How to approach Expected Inheritance?

[aaronc879]

I think mom lives in her own condo that's paid off. If not though, are you seriously suggesting that he should charge her 10K rent? I hope you're kidding but maybe not.

Post number 3 specifically says that the kids own the condo. It just seems weird to me that an 83 year old with $8M in investments wouldn't be giving the max annual gift($17K this year $18K next year) to each kid every year. I would do that with less than half that much money. I would probably also let the kids sell the condo that they own and move somewhere else using my own money to pay for it.

 

[HI Bill]

You do nothing
You live your life as if there is no inheritance, until there actually is. You plan, earn, save, etc., as though it might never happen. Because it might not, or not for a very long time.

+1. I worked with someone who anticipated inheriting millions from a well-known clothier. She was unmotivated at w$rk, and was not saving anything, basically just waiting for an inheritance. You never know how long your relative will live, and whether/if the will will be changed prior to death, and whether the split of whatever's left of the $8M will be equal or not. I wouldn't count on anything. You might live for 20 years with reduced spending, risking your financial future, only to find out you won't receive anything, or at least less than you anticipated. Keep working, keep investing, keep running the treadmill, and if the inheritance comes, look at it as an unearned and unexpected bonus.

 

[HI Bill]

Here's a different thought. "The lifetime estate and gift tax exemption for 2023 deaths is $12,920,000. After 2025, the exemption will fall back to $5 million, adjusted for inflation, unless Congress agrees to extend the higher amount." You're not limited to gifting $17-18K/year, you just have to document the gift and stay under the $12.9M/$5M. Have you and your siblings considered asking for an early bequest that might allow you all to RE?

 

[Dash man]

I was also thinking about the potential estate tax liability. I recommend speaking with and estate attorney about this. This may be a situation to set up an irrevocable trust to get some of that money out of her estate. 40% estate tax is a hefty bill.

 

[disneysteve]

Here's a different thought. "The lifetime estate and gift tax exemption for 2023 deaths is $12,920,000. After 2025, the exemption will fall back to $5 million, adjusted for inflation, unless Congress agrees to extend the higher amount." You're not limited to gifting $17-18K/year, you just have to document the gift and stay under the $12.9M/$5M. Have you and your siblings considered asking for an early bequest that might allow you all to RE?

That’s a great thought too. Mom could give each kid $1 million now and the rest could be inherited after she’s gone.

 

[GrayHare]

Among a group of friends, one became a waiter. At least that's what the group deemed him. Jobless while waiting for mom to pass. Don't become that kind of waiter.

 

[cathy63]

Here's a different thought. "The lifetime estate and gift tax exemption for 2023 deaths is $12,920,000. After 2025, the exemption will fall back to $5 million, adjusted for inflation, unless Congress agrees to extend the higher amount." You're not limited to gifting $17-18K/year, you just have to document the gift and stay under the $12.9M/$5M. Have you and your siblings considered asking for an early bequest that might allow you all to RE?

Since OP says they went through probate when his father passed, hopefully they had an attorney and hopefully that person recommended that they file an estate tax return to elect portability of his exemption, giving OP's Mom's estate the combined total of the two exemptions. That will be something over $17M, depending on how long she lives.

Also, gifts over the non-reportable amount do count against the estate exemption, so if she gave away $3M today her estate's exemption would be reduced by $3M in the future.

 

[cathy63]

I think you should go ahead and explore retiring early based on your current situation. You do need to add lumpy expenses such as new appliances, water heater, new roof, car, etc to your $2500/mo if they're not already included.

Once you have a good handle on your real expenses, spend some time with FIRECalc (link at the bottom of this page) and see what semi-retirement looks like with your current assets, expenses, a part-time job's income, and no inheritance. Can you make that projected spending level work?

If so, add in some discretionary travel and hobbies. Do you still have an acceptable success rate? If you don't like what you're seeing, you need to work longer or find a higher paying job.

There's a place in FIRECalc where you can add in one-time income. After you see what your numbers look like without the inheritance, you can explore the possibilities and see what kind of difference it makes. I'd definitely cut your expectations in half and double your timeline though. If you have a high risk of ending up at $0 before any inheritance would arrive, you are not ready for ER.

