Inheritance Changing Lifestyle

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
arf1410
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Inheritance Changing Lifestyle

Post by arf1410 » Sat Apr 21, 2018 11:52 am

50-something couple, a couple kids not quite independent, but moving in the right direction. Annual family income ~$200k, but in a HCOL area, so we feel comfortable, but not rich. Retirement was reasonably funded and on track for a nice retirement in our early 60s- prior to this windfall.

My parents both died a couple years ago, though it has taken until about now to finish up the legal , financial, tax etc matters. They were very simple people, who drove basic cars, and at first glance, one would think "too bad their SS was not enough to properly maintain their house". Behind the scenes, they travelled internationally, ate well, and were generous with their $500k annual income, and 8 figure estate... and now I find myself with an extra $5M (50% in Trust) to figure out what to do with. Yes, I know, there are worse problems in life...

So, not sure what my exact question is, but some thoughts for comment;

/1/ from a basic investment perspective, I have that mostly under control on how to handle the funds, though will need to re-do my estate plan.

/2/ have already made a couple of 6-figure charitable donations, in honor of my folks.

/3/ I don't really need a Lexus, Gucci clothes, or a whole new lifestyle. I don't think that will increase our happiness in the long run.

/4/ My thoughts are maybe an extra family vacation a year, maybe an occasional extra home remodel project etc that I might not of otherwise done. Maybe retire at 60, instead of 62, if I'm not content with my job. Fund, maybe in full, my future grandkids college (neither kid is even married yet!)

/5/ Spouse seems to think this is the greenlight to buy unlimited "stuff". Not expense stuff that will make a significant dent in the bank balance. But just stuff that clutters up the house and closets and drawers, and mostly makes me LESS happy. Spouse also thinks this is the greenlight for unlimited vacation spending.

So, I guess my question is, how do I handle this windfall, keep harmony with the spouse, and make sure the kids stay well grounded and havent changed their financial expectations. They know the grandparents left some funds, but do not know the extent...
Last edited by arf1410 on Sat Apr 21, 2018 8:59 pm, edited 3 times in total.

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Sandtrap
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Re: Inheritance Changing Lifestyle

Post by Sandtrap » Sat Apr 21, 2018 12:04 pm

Welcome.
1
Google search the forum archives for "windfall". There are many that have been in your shoes so reading the situations and suggestions will help a lot.
2
Read and memorize:
MANAGING A WINDFALL
https://www.bogleheads.org/wiki/Managing_a_windfall

3
Resist the urge to "do something with the money".
4
Tell nobody
5
Resist turning to "help" in the form of "financial advisors, wealth managers, etc, etc.
6
Make it clear beyond a doubt that this is "your money" and you will "honor your parents legacy" by being as careful, prudent, and frugal with it as they have and wished you to have.
7
Depending on the state and local laws, this is "inherited" funds so is not community property. Check on this.
8
Set up your wills, trusts, if you have not already.
Read: Books on Wills, Trusts, and Estates
Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others)
https://www.amazon.com/gp/product/08873 ... UTF8&psc=1
9
Consider putting the funds/assets into "your" trust.
10
Wisely invest the funds/assets for the short and long term, for yourself, and the benefit of your "hares".
Do this by investing in a strong investment finance education for yourself.
Begin here in earnest:

Here is your "toolbox"
It might benefit you to step back a bit and get an overall view of things.
These are things you might do in this, sort of, actionable order to brush up on things you already know. . . . and learn a few new things.
You may get a more comprehensive quality end result.

