Wife inherited $600k. questions?

[bayfritz]

I just found out my wife inherited $600k from an uncle. Unclear on what is the best avenue to shelter.

Specifics: 45 year old retired military (E-9) currently working government GS-14. Wife is high school teacher. Current 401K's total $300k.

I'm sure a finacial advisor is in my future, but I want to hear opinions from the FIRE faithful.

 

[Sandy]

bayfritz, that is a lot of $ to come into unplanned. Where are these funds currently? Do you have other investments that you are familiar with managing? Do you understand investing? These are just some of the question whose answers will have a significant effect on what you do. As long the funds are reasonably invested (not in cash under the mattress or all in junk bonds), you might want to do nothing for up to 1 year or longer, while you and your wife, read, learn and adjust to the new found wealth. Stick around, you may not need that financial advisor afterall.

 

[bayfritz]

Only investing has been with my TSP account and it has been very conservative with maximum contributions since inception. Not an investing guru, by any stretch. From what I understand all assets are in CD's, cash and stocks. Lawyers informed my wife to expect 2-3 more months of probate before distribution.

 

[Moemg]

Congratulations on your new found wealth . I second the idea of educating yourselves on investments .I've seen too many people just hand their money over to financial advisors .Sometimes it works out and sometimes the advisors s---- the people royally .So it is best to understand what investments they are putting your money in .

 

[kat]

When I came into a windfall, I received some good advice that I like to pass on.

Put the money in a safe place, like Vanguard's Prime Money Market account, and take as much as a year to decide what to do with it.

With that amount of money, Vanguard will also offer you a financial plan for free, based on your goals and objectives.

This question comes up periodically on a website I like, diehards.org, which is a forum for people interested in low cost investing, mostly at Vanguard.

 

[Texas Proud]

This is what I would tell any of my friends or family.....

Let's get a diversified portfolio set up at Vanguard.... we can choose what asset allocation you prefer, but we would like it all at one place and invested in low cost mutual funds....

If you could not pick a group of funds... then either a target retirement fund of whatever year you pick...OR a LifeStrategy fund.... what one you can deal with...

Check this out....

https://personal.vanguard.com/us/faces/JSP/Funds/fundexpress/fundshortlistContent.jsp

 

[W2R]

Possibly the estate could sell the stocks send you the proceeds, which they can do without capital gains tax due to the well known "step up in basis" that is a big help to heirs.

I will be coming into a somewhat larger inheritance this spring or whenever my mother's estate is settled (which seems to be taking forever since she passed away last September 30th). In our case, the estate is uncontested and was left in trusts to be divided equally between my brothers and me. However the banks where the trusts were, Bank of Hawaii and First Hawaiian Bank, seem to be loathe to get off the "gravy train" of their exorbitant fees, and at any rate they are slowing things down with every excuse in the book. My brother, the executor, is flying out there next week to pound on their desks with our lawyer in tow.

Meanwhile, I am glad for the time so that I can figure out what to do with the money. Like you, my only real prior investing was in the TSP and a little in my Roth IRA, so I am making it my business to learn fast! I intend to put it into Vanguard Prime Money Market when I first get it. I opened a Vanguard account and uploaded some of my own money to Vanguard Prime MM, and then transferred some of that to an investment (Vang. 500) so that I feel comfortable with moving money to Vanguard and within Vanguard.

My mother and father worked hard for many years to accumulate this money and I am determined not to let it slip through my fingers out of ignorance. So, I am trying to educate myself and you will probably want to do the same. You need to give yourself a "crash course" in investing. There is a huge amount to learn. Somewhere on this website is a list of books. So far the best ones that I have bought are Bernstein's Four Pillars of Investing (boring but very necessary to get the right investment outlook) and Swedloe's The Only Winning Investment Strategy You'll Ever Need (more interesting and practical, in my opinion), and have studied them to death. There are other books that I intend to buy shortly. Another forum that many of us also read, that is more focused on investment advice, is the Boglehead's forum:

Bogleheads :: Index

so that forum is worth browsing and reading on. You have some decisions to make concerning asset allocation and then specific funds that will help you to realize that asset allocation.

Good luck and make wise choices!

 

[Spanky]

Park the proceeds into a money market account. Determine your asset allocation based on your financial goals, needs and risk tolerances.

 

[Moemg]

Just wondering ,if one of the partners in a marriage inherits a large amount can they keep it seperate from other marital assets ?

 

[W2R]

Just wondering ,if one of the partners in a marriage inherits a large amount can they keep it seperate from other marital assets ?

I am not a lawyer, but I don't think an inheritance would be considered to be community property. Still, I wouldn't count on that and it could result in an ugly court battle in some cases. Probably some of our lawyer types will respond with the correct answer to your question.

Frank and I both will be inheriting significant amounts, and this is one reason why it is simpler for us to not marry. But there are other reasons why we don't, since we are both "once burned twice shy". We love being single and committed to one another! This is the life (for us).