 

[2HOTinPHX]

I think the consensus is clear on the inheritance so I'll ask a different question.


Have the 3 of you discussed this with your mom at all? Any thought to her beginning to distribute at least some of the money during her lifetime? I'm guessing she doesn't need $8 million to maintain her lifestyle. The annual gift exclusion is $17,000/person and goes to $18,000 for 2024. It's not much relative to the total but she could give each of you 17K now and 18K next year and whatever the amount is in future years. If she wishes, she could also give the same amount to each of your spouses/partners and/or your kids. She could fund college savings plans if needed or help with buying cars or homes.


I don't know about your siblings' incomes but you said you earn 60K/yr currently so her giving you 18K/year would be pretty significant for you.


Just something to think about.

I was thinking the same thing. 8 million is a lot of money. I hope Mom is doing well and doing things that make herself happy. No need to be living frugally with that kind of money at that age. If part of that happiness is gifting loved ones now and actually seeing the results I think it could be priceless.

 

[badatmath]

I'm in the forget about inheritance side.

Reasons:
Mom could live a long life with last 10 years in nursing home which will suck away 1.5 Million.
Worse, she could re-marry some nice sweet caring man and leave it all to him, and he leaves it all to his lazy child.
Mom could get scammed out of the money.

If you count the inheritance and get it, well no big deal, but if you count it and don't get it, you are screwed !!

The very late in life marriage happened in my family. . . it isn't uncommon. People get lonely after spending a lifetime with someone. And the kids are left out by the new spouse (if he/she outlives the parent).

 

[RetiredHappy]

Let's work with what you have, $750K taxable account which includes the $400K inheritance, and $350K tax deferred account.

I would use 3% withdrawal from the $750K for a safe 30-year withdrawal, giving you an income of $22,500 per year. You can go part-time and make $25K to $35K a year or so, and buy an ACA subsidized plan since part-time jobs do not offer health insurance.

Other suggestions above that is noteworthy is to have your mother do annual gifting of $17K (2023) / $18K (2024) to each of you.

 

[Major Tom]

Post number 3 specifically says that the kids own the condo.

Actually, the post says that the children "technically" own the condo. That indicates to me that, while they own it, they still consider it their Mum's to use as she wishes. That one word, to me, makes a big difference, suggesting that they would consider charging their Mum rent an inappropriate thing to do.

 

[luv2travel]

Thank you all for the feedback and suggestions. After reading all of these I'm agreeing with the idea of moving forward, working and living on what I have already saved up (which includes the "checking account" inheritance) and not counting on the larger inheritance. I am going to looking that FireCalc someone mentioned. I'm still pondering the idea of some level of withdrawals in order to pursue some other work situation (less hours worked - more time on things I enjoy)

My parents have been giving the kids distributions the past few years, which I've regularly maxed out my Roth IRA and HSA. I have a pretty good handle on investing and saving money, and am always running calculations on how much money will last how long.

Two more things. We will not be charging my mom rent for living in our condo.
And I have a new worry, now that someone mentioned my mom remarrying some guy, that could inherit the money? This opens up a whole new question about powers of attorney, etc, when a parent reaches later stages of life and may make some questionable decisions, etc. But that's for another thread.

Also, I don't think we will be liquidating any stock as the tax liability would be massive. It's my understanding that when stocks are inherited, teh cost basis is adjusted to the current market value. I could be wrong.

 

[cathy63]

Post number 3 specifically says that the kids own the condo. It just seems weird to me that an 83 year old with $8M in investments wouldn't be giving the max annual gift($17K this year $18K next year) to each kid every year. I would do that with less than half that much money. I would probably also let the kids sell the condo that they own and move somewhere else using my own money to pay for it.

It sounds like the Mom may have a life estate in the condo. If that's the case, the kids could not charge her rent even if they wanted to. The life tenant is entitled to the income from the property, so she could rent it out, but the remaindermen can't.

 

[Poopycat]

Good luck finding a part time job that offers decent health insurance. If you find one, let me know the company so I can apply. I know some companies offer insurance to PT employees but they are few and far between, and often the plan isn’t as comprehensive as the plan for FT people.

 

[DrRoy]

+1 on the consensus. Don't count on it. If you can go part time and be OK without it, then do.