1
Post a portfolio review to clean up, as needed, everything you have right now.
(Be sure to put in the fund names next to the Ticker Symbols) (edit your original post this way.)
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
2
Then get, "The Little Book on Common Sense Investing" by Jack Bogle ($14) which is the foundation for everything on this forum.
https://www.amazon.com/Little-Book-Comm ... jack+bogle
Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page
3
While you are waiting for the book, read this stuff. (you might know more than 90% of most folks when you're done).
Your Toolbox.
GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
4
While you are reading the links, start working on this and keep refining it to fit your needs.
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement
5
Keep reading:
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Outline of Financial Planning (with links)
https://www.bogleheads.org/wiki/Outlin ... _planning
Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Asset allocation in multiple accounts
https://www.bogleheads.org/wiki/Asset ... accounts
Risk Tolerance (what is your "sleep factor"?)
https://www.bogleheads.org/wiki/Risk_tolerance
Asset Allocation (what is right for you?) https://www.bogleheads.org/wiki/Asset_allocation
6
While you are doing all this be sure you have this:
Emergency Fund
https://www.bogleheads.org/wiki/Emergency_fund
7
And, read this free booklet.Free Reading: "If You Can" by Bernstein
https://www.google.com/url?sa=t&rct=j& ... -SB3S580I5
8
When you have a general grasp of basic concepts and post your portfolio review, separate post if needed or edit your original post, then use these tools to keep your funds, etc, in order, etc.

ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
https://members.morningstar.com/Registe ... L100&vUrl=

This is a general well worn path from start to launch on the way to "Bogleheadville".
I hope this is helpful to you.
good luck,
j :D

cadreamer2015
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Re: Inheritance Changing Lifestyle

Post by cadreamer2015 » Sat Apr 21, 2018 12:05 pm

It seems to me that your point #5 is the most serious one to resolve. I saw a recent FB post which said something like: I spent the first 2/3 of my left acquiring stuff that I will spend the last 1/3 of my life getting rid of. This spoke to me as I now am very reluctant to buy stuff that I or my kids will have to get rid of at some future date.

Seems like you and your spouse need to get on the same page regarding stuff, otherwise this may be an increasing source of stress and possible discord.
De gustibus non est disputandum

stan1
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Re: Inheritance Changing Lifestyle

Post by stan1 » Sat Apr 21, 2018 12:20 pm

Sounds like you have this under control from a financial perspective but the relationship part is sometimes harder. Any topic with a spouse or partner of any kind is best handled through frequent and open communication and compromise. I'd start slowly but over the course of time re-establish the families shared priorities with your spouse. It's OK to fly in business class instead of economy class on international flights and to replace 20 year old furniture. If your family has hobbies they enjoy let them partake. You can do some spending while still instilling a strong work ethic, helping others, and appreciation of education in your children if those are examples of your greater family priorities.

Spirit Rider
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Re: Inheritance Changing Lifestyle

Post by Spirit Rider » Sat Apr 21, 2018 12:33 pm

It is reasonable to add a small sustainable percentage of the iheritance to your budget. For example, 2% might be a very safe withdrawal rate. So you could probably use 1%-2% of the previous year-end balance, but use your own judgement.

The advantage of using such a fixed distribution amount is that it establish a limit on the amount that can be spent and prepares for retirement. It is a significant enough amount of money E.g. ($5M * 1% = $50K), that would increase your "income" by 20%. Hopefully, you only have the negotiation/argument once. Then at the end of each year you have fixed amount for the next year and the discussios are only about "what" to spend the money on.

Also, it is generaly best if the trust distributes all earnings to be taxed at your marginal tax rate than the almost certainly highest marinal tax rates (37%/23.8%) of the trust. You will want a plan for these distributions. Without one your wife is probably going to want to spend them all.

letsgobobby
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Re: Inheritance Changing Lifestyle

Post by letsgobobby » Sat Apr 21, 2018 12:37 pm

Sent PM

warner25
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Re: Inheritance Changing Lifestyle

Post by warner25 » Sat Apr 21, 2018 1:17 pm

It's easy to embrace frugality as a value or worthy end in itself, rather than as a means to an end. We spend years programming ourselves to shake our heads at other people who spend more than us, because it seems unwise and unnecessary. So as I try to imagine myself in your position, I know I'd struggle with the idea of spending more too.

But then I've been reading threads lately about people planning to leave inheritances, and not wanting it to change their kids' lifestyles, and I keep saying, "what's the point?" $5 million at your age is an opportunity to spend your time doing whatever you really want to do, wherever and whenever you really want to do it, for the rest of your lives. Just continuing to do what you've always done strikes me as potentially missing out on this fantastic opportunity. Of course you can do that and just give away all the money, and that's perfectly valid, but I think you need to really step back and brainstorm about what you want.

