Is inheritance ending? Headlines have announced the end of inheritance in western newspapers for a variety of reasons. The two biggest reasons are supposedly high housing costs, and high aged care costs. Two products, you might argue, of economic success, and at times, poor regulation. For baby boomers that have enjoyed good public services and the support of the state, and for those that bought property, a fabulous contribution to their net worth from a combination of restrictive planning laws, good fortune, and the desirability of living in a successful, liberal, modern economy - things have been pretty good. But some are now worried. Stretched welfare states are struggling to cope with hordes of older folks that may need expensive aged care, and are thinking of ways to charge for it. At the same time, those high property prices have made it difficult for children and grandchildren to buy houses - and the boomers are trying to help. Meeting both costs may use all the capital that they have. Therefore the dream of providing an inheritance to children may be disappearing.
It was always a lottery, sometimes a cause of great controversy, and in many cases, a bad idea.
The 'ideal' circumstance for an inheritance was that a good life is followed by a good retirement. Healthy to the end, the retiree dies in their sleep, suddenly, after enjoying a slightly longer-than-average lifespan. The balance of a carefully nurtured investment portfolio, plus the full value of the family home, amounted to a useful sum or each of three happy smiling siblings, inheriting in late mid-life. They too invested the money wisely, subsidising the advanced education of their children, or helping them into homes, or donating to charity.
The ideal was rarely such. Families are tricky things. Old-age, longer than it once was, has exhausted smallish pension pots. Hard choices about downsizing were taken. Inequity between siblings emerged as the surviving parent gave much to one in order to help them through a tough patch - maybe a business failure. Another, perhaps the eldest, always went round and mowed the lawns. When Mum was finally too frail to look after herself (for Mum it usually is) then they were moved into a granny flat beneath the house of number one daughter (you decide whether this example is evidence of a sexist society). That move created tensions in her family - and muddied the financial waters further as budgets were pooled, and some capital was spent to make the flat work. Time was taken off to help Mum with her health as it worsened. The middle child who now works in Singapore didn't help at all. When the Last Will and Testament was opened, it was discovered that all remaining money was to be donated to the SPCA. The child with the flailing business record, it turned out, was relying on something to get them out of a hole...
All of this is frankly, silly. In effect, it is to mourn success. Longer lives are a bigger component of the 'end of inheritance' than any other factor. On average, the adult children of people dying these days are in their sixties. While there are many unfortunate exceptions, again, typically, they are wealthier than their parents. There may be any number of market or public policy solutions to the housing crisis, but paying for aged care so that inheritances may be preserved, to be, hopefully, disbursed where needed to buy houses must be the most roundabout approach ever conceived. I would hate to see a cost-benefit of such a policy.
Life insurance has virtually no role to play in inheritance provision for the elderly - it is not usually affordable to maintain cover into your 70's, 80's, or 90's as will typically be required to see a payment made. When you think about the long-run economics of insurers, their role is only efficient in managing unexpected loss much earlier in life. If you want a large sum of money a long-way in the future investment is the right approach.