Inheritance question

[pacergal]

Last parent recently passed after long illness, leaving heavy stock portfolio, dividend paying. Firecalc has us good to go on our own funds. Would it be advisable to leave this as is and let it ride?
What do I do with the dividends?
Kind of feel lost, this parent was my go to person for financial advice and the reason we have what we have.


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[GrayHare]

Sorry for your loss. Sounds like it's time for you to study more about investing, and that you've found a good place to learn here. You could do worse than dividend stocks. If your inherited portfolio has performed OK during the past few years, I'd say don't make changes until you have a good reason to do so. That portfolio was likely arranged to support a retiree, which you may soon be yourself, thus it could well be a fit for you too. Study how the inherited portfolio's stock/bond/cash allocation meshes with your own. If it makes you too stock (or bond or cash) heavy those could be areas to reduce via rebalancing.

 

[ERD50]

Sorry for your loss.

Financially, the stocks would have been stepped up in basis to their date of death, so there should be little/no cap gains issues in selling them.

From there, I can see no reason to not treat them as part of your overall Asset Allocation. If this puts you over-weight in stocks, move some to fixed income and vice-versa. I prefer an ETF/index mutual fund to avoid specific stock/bond risk, it's just a basic diversification guideline.

What do I do with the dividends?

Ummm, spend them? Give them to me? Give them to a deserving charity? Re-invest them so your heirs or designated charities may have more at your ultimate demise?

-ERD50

 

[Sarah in SC]

I am so sorry for your loss.
It sounds as though your parent had made some good choices in the portfolio, and there is nothing at all wrong with just leaving it as is for now, until you feel ready to incorporate it into your own long term plans.
As for dividends, you can change it to have them reinvested if you don't have any pressing cash needs, or just allow them to be swept into a money market if you do need some of the income.
Again, just giving it 6 months or a year before you make changes, may give you some piece of mind while you process the emotions.

 

[hesperus]

Last parent recently passed after long illness, leaving heavy stock portfolio, dividend paying. Firecalc has us good to go on our own funds. Would it be advisable to leave this as is and let it ride?
What do I do with the dividends?
Kind of feel lost, this parent was my go to person for financial advice and the reason we have what we have.


Sent from my iPhone using Early Retirement Forum

Very sorry for your loss... I went through a similar situation a few years ago when DF passed and left a significant portfolio. The one thing I learned is to take a deep breath and do nothing immediately. Take stock of what you have, and look at your overall allocation with the new additions. Then you will have a better idea of how it fits into your financial goals. On one hand, it is a very good time to rebalance because of the stepped up basis, on the other hand you need take a good look at how it fits currently into your plan before doing anything. You may or may not need to tweak it much. I was fortunate enough to have inherited a pretty well diversified portfolio, although advisors where the account was held (Wells Fargo) had me start selling a lot of positions which, in hindsight, really did not need to be sold - can you say commissions? You have to be careful because many brokerage advisors will see gold when you tell them your story. Trust your own research and learn what you can. I eventually moved everything out of Wells Fargo and into Fidelity where I have many tools to analyze & manage the portfolio, along with a private client advisor that isn't pushy and doesn't rely on trade commissions.

It was a tough time, with the loss of a parent combined with the responsibility of taking something on that was so important to them. I still find myself now, years later, wishing I could ask my DF investment advice.

 

[robertf57]

I am sorry for your loss.

Given the stepped up basis, you certainly want to record what your cost basis is , so there are no questions down the road when you do sell. Definitely take the time to educate yourself before you do much of anything. One of things I would not wait to do o is assess any fees that are being paid through the accounts/funds and move everything if there are significant costs with the current custodian.

 

[rayinpenn]

Mine are all gone too Sorry for your loss...

Investing newbie may I suggest you read this:
http://www.transparentinvesting.com/uploads/wholestory.pdf

I've used the low cost diversified mutual funds suggested and dividend stocks to great effect. One other thing stay away from financial advisors study after study says they do more harm then good...



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[SumDay]

Kind of feel lost, this parent was my go to person for financial advice and the reason we have what we have.

I remember that feeling. Even though I was in my 50's, it really hit me hard when I realized I was an orphan. You have a "new normal" to adjust to, and you will.

As others have said, don't do anything for a while. I have also been lucky enough to receive an inheritance. I found this board, and learned a lot. But I still wasn't confident in my decisions. Someone here at ER suggested finding a fee only financial planner, which I did. While many on this board would never utilize one, I needed this help and reassurance, so to me, it was worth it. No active participation in our finances, just recommendations for which funds in our 401(k)s, Asset allocation, and lots of Vanguard love from her. Of course, YMMV.

Here are a few links that may help:

Fee-Only Financial Planner: What's the Difference? - Forbes (skip the ad)

https://www.napfa.org/

Good luck to you. Took me a while to get used to spending "their" money.