To be fair, I think your wife needs to do the same before she just defaults to filling the house with more and more stuff (and then looking for a bigger house...).

What do you guys dream about, together?

gotester2000
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Re: Inheritance Changing Lifestyle

Post by gotester2000 » Sat Apr 21, 2018 1:22 pm

Point 5 is the most important - how to manage spouse expectations? I have no advice on that as I myself have that issue. I am curious as to what practical approach fellow bogleheads take in this regard.

Hillview
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Re: Inheritance Changing Lifestyle

Post by Hillview » Sat Apr 21, 2018 1:31 pm

regarding #5 is there an amount that wife would find would make her happy as play money? and agree that the rest can be allocated in a more conservative approach? Are there specific things (wedding budget set aside, grandkids 529 plans, other) that would make her feel like she gets to "spend" the money in places that would make her happy without actually spending?

DarthSage
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Re: Inheritance Changing Lifestyle

Post by DarthSage » Sat Apr 21, 2018 3:27 pm

As I see it, the only real issue here is the wife viewing the inheritance as a windfall, versus the husband wanting to maintain it as a legacy. I have what might be a different take on it, though.

Imagine a typical frugal family, where the wife "makes do"--for example, she spends 10 years using the pot with the broken lid to cook dinner, because they're frugal and putting kids through college, etc. After an 8-figure windfall, might she be justified in purchasing a new pot, finally? If this is the sort of spending that your wife is doing, I find that reasonable.

Along a similar line, if she provided care and support to your parents in their declining years, might she feel justified in spending some of the inheritance money--which she surely helped preserve, by providing care?

As to the travel--I find there to be a huge difference between, say, staying in the Presidential Suite at the Ritz Carlton, overlooking the Champs-Elysees, ordering room service for a month, versus a family vacation of a lifetime--perhaps taking the family on an African safari or similar.

Now, it's also possible that the wife has dollar signs in her eyes. If that's the case, having a mutually agreed-upon "allowance" to fund her developing habit for expensive shoes, cars, jewelry, whatever, might be the way to go.

While I see the value in legacy money, and wanting to honor the decedents by treating it with respect, that doesn't necessarily mean not spending a dime. We're dealing with a similar thing here, only on a smaller scale. My in-laws believed in frugality, but they also believed in spending appropriately. Their big splurges were education and travel. We intend to continue this tradition--we still drive older cars that we run into the ground, but we'll fully fund college and take our children on nice trips. Not fancy trips, necessarily, but nice ones. With any luck, we'll one day introduce our grandchildren to the value of education and travel. First, though, we need to acquire some grandchildren!

aristotelian
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Re: Inheritance Changing Lifestyle

Post by aristotelian » Sat Apr 21, 2018 6:08 pm

Really sounds like a relationship question rather than financial question. I would put at least half of it in our Donor Advised Fund as we already have plenty of wealth for ourselves and our kids, and I do not like the idea of inherited wealth when there are much needier people in the world.

NotWhoYouThink
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Re: Inheritance Changing Lifestyle

Post by NotWhoYouThink » Sat Apr 21, 2018 6:41 pm

Inherited wealth should change your life. Why else would people leave money to their families? It won't make you different people, but it will allow you to make some different choices. It already has, since you have made some large gifts.

On the other hand, there is no amount of money so large you can't blow through it quickly by being profligate. So you need a plan. Maybe that's increasing your monthly budget by x%, maybe it's by putting together a list of home improvement and travel "wants" that you and your spouse prioritize. But there is no need to treat inherited wealth like a Beanie Baby collection - something weird your parents collected that you will keep to remember them but not use in any way.

Boglegrappler
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Re: Inheritance Changing Lifestyle

Post by Boglegrappler » Sat Apr 21, 2018 6:43 pm

If you have $5 million, invested in the S&P500, it will generate around 2% of dividends annually. Those should grow over time to at least keep pace with inflation, and so should the $5 million corpus of the inheritance.

