“We talk with baby boomers all the time,” says Kevin Queally, a first vice president at Merrill Lynch in the Wellesley, Mass. office.

“We talk about (assets in) their 401(k)s, their Social Security, and their homes. We also try to urge them to do supplemental savings, but when we do, they’ll often say, ‘We’ll be okay. Our parents have that all set (i.e., will leave a big inheritance), so we don’t need to do supplemental savings.’ “

That sums up a looming problem in boomer-land: because many boomers expect to inherit a lot of money or assets when their parents die, the boomers are not motivated to get serious about supplemental saving. Believing they will be well set in their senior years, due to their parents’ bequests, they also may not be motivated to do retirement income planning.

This poses challenges for financial advisors. The nature of the challenges, and how to respond, is the focus here.

“Many boomers are not aware of how much they will get from their parents,” says Queally. “They don’t even know what is in their parents’ estate documents.”

What’s more, a lot of times, boomers think their parents have a lot of money because of the way the parents live, says Donald S. Hardy, founder of Quantum Benefits.com, an Atlanta, Ga. agency. But when the parents die, “they find out that the parents owed a lot of money (to creditors), so their adult children end up getting a pittance.”

The other side of that situation occurs when the parents see their boomer children living well. The parents assume that, since their children are so well off, the parents will leave much of their estate to the grandkids, says Queally. The problem, is, some of those boomers have been living well expressly because they had been expecting to receive a large inheritance from their parents, he says.

Another problem comes from boomers’ lack of awareness of how even a relatively large estate can shrink, due to longevity of the parent and/or exorbitant medical costs, says Paul McClatchy, vice president of financial planning for e-Money Advisor, Philadelphia. Some also are unaware that today’s retirees are “dipping into” their funds more than people expect, he adds.

He recalls one couple who was expecting to receive $3 million from Mom, “a widow who will pass on soon.” They wanted to include that money in their financial plan, says McClatchy. This opened up a whole discussion about how longevity, health costs and other factors can eat into estates, and about how it’s difficult to know the time when the money will become available, he continues.

“That sobered them up,” he says, adding that “sometimes, you have to talk them off the ledge.”

Then there is the estate tax conundrum. Some boomers figure their parents won’t have any estate taxes to pay, points out David Stratton, managing agent for Lincoln Financial Advisors, Inc. and chief operations officer for Stratton Turner LLC, Anchorage, AK. “But that depends on what happens to the estate tax law,” he says. Some boomers aren’t aware that things could change.

Furthermore, if the parents don’t do any estate tax planning, and if the law does change in a way that makes the parents’ assets subject to estate taxes, “the kids won’t get anywhere near what they were planning on,” Stratton says.

Another problem is that a good chunk of parental assets is often tied up in real estate, says Queally. Most parents arrange for their assets to be divided equally, he explains. So, if the real estate passes to the boomer children but if one of them needs liquidity, the other siblings must then consider how to buy out that sibling. When doing their planning, the parents and the boomers may not have clearly understood these dynamics, he says.

Intergenerational estate documents can cause problems too. In these cases, says Queally, a parent may set up a generation-skipping document that pays income to the boomer child but leaves the rest of the estate to the grandchildren. The parent and boomer may assume the document would allow the boomer to have access to the underlying assets if necessary, but some documents are not worded that way, he says. In hardship situations, this can be a major difficulty–caused by rigidity in the estate documents, inadequate communication and understanding, and the resulting wrong expectations.

Baby boomers who come from mid- to lower-income families tend not to expect much by way of inheritance, according to McClatchy. However, even here, boomers can get expectations mixed up with reality, he says. It happens when a boomer of modest means comes into an unexpected inheritance or lottery winning. “They see that money and feel they can afford anything,” he says, citing high-end cars, travel around the world, etc.

Well, then, what should boomers be expecting by way of inheritance?

A study on expected distribution of bequests, using 2002 data from the U.S. Department of Health and Human Services, sheds light on this. (Source: James P. Smith and Michael Hurd, in the National Bureau of Economic Research Working Paper 9142 and reported in a 2007 HHS report on Growing Older In America.)

The study projects that children of parents born in 1923 or earlier will, on average, receive bequests of about $47,000 each. Children of parents born from 1924-1930 will receive, on average, bequests of about $45,000 per child. As may be expected, the children of parents in the lowest percentile by wealth (10%) will likely receive nothing, while those in the highest percentile by wealth (95%) can expect to average nearly $200,000 per child, if sired by parents in the 2 birth-age bands above. Children of parents born after 1931 can expect more.

Those bequests are a far cry from what boomers imagine when they hear a researcher say their generation stands to inherit “$41 trillion.” But if boomers don’t know the difference between per-child averages and generational totals, and if they don’t heed the difference between projections and reality, some may develop wild expectations about booty coming their way.

How can financial advisors help boomers develop realistic expectations about inheritance?

“It’s paramount that the advisor be the middleman,” says Queally. He encourages advisors to “do a sit-down” with the parents and boomer children to gather information, define goals and plan. “The biggest challenges are miscommunication, misinformation and misinterpretation,” he says, so the advisor needs to reiterate goals and see how the documents match up.

Hardy favors parent-boomer meetings, too. “Don’t let them (the boomers) hear it for the first time from an attorney reading the will,” he advises. “When the death occurs, there should be no surprises.”

If possible, Hardy adds, make it so the kids don’t have to wonder.

Don’t wait for the boomer to bring the subject up, suggests Stratton. His firm includes expected inheritance as part of the fact finding. The boomers’ answers help him determine how well the client understands what’s going on with the parents in terms of finances, long term care and other matters too. That helps him build a more realistic foundation.

Some responses are vague, possibly signaling a lack of communication between client and parent, he concedes. In that case, Stratton tries to encourage the boomer to build a closer relationship with the parents. But if the closeness isn’t there or doesn’t grow, he works with the client alone.

The approach is not to base financial decisions on what they expect to inherit, he says. “We say, let’s keep it in mind. We’ll show the benefit–if and when it happens.”

Similarly, for well-heeled boomers, McClatchy will do a cash flow analysis, one without the expected bequest factored in and one with. A base plan would show what the boomers will need to save on their own to reach stated goals. If the inheritance really does come in, he says, “we have Plan B, but we don’t spend a lot of time on it because a lot could happen.”