 

[CRLLS]

There is a difference in my mind between a plan and action. I would, and have on a smaller scale, included an inheritance in our plan while in the accumulation stage. I would not act on that plan. It is sort of a what-if scenario, which is all a plan is. There are a lot of variables and unknowns in a plan, this inheritance is just one of them. To take a major action based on that plan when such a large part of it relies on inheritance is very risky.

I would plan on something close to that amount but would not act based on it. As Mike Tyson said, "Everyone has a plan until you get punched in the mouth." The goal is to not get knocked out in the first round of retirement when life does not follow your plan.

 

[aaronc879]

Good luck finding a part time job that offers decent health insurance. If you find one, let me know the company so I can apply. I know some companies offer insurance to PT employees but they are few and far between, and often the plan isn’t as comprehensive as the plan for FT people.

UPS gives top tier health insurance to part time warehouse workers but that is not a semi-retirement job. It is brutal physical labor done mostly by college students. With ACA subsidies there is no need to find a part time job that offers HI. The lower income from part time work would likely qualify you for good and cheap coverage.

 

[pacergal]

You could retire now if:
*your current expenses are truly 2500/mo=$30,000/yr
*3% of 700,000=$22,500 (you are young at 56, you most likely will need money to last longer than 30 years)
*Mom is currently gifting, and plans to continue annual gift of $17,000 or more per tax code
22,500+17000=39,500

So, you could find a part time job to make up what you need beyond your own investment income, if you don't want to rely on Moms money.

I know with 8 million, it seems reasonable to believe that the yearly gifting will continue and there will be significant monies left when your Mom passes.
But, you never know.
She is 83 and could live to 100 or beyond. Hopefully, healthy, and not needing significant cost for assisted or live in help.

 

[OldShooter]

The condo situation might be worth a careful look by professional eyes. If mom has actually transferred ownership to the kids, then there will be no basis step-up on her death. IANAL, so I don't know if this can be reversed or worked around but doing the right thing could involved paying or not paying significant taxes at some point.

 

[USGrant1962]

I like CRLLS' approach above of plan but not necessarily act. It seems like too big an elephant in the room to just ignore.

And why do people keep bringing up LTC with respect to an $8M portfolio? Let's get some perspective here. $8M stuck in Wellington or Vanguard Retirement Income throws off >$200K a year just in dividends. Add SS income and Medicare coverage to that and there is no way LTC or other medical care is a meaningful risk to a portfolio that size. The pool boy, on the other hand...

 

[2017ish]

A question that I don't think has been mentioned (although someone brought up whether the condo is a life estate). How was your father's bequest of the 8Mill to your mom structured? Was it free and clear, or in trust (for example, with her getting lifetime income or access, with remainder to the kids)? If the latter, there is a greater certainty of inheritance....

 

[Markola]

I'm in the forget about inheritance side.

Reasons:
Mom could live a long life with last 10 years in nursing home which will suck away 1.5 Million.
Worse, she could re-marry some nice sweet caring man and leave it all to him, and he leaves it all to his lazy child.
Mom could get scammed out of the money.

If you count the inheritance and get it, well no big deal, but if you count it and don't get it, you are screwed !!

Yup. It happens. My lonely and wealthy great grandmother ran off with a house painter at the end of her life. Fortunately, trusts were in place and prevented the worst from happening. If I were the OP I would:

1). Get the family focused on wealth preservation planning with water-tight trusts.
2). Send flowers to the bank, which is still grieving the loss of the $1.2M checking account.

 

[marko]

A question that I don't think has been mentioned (although someone brought up whether the condo is a life estate). How was your father's bequest of the 8Mill to your mom structured? Was it free and clear, or in trust (for example, with her getting lifetime income or access, with remainder to the kids)? If the latter, there is a greater certainty of inheritance....

This is what I was wondering and how my family does it. You "know" the money/income will be yours one day. You just can't get to it right now.

On a few occasions, the money was already in our names with limited/no access. Sounds like OPs dad had some foresight and financial savvy so it wouldn't surprise me.

 

[Cayman]

No matter how certain you are about an eventual inheritance I wouldn't count on nor spend a dime of it. Plan and live on what you have in your name and have full ownership of. I'd work and save more on my own. Life has too many twists and turns. That's my take.