Note that that means you have an additional household "earner" who can generate about $100k of annual income, pretax, which will be sustainable. That's it. Its like having a veteran teacher live with you and turn over all his income. Nice, but hardly life changing. It will pay for some vacations and things, but after tax you have about 55-60 thousand annually. Its easy to burn through that if you get confused about how rich you're not. Make this point to your wife.

I advise to be mighty cautious about supporting charities in six figure amounts. It's your call, but unless your parents were big supporters, and you want to continue, I'd be less magnanimous.

If burning through it isn't a big deal, then ignore what I've said above. :)

drk
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Re: Inheritance Changing Lifestyle

Post by drk » Sat Apr 21, 2018 6:49 pm

Boglegrappler wrote:
Sat Apr 21, 2018 6:43 pm
If you have $5 million, invested in the S&P500, it will generate around 2% of dividends annually. Those should grow over time to at least keep pace with inflation, and so should the $5 million corpus of the inheritance.

Note that that means you have an additional household "earner" who can generate about $100k of annual income, pretax, which will be sustainable. That's it. Its like having a veteran teacher live with you and turn over all his income. Nice, but hardly life changing. It will pay for some vacations and things, but after tax you have about 55-60 thousand annually. Its easy to burn through that if you get confused about how rich you're not. Make this point to your wife.
I agree with all of this, but I would note that $55-60k after-tax is incorrect. With the Vanguard 500 fund producing 100% qualified dividend income, that 2% dividend yield would be taxed at long-term capital gains rates, putting the after-tax amount at $85k. (Of course, that 15% rate assumes that OP doesn't have some tax-bracket-busting magic going on with that $200k family income.)

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onthecusp
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Re: Inheritance Changing Lifestyle

Post by onthecusp » Sat Apr 21, 2018 7:02 pm

So far your wife wants to increase spending some minor amount, and your comments indicate money is not really the issue. You also say your issue with it is clutter and that can be a real problem but is it going to go that far?

Could you discuss it in a manner where you say that you like the uncluttered house and life, and you are concerned that your own and her accumulation could get out of hand? Maybe discuss a one thing in, one thing out rule, or two in one out. Anyone can go overboard for awhile, but if there is a commitment for less fun action associated with that she might do some upgrades and then be over it. Include her in the (maybe slower) charitable giving decisions and presentation of the gifts.

In edit I wanted to agree with some above comments about emphasizing the conservative income increase this represents, not the $5MM lump sum. That goes for her and you. It is an incremental but significant amount so a little loosening in a few areas of the budget is reasonable.

Good Listener
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Re: Inheritance Changing Lifestyle

Post by Good Listener » Sat Apr 21, 2018 8:02 pm

I would beware a spouse trying to abuse this. How dare he/she.

WorkToLive
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Re: Inheritance Changing Lifestyle

Post by WorkToLive » Sat Apr 21, 2018 8:35 pm

Not sure why folks are assuming that OP is a man and the spouse is a woman. In my family, the one spending more money would certainly be the husband. I agree with the previous posters that this is a relationship issue and not a financial problem. Is your spouse aligned with your long-term goals for retirement age and lifestyle during retirement? That’s where I would start. What is important to you and your family?

LarryAllen
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Re: Inheritance Changing Lifestyle

Post by LarryAllen » Sat Apr 21, 2018 8:46 pm

I would cut the spouse off quick and completely.

I inherited more and have done my best to not change my lifestyle. However, things happen; i.e. you fix up your house, take an extra vacation, etc.... I would do everything I could to not change a thing... because you will even if you don't think you do.

I would tell absolutely nobody. It will work against you.

Try your best to keep living your life as if nothing has changed.

When you give larger than normal charitable gifts maybe make it anonymous!?

It's a nice nest egg you have received but it's not unlimited money. It can be spent very easily if you aren't careful.

Back to point one... cut spouse off now.

You should get your own estate planning attorney and set it up how you want.

Good luck.

downshiftme
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Re: Inheritance Changing Lifestyle

Post by downshiftme » Sat Apr 21, 2018 8:52 pm

If you have a lifestyle you like and can comfortably afford, be careful and slow about how you consider ratcheting up spending. Especially with kids still becoming independent you want to do as much as you can to reinforce good self-reliant habits as they transition to independent adults.