 

[mahoneycutt]

Additional thoughts

I can't add much but ...

1. Spend some, park the rest - spend 5% to 10% on something you want - car, home improvements, vacation. Put the remainder in a super safe savings account/CDs. Educate yourself on how to invest the remainder (6 months to a year).

2. A friend in need - another reason to tie up the money is to avoid the "I need a loan" requests from family and friends. I've been amazed at how many people appear with needs once they learn you have money.

Good luck
Mike Honeycutt

 

[W2R]

I can't add much but ...

1. Spend some, park the rest - spend 5% to 10% on something you want - car, home improvements, vacation. Put the remainder in a super safe savings account/CDs. Educate yourself on how to invest the remainder (6 months to a year).

2. A friend in need - another reason to tie up the money is to avoid the "I need a loan" requests from family and friends. I've been amazed at how many people appear with needs once they learn you have money.

Good luck
Mike Honeycutt

Interesting advice. Here is my take on these issues.

Personally I have absolutely no intention of spending 5-10% of my inheritance as soon as I get it. My father worked hard for this money and did not do that himself. As for me, I am going to add it to my nestegg and continue as before. Maybe I will take Frank out to dinner, but that is about it. But I do think that if the other person has the impulse to just run out and blow it all, then 5-10% should be an upper limit.

Loans are absolutely out of the question for me, as well. This money is not lottery money. My father worked hard for it and he would not have lent it out, so why should I? He would turn over in his effing grave if I did that. People appearing out of the woodwork are going to be hung out to dry and I may end up having fewer friends over it.

With inheritance comes the responsibility to manage it well, so think about what that means to you, your wife, and her family. Does it mean a flashy new car and an opulent vacation to Tahiti or Paris? That's not on my radar, personally.

 

[LOL!]

Just wondering ,if one of the partners in a marriage inherits a large amount can they keep it seperate from other marital assets ?

The answer is yes if you want to get a divorce. One must never commingle the money in a joint account ever. That is, if you get a check for the inheritance do not deposit into a joint checking account with the intention of then transferring to an account solely in your name. In a community property state, I think the earnings from such an account become joint property, so never reinvest dividends and distributions back into the account. If you do that the account now is commingled. So you will want to invest in something that will have alot of unrealized capital gains like a index fund of stocks and take the distributions in cash and put them in another account.

My spouse inherited some money when her mom died. I will admit here that I was miffed when her sisters suggested that she keep the inheritance separate from our joint assets. This is because I have provided tons of money to the family by working for many, many years. Should my salary be kept separate as well? Nowadays I earn about twice what my spouse does. If she had kept the inheritance separate, I would have found a way to create a separate account of my own of equal value. Most of the money ended up in 529 plans for our kids.

It's easy to comment when you haven't been there. Since I"ve been there, I'm commenting anyways.

 

[Nords]

However the banks where the trusts were, Bank of Hawaii and First Hawaiian Bank, seem to be loathe to get off the "gravy train" of their exorbitant fees, and at any rate they are slowing things down with every excuse in the book. My brother, the executor, is flying out there next week to pound on their desks with our lawyer in tow.

That sucks, and yet these guys wonder why credit unions are eating their lunch.

Having worked with both banks, it's possible to find good & helpful employees at both of them... but unlikely. Both were equally uncooperative with our family and it's hard to decide who was worse. However I'd approach their trust people with a pit-bull lawyer and the unspoken hints of legal action. Both banks have been in the news over the last few years with elder-abuse & trust issues.

You would think that a bank would be able to interpret and comply with a trust document. At the risk of preaching to the choir, and assuming probate isn't giving them problems, one quick way to resolve the foot-dragging has been a transfer of assets in kind to another fund company like Fidelity or Vanguard or Schwab. Frequently, though, banks will claim that their proprietary investments can't be transferred in kind. As executor your brother may want to liquidate (especially since it's the beginning of a new calendar year) and transfer the cash.

Just wondering ,if one of the partners in a marriage inherits a large amount can they keep it seperate from other marital assets ?

Yep. For example Fidelity will be happy to set up a separate account number in your name only.

Just don't mingle assets. Transfer the inheritance directly from the estate instead of through anything with a joint account number or that a partner might be a beneficiary. Think long & hard about who you want to designate on the account's beneficiary forms. It's a lot easier to claim "separate" if the account's transfer-on-death beneficiary is an adult child instead of a spouse.

 

[W2R]

That sucks, and yet these guys wonder why credit unions are eating their lunch.

Having worked with both banks, it's possible to find good & helpful employees at both of them... but unlikely. Both were equally uncooperative with our family and it's hard to decide who was worse. However I'd approach their trust people with a pit-bull lawyer and the unspoken hints of legal action. Both banks have been in the news over the last few years with elder-abuse & trust issues.