 

[pixelville]

Sorry about your loss.
As someone else pointed out, since you get step-up in cost basis, it is a time to evaluate it as your own. Think of it as cash, and what you would do with that cash - would you buy the same dividend paying stocks , or would you buy index funds, which vendor would you keep them with?
Also consider - What is your marginal tax rate? What impact would the dividends have on your taxes?
If you are quite new to investing, a decent option is some low cost index funds at Vanguard or Fidelity. Search for bogleheads wiki and educate yourself a bit. Feel free to post specifics of your current (and inherited) portfolio here or at Bogleheads forum and forum members will give you more specific advice.

 

[gerntz]

Since you have no cap gains now on those stocks right now, now is the perfect time to rebalance your assets to what you want with next to no tax consequences. Of course you have to know what you want.

 

[pacergal]

Thank you so much for the support and encouragement. I have some reading and more research to do! The estate is not settled yet. I want to give myself time to make good decisions. Several of you mentioned the capitol gains. Question: do I have this entire tax year to make any changes or do I have to do it right away when it changes to my name?

 

[ERD50]

Thank you so much for the support and encouragement. I have some reading and more research to do! The estate is not settled yet. I want to give myself time to make good decisions. Several of you mentioned the capitol gains. Question: do I have this entire tax year to make any changes or do I have to do it right away when it changes to my name?

If you are talking about adjusting the 'cost basis' (the record of what is used for its 'purchase' price'), then you really do not need to do anything until/if/when you sell it.

However, I would do it as soon as it is convenient, so that you don't forget, and/or the job doesn't end up falling on someone else, who might not be as aware of the full history.

I handled this for my FIL's estate, and updated the cost basis at the brokerage that I consolidated their holdings at (Fidelity in this case). It could all be done on-line, though there was one glitch where they got some record of cost basis from the transfer agent, and I can't change that on-line. But they said they would do it with a letter signed from my MIL (the trustee). The difference was small enough, and only affected a few shares (probably a dividend reinvestment?), I probably won't bother.

Of course, I'm just a random person on the internet, you should verify that on your own. But it should get you pointed in the right direction.

-ERD50

 

[Katiek]

First, sorry for your loss. As others have said, if you're feeling overwhelmed and confused or still emotional from your loss, now is not the time to make any big decisions. Your stepped up basis will apply whenever you sell, so you don't need to do anything now, just keep records of the value from the time of the death.

Once you're ready to address this situation, consider the inherited portfolio in the aggregate with your current portfolio. Is the overall asset allocation what you would want if you were starting from scratch? Are there excessive fees involved?

And try not to be emotionally attached to these particular investments if they're not right for you. Your parents wouldn't want you to keep things if they're not right for you. If you have some emotional attachment, you can always keep a few token shares, but try to take the emotion out of the investment question.

If you have particular questions, feel free to post questions here or at another forum like Bogleheads.

 

[GrayHare]

Thank you so much for the support and encouragement. I have some reading and more research to do! The estate is not settled yet. I want to give myself time to make good decisions. Several of you mentioned the capitol gains. Question: do I have this entire tax year to make any changes or do I have to do it right away when it changes to my name?

The new cost basis has already been set (it's not under your control). It's the average of the high and low share price on the date of death. If the stock market was closed on that day, the new cost basis calculation is a bit more complicated.

If the shares are at a brokerage, the brokerage can reset their record of the cost basis for you. Typically that involves you sending them a request form plus a death certificate.

If the shares are not at a brokerage, you need to do the calculation youself. You'll want to search online for historical stock prices. Don't put it off and forget because subsequent splits, buyouts, etc. can make calculating an old cost basis tediously difficult.

 

[Texas Proud]

Like others, sorry for your loss....

Also like others, take your time on any decisions... do not feel like you NEED to do anything right away...

A question that has not been asked... what kind of percentage is this portfolio compared to your own IOW, if it is small compared to what you have you might not have to do much of anything... but if it is 10X your portfolio... then you have to make some decisions on AA etc...


The one thing that I would want to know is where is the assets held... people are assuming things I would not... he might have it all in some high cost brokerage or investment company that would love to have you buy and sell stuff to make money off you.... so I would make a decision on the firm first before I made a decision on where to invest the money....

 

[wolf]

OP: Lots of good advice given. Given the fact you are asking the question,

start reading and learning. This site is pretty good.

Also, be very, very, very, careful of "financial advisors" and others trying to sell you products you do not need.

Very easy, to prey on the uninformed.

 

[rayinpenn]

Like the book the millionaire next door suggest a common trait of those who achieve financial independence is how you handle windfalls. We've been beneficiaries twice now I feel one way we show respect for the lost relative is too be judicious with the money. In our case we invested it in mutual funds and let it grow. Eventually the funds earnings will help fund retirement and hopefully will be legacy for our children.

A farewell gift to be enjoyed and respected...


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[marko]

Firecalc has us good to go on our own funds. Would it be advisable to leave this as is and let it ride?

From there, I can see no reason to not treat them as part of your overall Asset Allocation.

I think there's a tendency to keep the deceased alive in a way by keeping and viewing such funds separate as "Dad's/Mom's money". I've done the same thing out of some weird respect/rememberance.

