Helping with inheritance

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Topic Author
idealtrucks
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Joined: Wed Nov 07, 2018 11:56 am

Helping with inheritance

Post by idealtrucks »

Good afternoon,
My father in law is wanting some help from me with an inheritance he has received from his deceased parents. It's roughly $450,000 in CDs at the local bank. He is wanting to invest in something with better returns, but has no experience with investing. He and his wife don't necessarily need the money to live on as they both have a pension and social security. It will ultimately be left to my wife. In laws are in their mid-upper 60's now.
I'm probably going to recommend something such as the Vanguard Lifestrategy Growth fund. Is there anything else I should be looking out for with this? Tax implications for them maybe?
Thanks for any advice
lakpr
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Re: Helping with inheritance

Post by lakpr »

Life Strategy Growth sounds good!
ExitStageLeft
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Re: Helping with inheritance

Post by ExitStageLeft »

I would advise investing it as if they plan to use it for long term care. No more than 50% equities, perhaps lower. Tax considerations are definitely worth keeping in mind, but they presently are probably in a low bracket. Look at what expected annual tax burden would be for any proposed investment.

Depending on how much the pension is, their Social Security benefits have at least 15% that aren't taxable. You'll want to see how much adding interest income changes their taxes. That will help decide whether regular or muni bonds are appropriate.
delamer
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Re: Helping with inheritance

Post by delamer »

LifeStrategy Growth is very aggressive for people with no experience in investing.

Conservative Growth would be a better option.

Or Moderate Growth with 10% set aside in cash.

Recommendations might differ if they have other liquid assets in addition to the inheritance.
Gill
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Re: Helping with inheritance

Post by Gill »

For people in their 60's with no experience in investing, Lifestrategy Growth Fund is way too aggressive. I wouldn't suggest anything with more than 20% in equities, possible even a 100% bond fund. They won't be pleased if $450k turns into $225k!
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Broken Man 1999
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Re: Helping with inheritance

Post by Broken Man 1999 »

Is the inheritance the only retirement assets your wife's parents have? I mean besides pensions and SS.

If they already have other retirement assets, how are they invested?I

Just asking for investments for the inheritance is advising in isolation. What is needed for the best advice, the best answer is the answer that examines your wife's parents finances in total.

Then you can get a better range of appropriate investments.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
Topic Author
idealtrucks
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Re: Helping with inheritance

Post by idealtrucks »

I'll try to get some more information about their finances. They do have more of their own assets. Whatever they have would be in CDs at the local bank. I do not know how much they have though. Conservative Growth was what I actually had in mind. Posted on phone and guess the typing on that didn't come through.
Gill
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Re: Helping with inheritance

Post by Gill »

idealtrucks wrote: Wed Jan 08, 2020 4:09 pm I'll try to get some more information about their finances. They do have more of their own assets. Whatever they have would be in CDs at the local bank. I do not know how much they have though. Conservative Growth was what I actually had in mind. Posted on phone and guess the typing on that didn't come through.
If they've always been CD investors, Conservative Growth at 40% equities is still too much equities in my opinion. Must people who inherit $450k don't want to see it go to $430k let alone $225k.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
not4me
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Re: Helping with inheritance

Post by not4me »

idealtrucks wrote: Wed Jan 08, 2020 2:06 pm Tax implications for them maybe?
Seems there are always some tax implications & too many variables to really guess which are of most concern. At least initially I'd suggest a review of how the added income might affect their SS taxation and also whether this will trigger IRMAA. I'd do this with an eye toward eventually one of them filing as 'single'.
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Watty
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Re: Helping with inheritance

Post by Watty »

idealtrucks wrote: Wed Jan 08, 2020 2:06 pm He and his wife......

It will ultimately be left to my wife.

Is there anything else I should be looking out for with this?
The way you said "his wife" suggests that it is a second marriage.

Even if it is not he may want to talk to an estate planning lawyer about setting up a trust to control the money so that it will be handled in the way he would want.

I know of a situation where this happened.

1) Retired couple has several kids and seven figure portfolio.
2) Husband dies and leaves everything to his wife.
3) A few years later the wife remarries a guy that also has several kids.
4) They update their wills so that when one of them dies the new spouse gets the money, but when the second spouse dies the money will be split in a reasonable way between all their kids.
5) Woman dies, second husband gets the money.
6) Second husband changes his will to leave all the money to just his kids.
7) Second husband dies, his kids get all the money, the original couples kids check with a lawyer but there is nothing they can do.
idealtrucks wrote: Wed Jan 08, 2020 2:06 pm He and his wife don't necessarily need the money to live on as they both have a pension and social security.
If the pension does not have a COLA adjustment then it will be worth more over time.

When one of them dies they will only have one Social Security check and the pension may be reduced too.

If one of them needs to live in a nursing home their expenses may go way up.

There were not a lot of details but it may be too optimistic to say that they will not need the money.