You would think that a bank would be able to interpret and comply with a trust document. At the risk of preaching to the choir, and assuming probate isn't giving them problems, one quick way to resolve the foot-dragging has been a transfer of assets in kind to another fund company like Fidelity or Vanguard or Schwab. Frequently, though, banks will claim that their proprietary investments can't be transferred in kind. As executor your brother may want to liquidate (especially since it's the beginning of a new calendar year) and transfer the cash.

Thanks. It helps to know that we aren't the only ones having problems with these banks.

My brother has been blocked every step of the way, first in getting control over the accounts, so he hasn't been able to transfer anything yet. As you point out, they say they can't transfer anything. Only this week has he got control over one of the trusts, at least partially, and they are resisting his attempts to liquidate (which he started pushing for last October). Now they say their legal department has to sit on everything for a while for tax reasons. It is happening, but each step is very slow. Our lawyer there is Mom's lawyer, and is far from a pit bull but has been doing his best. I doubt probate is an issue at all, since these trusts were set up to avoid probate.

 

[Niko]

Quote:
Originally Posted by Moemg
Just wondering ,if one of the partners in a marriage inherits a large amount can they keep it seperate from other marital assets ?

Yep. For example Fidelity will be happy to set up a separate account number in your name only.

Just don't mingle assets. Transfer the inheritance directly from the estate instead of through anything with a joint account number or that a partner might be a beneficiary. Think long & hard about who you want to designate on the account's beneficiary forms. It's a lot easier to claim "separate" if the account's transfer-on-death beneficiary is an adult child instead of a spouse.

Actually this will depend a lot on your state's law, and specifically for what purpose you want to keep the assets separate. For example, if H & W get divorced, all assets (whether in one spouse's name alone or held jointly) will be considered in determining an equitable distribution.

 

[Ed_The_Gypsy]

bayfritz,

I strongly second kat's advice.

Don't touch it for a year except to pay probate (yech!).

Having had a smaller scale but similar experience, I would suggest picking one or two simple funds from Vanguard and then forget about it. Don't blow any of it. Wait until you can live off the dividends (limit = 4%).

 

[Texas Proud]

LOL is basically correct.... but remember that it is STATE law that matters...

As an example (and this is based on laws back in the 80s when I did it), income is joint, but cap gain is separate in most place, but not all...

I remember one lawyer who said if a cow had a calf, it was income in one state, but separate property in another.... so do your research if you wish to keep it separate....


OOOORRRRRR, have a lawyer write up an agreement with your spouse and then you can (dang, can't remember the word) designate that all income on the separate property will remain separate.... ie, the spouse gives up any claim on any of the income... this protects you from later problems if you do get a divorce...

 

[LOL!]

On the subject: http://www.nytimes.com/2007/12/29/business/yourmoney/29money.html

 

[Kwirk]

If a significant proportion of the money is in a tax-sheltered retirement account your wife may want to look at an inherited IRA. Just Google "inherited IRA."

 

[Spanky]

FYI: Receiving an Inheritance

 

[kcowan]

I think you should consider that you each got a $12k increase in salary before taxes. Behave accordingly.

 

[Cattusbabe]

Lots of good advice so far. I second a park it until you figure out what to do with it attitude. Handling the money is just one part of the deal however. There are all sorts of social and psychological changes that go along with inheriting a large some of money. Doing a little reading about sudden wealth and what to do when you inherit will save you from making a lot of costly mistakes and will help you handle the changes that you will encounter from friends and relatives. Everyone has an idea bout what they would do if they inherited a lot of money. Most would love to live vicariously through you, at least that is what DH and I found when we inherited enough to retire on. Best not to spread the news too widely.

 

[cute fuzzy bunny]

Unclear on what is the best avenue to shelter.

First, rip the section on Divorce Lawyers out of the yellow pages.

 

[bayfritz]

The answer is yes if you want to get a divorce. One must never commingle the money in a joint account ever. That is, if you get a check for the inheritance do not deposit into a joint checking account with the intention of then transferring to an account solely in your name. In a community property state, I think the earnings from such an account become joint property, so never reinvest dividends and distributions back into the account. If you do that the account now is commingled. So you will want to invest in something that will have alot of unrealized capital gains like a index fund of stocks and take the distributions in cash and put them in another account.

My spouse inherited some money when her mom died. I will admit here that I was miffed when her sisters suggested that she keep the inheritance separate from our joint assets. This is because I have provided tons of money to the family by working for many, many years. Should my salary be kept separate as well? Nowadays I earn about twice what my spouse does. If she had kept the inheritance separate, I would have found a way to create a separate account of my own of equal value. Most of the money ended up in 529 plans for our kids.

It's easy to comment when you haven't been there. Since I"ve been there, I'm commenting anyways.

My wife has already told the lawyers to distribute the assets in a tax free joint MM account until we figure out the best long term avenue. I am curious as to why we would want to keep this seperate. What is the rationale?