. Beyond any complex family dynamics or emotional ties, there are some common and practical reasons why people may prefer not to receive an inheritance.

Let’s take a look at why an inheritance may not be the right move for your family, and what alternatives you could consider incorporating into your estate plan instead.

Why would someone not want an inheritance?

Depending on your loved ones’ unique financial situation, or even their views on wealth, they may not find an inheritance right for them. As someone who’s working on establishing or updating your own estate plans, it’s important to understand the circumstances under which your family members may prefer to honor your legacy in other ways (perhaps through lifetime gifting or charitable giving, which we’ll touch more on later).

Here are a few reasons why someone may not want to receive an inheritance after your passing:

They’d rather it be left to someone else.

Perhaps they’re financially stable and secure, but they have a sibling or family member who could use the extra funds more than they could (say someone who is a single parent, saddled with student loan debt, or otherwise still building their savings). Or, your child may prefer that you leave your assets to their children (your grandchildren) instead.

Their estate is nearing the estate tax exemption limit.

A person’s estate will not be subject to federal estate tax, which can be as high as 40%, if it falls below the exemption limit. In 2024, that limit is $13,610,000 per individual.¹ Depending on the size of your heir’s own estate and what they’re set to inherit, it’s possible a financial windfall could push them past the exemption limit and complicate their estate plans. They might prefer other means of honoring your legacy to avoid the hassle of tax planning and restructuring their estate plan in order to stay below the federal (and potentially state) exemption limits.

They’re concerned about taxes.

Certain accounts, like an IRA or 401(k), include pre-tax income, which means your heirs may be hit with a tax bill when it comes time to access the funds they’ve inherited. If they’re already approaching their tax bracket ceiling, this additional boost of taxable income could push them into a higher tax bracket — resulting in a bigger tax bill.

They need to qualify for certain income-based programs.

For instance, an inheritance could impact a college student’s ability to receive financial aid. If your heir, their spouse, or any other household members are currently receiving government benefits or assistance through programs like Medicaid, an inheritance could jeopardize their ability to continue qualifying for these programs as well. Unless the inheritance is enough to render those programs no longer necessary, it may be better to find other ways to leave your legacy.

Can someone refuse an inheritance?

Yes, people have a legal right to refuse an inheritance — the legal term is “disclaiming” their inheritance. They may disclaim it even if they’re the designated beneficiary of your accounts named in your will, or chosen by courts during the probate process if you pass away without a will.

If someone chooses not to receive their inheritance, the assets will be passed on to the next beneficiary in line.

As you periodically review and update your estate plan, make sure to speak with your intended recipients to ensure they’re comfortable with and able to receive a portion of your estate. Otherwise, your estate may not be divided and distributed as you initially intended.

Alternatives to leaving an inheritance

If leaving a sizable inheritance to your loved ones isn’t in the cards, don’t worry. You have plenty of other options. In fact, these alternatives can often be more meaningful and gratifying than leaving a traditional inheritance. 

Here are four ways to transfer and enjoy your wealth in a meaningful way.

Gifting during your lifetime

There’s no rule that says you can’t give generously to your family and friends during your lifetime. In fact, many people find great joy in being able to watch their loved ones benefit from their help while they’re still here to witness its impact. 

Your children and grandchildren will likely experience many instances where a financial gift can greatly benefit their financial well-being — paying for college, putting a down payment on a house, buying a new car, you name it. If the need for financial support arises, you may be compelled to share a portion of their inheritance “early,” as opposed to letting it sit untouched until after you’re gone. 

In terms of taxes, gifting can also help you gradually lower the value of your estate over time, which is important if you’re creeping close to the estate tax exemption limit. Each year, you’ll be allowed to give gifts tax-free up to a certain amount. In 2024, the gift tax exclusion amount is $18,000 per individual gift receiver — meaning you can give gifts valued up to $18,000 to as many people as you’d like during the year, and it won’t impact your lifetime gift tax exemption limit (which is the same as the estate tax exemption limit of $13,610,000).¹ 

Anything you gift above the annual exclusion limit will be deducted from your lifetime exemption limit.

Some gifts are entirely tax-exempt, no matter the amount. These include:²

• Charitable donations
• Gifts to a spouse (as long as they’re a U.S. citizen)
• Tuition paid directly to an educational institution on behalf of someone else 
• Medical expenses paid directly to a medical facility on behalf of someone else
• Contributions to a political organization

Charitable giving

If your family is especially charitably-minded, it might make sense to redirect your children’s inheritances toward a charity that’s meaningful to them and you. There are plenty of ways to pursue tax-efficient charitable donations, from giving cold-hard cash, to donating appreciated stock, establishing a donor-advised fund, or creating a charitable trust.

Depending on how you’d like to incorporate philanthropy into your financial life, you’ll be able to give generously both during your lifetime and beyond. Again, this is another effective way to see your generosity come to life while you’re still here to enjoy it and witness the impact.

Reassessing your spending in retirement

Yes, it is possible to live too frugally in retirement — especially if you had planned to leave a sizable inheritance to your loved ones. Perhaps this is an ideal time to reassess your spending and retirement budget to determine if there are opportunities to splurge with more of those savings you worked so hard to earn.

Instead of setting aside funds to leave a larger inheritance, you could use the funds in a meaningful way to bring more fulfillment and fun to your retirement—upgrade your living space, buy a vacation home, hit all the travel destinations on your bucket list, spoil the grandkids, or do anything else you’ve felt too restricted in the past to pursue.

You could also choose to use that money to make memories with your loved ones now, perhaps by funding a family bucket-list trip.

Of course, this isn’t to say you should make large, impulsive decisions about blowing your savings in an irresponsible or short-sighted way. But if you can afford to, consider cutting loose and living life a little more to the fullest. You might just be surprised to learn that your kids want you to see you enjoying your wealth, as opposed to socking it away for them to use after you’re gone.

Establishing a trust

You may want to speak to an attorney about establishing a trust for your grandchildren — or even your future great-grandchildren — that they can access long after you're gone.

A trust can help you preserve wealth for future generations, especially if your children don’t want or need the funds for themselves. You can incorporate requirements or stipulations that future beneficiaries must meet in order to access the funds, such as reaching a certain age, graduating college, getting married, buying a home, etc.

Create a meaningful legacy for your family

The most important component of estate planning is communication and transparency with your family. Give your loved ones the opportunity to ask questions, raise concerns, and work with you to find solutions that best suit everyone’s needs — while still keeping with your greater legacy goals.

Perhaps a traditional inheritance won’t work for your family, and that’s okay! You and your heirs have plenty of other options to consider. Just be sure to speak with an estate attorney when drafting any legal documents, so you can ensure your estate plan is clear, comprehensive, and legally-binding.