Also, stealth seems like a very good idea here. Enjoying a few family outings seems like a good way to build some memories. Buying whatever spouse wants and losing all sense of fiscal restraint seems like a recipe to disaster. Some nice things and a little indulgence seems great. Too much can spoil your kids and damage your relationship. Seems like you may have a need for some considerable conversations to get on the same page with your spouse.

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Procopius
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Re: Inheritance Changing Lifestyle

Post by Procopius » Sat Apr 21, 2018 8:57 pm

OP,

It sounds like you may want to think about some boundaries for your spouse's spending, and then have a talk with him. I say "him" because your spouse sounds just like my father, whose love of stuff drives my minimalist mother batty. Women and men can overspend with equal enthusiasm, but women get criticized for it more. Propose a monthly budget for his purchases, and a budget for vacations, and see what he has to say. I think a little initial loosening of the purse strings after a windfall is not necessarily a problem, but I agree that you don't want it to go on indefinitely. Congratulations and good luck!

jminv
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Re: Inheritance Changing Lifestyle

Post by jminv » Sat Apr 21, 2018 9:02 pm

I would set aside the after tax dividends earned each year and add them to your budget to fund things you both want/want to do. I'm sure you can find some spending interests where both your interests intersect. Then you can make your own decision about the principal plus cap gains and whether you're going to spend it in your lifetime, give to kids/grandkids as you mentioned. I'd try to stop family discord before it goes on much longer and let her know how you feel about clutter, in particular, although I would imagine she must know this... I would suspect that giving a large amount of charitable donations in their names led your wife to believe that this was the start of a somewhat different existence, given that you spent freely there. My own wife has a greater propensity to spend than I do (although I don't have an inheritance, I am just cheap so I can accumulate) and it led me to talk about how I felt about spending money with her. It can be frustrating and I'd say we differ most often on how much we are willing to spend on 'experiences'. We've reached an agreeable balance.

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Sandtrap
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Re: Inheritance Changing Lifestyle

Post by Sandtrap » Sat Apr 21, 2018 9:58 pm

An actionable aside.
Wouldn't careful stewardship of said "inheritance" be the greatest respect and appreciation for a loved one's life earnings (one dollar at a time)?

j

delamer
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Re: Inheritance Changing Lifestyle

Post by delamer » Sat Apr 21, 2018 10:26 pm

I received a significant inheritance, although not as large as yours, a couple of years ago.

I kept the inheritance in my name only. In the tragic event that we outlive our children, any of our marital assets left after our deaths go to my husband’s birth family. I did not want my parents’ money to go to my husband’s family, so my inheritance will go to charity.

I decided since my husband and I have to pay taxes on the interest/dividends/capital gains thrown off by my inheritance account that we should get the use of those earnings. So those earnings get moved to our checking account and are a source of income, just like salaries, pensions, and Social Security. They are just more dollars, not spent (or saved) for anything specfic.

The principal is earmarked for 1) helping our kids — with graduate school, retirement savings,home downpayments, their kids’ educations, and other significant expenses or 2) long-term care expenses for my husband and me in a worst case scenario.

With your level of inheritance, I’d consider starting to gift the federal exclusion ($14,000) to your kids each year. That would be enough for them to enjoy themselves and/or save (if you so choose to enforce it) but certainly not enough to allow them not to work. You could use part of it to contribute to Roth IRAs for them.

I have no good ideas on your spouse, except emphasizing that you feel an obligation to your parents to honor their intentions.

Good luck.
Last edited by delamer on Sat Apr 21, 2018 11:08 pm, edited 2 times in total.

PhilosophyAndrew
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Re: Inheritance Changing Lifestyle

Post by PhilosophyAndrew » Sat Apr 21, 2018 10:53 pm

If you wish to allocate all or most of your inheritance to charity or bequests, I would have an adult conversation with your spouse about this to try to work with her to set some mutually recognized and accepted spending boundaries.