It's ok to do this for a while, but as noted, it eventually needs to be absorbed into your overall portfolio and allocated appropriately.

 

[mpeirce]

I think there's a tendency to keep the deceased alive in a way by keeping and viewing such funds separate as "Dad's/Mom's money". I've done the same thing out of some weird respect/rememberance.

It's ok to do this for a while, but as noted, it eventually needs to be absorbed into your overall portfolio and allocated appropriately.

My DM has done this as well. She has a few ATT shares that she inherited from her DM and when I suggest she sell them, she doesn't want to. I don't push it, but it's fairly irrational (OK, maybe sentimental)

 

[Meadbh]

My DM has done this as well. She has a few ATT shares that she inherited from her DM and when I suggest she sell them, she doesn't want to. I don't push it, but it's fairly irrational (OK, maybe sentimental)

This is where it helps to be an INTJ like me. When I inherited a trust, a house and a portfolio, I had no hesitation in selling them and realigning the proceeds with my desired asset allocation. I don't need to own the house to keep happy memories, and I have no emotional attachment to funds selected by my mother's financial institutions many years ago.

 

[Sarah in SC]

I have a dear friend whose late husband was a tech guy, and I told her that she never had to sell his tech stocks if she didn't want to. It isn't a ton of money anyway, and it seems to me to be a small price for her to pay to maintain that connection. Just like hanging on to his favorite guitar.

 

[45th Birthday]

I have a dear friend whose late husband was a tech guy, and I told her that she never had to sell his tech stocks if she didn't want to. It isn't a ton of money anyway, and it seems to me to be a small price for her to pay to maintain that connection. Just like hanging on to his favorite guitar.

OP: sorry for your loss.

Sentiments like these make me cringe a little bit because one should separate emotions from investing wherever possible. It might be just a small amount of money, but still not the way to go. If you are looking to maintain that connection, find some other way.

 

[ExFlyBoy5]

This is where it helps to be an INTJ like me. When I inherited a trust, a house and a portfolio, I had no hesitation in selling them and realigning the proceeds with my desired asset allocation. I don't need to own the house to keep happy memories, and I have no emotional attachment to funds selected by my mother's financial institutions many years ago.

A little bit off the main topic, but I am scared about what my reaction will be when my Dad dies (Mom is already gone). Currently, I stand to inherit the house they designed and built 40 years ago. I was raised in that house and there are many, many good memories there but I won't have any real (logical reason) to keep it. But it's also sort-of a tribute to my Mom and Dad and that will make it very hard to part with. Because the house is older and on a large lot in a VERY desirable area, it is quite possible it would be bought by a developer and torn down to build 3 or 4 McMansions which just makes me ill thinking about it. I know the house is just that...a HOUSE. It isn't my parents and I know that, but it still bothers me thinking of it being destroyed.

NOW...back to the OP. There is lots of good advice here and I won't piggy back on what they say except I agree with avoiding financial advisors. There is a WEALTH of information out there to teach yourself all you need to know. Neither parents or I have EVER used a FA and we have done quite well for ourselves. I shutter at the thought of the MANY, MANY thousands of dollars that may have been wasted with 'management fees'. If there is a doubt as to what you want to do with the inheritance...just sit on it. Eventually, you will have enough knowledge to execute what is the best plan for YOUR situation.

 

[Jay_Gatsby]

A little bit off the main topic, but I am scared about what my reaction will be when my Dad dies (Mom is already gone). Currently, I stand to inherit the house they designed and built 40 years ago. I was raised in that house and there are many, many good memories there but I won't have any real (logical reason) to keep it. But it's also sort-of a tribute to my Mom and Dad and that will make it very hard to part with. Because the house is older and on a large lot in a VERY desirable area, it is quite possible it would be bought by a developer and torn down to build 3 or 4 McMansions which just makes me ill thinking about it. I know the house is just that...a HOUSE. It isn't my parents and I know that, but it still bothers me thinking of it being destroyed.

If you can afford to keep it, then do so. You can always rent it out for the income. Treat it as an investment property. Perhaps some day you will have children or grandchildren who won't earn enough to live in the very desirable area in which the house is located. While they may not have the emotional attachment you do, they would benefit greatly from the schools and proximity to wealthier folks (who could help their careers).

 

[ExFlyBoy5]

If you can afford to keep it, then do so. You can always rent it out for the income. Treat it as an investment property. Perhaps some day you will have children or grandchildren who won't earn enough to live in the very desirable area in which the house is located. While they may not have the emotional attachment you do, they would benefit greatly from the schools and proximity to wealthier folks (who could help their careers).

I have thought about keeping it, but it has quite a few idiosyncrasies that would make it slightly troublesome as a rental (such as the propensity for pipes to freeze). Like I said, logically, it's not smart to keep. Emotionally, it's a little tougher. Plus, when my Dad passes, I will most likely not stay in the area (or even the state) and the odds of me coming back to visit is very remote.