How they invest this money should be part of their plan on how they invest any other money like money in IRA's. When looking at their asset allocation they need to look at all their investments combined. They may want to set up a three fund portfolio to help keep thing investments like bonds in the retirement accounts to reduce their taxes.

https://www.bogleheads.org/wiki/Three-fund_portfolio

If you/they want to just one one fund then then Vanguard Retirement Income fund would be worth looking at.

https://investor.vanguard.com/mutual-fu ... file/VTINX

It is very similar to the conservative life strategy funds but one advantage is that since it is named "Retirement Income" it may feel more comfortable for them. If something happens like the stock market tanks and it declines then it may be less awkward than if you picked out a Lifestrategy fund that you and they might sort of feel bad about using.
PVW
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Re: Helping with inheritance

Post by PVW »

Also be aware that when it comes time to make changes to the inherited CDs, the local bank might try to guide your in-laws into investments such as annuities or whole life. The sales pitch can be quite convincing coming from someone they have trusted with their money for a long time.

You should educate yourself on why these are typically bad investments so that you can properly advise your in-laws. Asking them to trust you might not be good enough.
Topic Author
idealtrucks
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Re: Helping with inheritance

Post by idealtrucks »

Thanks for the good points!
This is his only wife. Been married for 40+ years. The money is coming from his parents is why I was focusing on him, and she had never really handled the money in the household
Sounds like I need to get a better picture of what their current income and asset situation is like, make sure they have enough on their own to live on for the next 20+ years, and if there's enough, treat this as an emergency fund for long term care such as nursing home with very conservative investments. I'm sure he'll want to leave some in CDs.

I need to find out more info on their situation.
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ruralavalon
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Re: Helping with inheritance

Post by ruralavalon »

idealtrucks wrote: Wed Jan 08, 2020 2:06 pm Good afternoon,
My father in law is wanting some help from me with an inheritance he has received from his deceased parents. It's roughly $450,000 in CDs at the local bank. He is wanting to invest in something with better returns, but has no experience with investing. He and his wife don't necessarily need the money to live on as they both have a pension and social security. It will ultimately be left to my wife. In laws are in their mid-upper 60's now.
I'm probably going to recommend something such as the Vanguard Lifestrategy Growth fund. Is there anything else I should be looking out for with this? Tax implications for them maybe?
Thanks for any advice
idealtrucks wrote: Wed Jan 08, 2020 4:09 pm I'll try to get some more information about their finances. They do have more of their own assets. Whatever they have would be in CDs at the local bank. I do not know how much they have though. Conservative Growth was what I actually had in mind. Posted on phone and guess the typing on that didn't come through.
idealtrucks wrote: Wed Jan 08, 2020 4:48 pm Thanks for the good points!
This is his only wife. Been married for 40+ years. The money is coming from his parents is why I was focusing on him, and she had never really handled the money in the household
Sounds like I need to get a better picture of what their current income and asset situation is like, make sure they have enough on their own to live on for the next 20+ years, and if there's enough, treat this as an emergency fund for long term care such as nursing home with very conservative investments. I'm sure he'll want to leave some in CDs.

I need to find out more info on their situation.
Yes, collect more financial details.

Morningstar (11/25/2019), "Must-Know Statistics About Long-Term Care: 2019 Edition".

They could consult with an attorney for estate planning and tax issues.

In my opinion a reasonable asset allocation could be anywhere in the range 40% stocks/60% fixed income to 60% stocks/40% fixed income. That would accommodate substantial investments in CDs if that is what they want.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
retired@50
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Re: Helping with inheritance

Post by retired@50 »

idealtrucks wrote: Wed Jan 08, 2020 2:06 pm Good afternoon,
My father in law is wanting some help from me with an inheritance he has received from his deceased parents. It's roughly $450,000 in CDs at the local bank. He is wanting to invest in something with better returns, but has no experience with investing. He and his wife don't necessarily need the money to live on as they both have a pension and social security. It will ultimately be left to my wife. In laws are in their mid-upper 60's now.
I'm probably going to recommend something such as the Vanguard Lifestrategy Growth fund.

Is there anything else I should be looking out for with this?

Tax implications for them maybe?
Thanks for any advice
Are the assets in a taxable account or a retirement account?

* IF * a taxable account, $450,000 invested in some mix of stocks and bonds could easily generate $10,000 to $15,000 per year in dividends, interest, etc. You may want to look into a tax-managed fund like the Tax-Managed Balanced Index fund at Vanguard. Ticker = VTMFX.

Regards,
This is one person's opinion. Nothing more.
Dottie57
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Re: Helping with inheritance

Post by Dottie57 »

delamer wrote: Wed Jan 08, 2020 3:46 pm LifeStrategy Growth is very aggressive for people with no experience in investing.

Conservative Growth would be a better option.

Or Moderate Growth with 10% set aside in cash.

Recommendations might differ if they have other liquid assets in addition to the inheritance.

Agree on conservative growth for someone who has never experienced the downs of the market and are in their 60’s.
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Watty
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Re: Helping with inheritance

Post by Watty »

idealtrucks wrote: Wed Jan 08, 2020 4:48 pm I need to find out more info on their situation.
Even if you do not want to post the information here this is the suggested format for asking portfolio questions.

It would be a good checklist to use when you collecting that information.

viewtopic.php?f=1&t=6212
student
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Re: Helping with inheritance

Post by student »

I think rather than treating the inheritance as a separate pot of money, one should add it to the larger pot of retirement money and come up with a suitable asset allocation for it.
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