If, however, you don’t have a principled reason to begrudge your spouse’s “small” spending (and by itself personal pique or sadness or anger or resentment about those purchases is not a principled reason for objecting), I would consider trying to set your own negative emotions aside and support your spouse as long as the purchases make your spouse happy or your spouse’s life better. What is the harm in showing some grace about this, especially if, as you report, the purchases are small?

From your spouse’s point of view, your willingness to spend relatively large portions of the inheritance on charitable gifts may make it hard to understand why you begrudge small purchases that your spouse wishes to make. However you proceed, I would try to understand your spouse’s feelings, perceptions, and desires of both her desired spending and about your attitudes toward that spending and your inheritance.

Big spending on vacations should be the subject of adult conversation and mutual consent. But why sweat small purchases that might be meaningful to your spouse?

Andy.

Dottie57
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Re: Inheritance Changing Lifestyle

Post by Dottie57 » Sat Apr 21, 2018 11:10 pm

WorkToLive wrote:
Sat Apr 21, 2018 8:35 pm
Not sure why folks are assuming that OP is a man and the spouse is a woman. In my family, the one spending more money would certainly be the husband. I agree with the previous posters that this is a relationship issue and not a financial problem. Is your spouse aligned with your long-term goals for retirement age and lifestyle during retirement? That’s where I would start. What is important to you and your family?
In my limited experience I've seen the husband be the hoarder and the husband being the big spender causing big problems.
The rest of couples were on the same page-for better or worse.

arf1410
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Re: Inheritance Changing Lifestyle

Post by arf1410 » Sat Apr 21, 2018 11:42 pm

OP here! Lots of great comments. OP is a male, spouse female, but it was fun to watch the speculation! I was intentionally non sex specific at first, but I guess it doesn't really matter

The total charitable donations were about 5% of estate, in part because we (sibling and I) wanted to honor our parents legacy, but also because there were some retirement funds distributions that could NOT be rolled into an inherited IRA, and we each had separate appreciated securities... so the net cost of those donations was not as great. But yes, as several here noted, that did cause some resentment from wife.. Small residual put in Donor Advised Fund, for future use, that was put in in 2017 to take advantage of tax rules in place then,

Good observations that /5/ is the big deal...

Good example about me begrudging a wife a new set of pots... as essentially that was a real example! I was actually fine with new pots , but refusal to get rid of old ones, and large kitchen getting so full cabinets and drawers don't close does frustrate me

Good suggestions about taking a portion of the earnings (% or specific $$) that wife can have more or full control over.

Already gifting to kids up to Roth IRA limits...but over the next several years will up that..

searched this forum for "windfall" , but most of what I saw is financial / investment questions and advice, not "life" or marital advice (maybe a psychiatrist or marriage counselor would have been a better place to go than this forum? :) )

And based on other comments in Bogleheads, already got Beyond the Grave to read!

please continuing providing input, I do appreciate it!

DavidW
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Re: Inheritance Changing Lifestyle

Post by DavidW » Sun Apr 22, 2018 1:59 am

Hi OP.

If your interest is in the human side, take a look at this site. http://inheritance-project.com/cms/ There are samples you can read but you have to buy the files. It is well worth the money

The authors met with those that inherited large wealth and in a good number of cases, the kids lives were altered...

There are cases where the wealth benefited them in other ways but that is more of an exception than the norm.

msk
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Re: Inheritance Changing Lifestyle

Post by msk » Sun Apr 22, 2018 3:10 am

My view is that you will NOT change spouse's attitude. Find a way of living with it and be happy. My solution was to specify the max we can "afford" to spend on a monthly basis and let DW know. Basically for more than 50 years I put a certain $ amount into our joint chequing account and DW did stick without going into the red. But first you have to have an over-view plan that makes sense to both of you. E.g. I would put all the inheritance into 100% stocks worldwide (e.g. VT) and plan on withdrawing 5% of portfolio value annually, 12 monthly instalments. That ought to maintain the value of the inheritance forever, including inflation, for children and grandchildren. Each year tell DW how much that 5% is and all stick to that spending limit. Only time one can exceed is to buy a larger home, cash. A home, wisely chosen, will, on average, keep up with inflation forever. So it is not wasteful spending. Cars, travel, furniture, etc. are consumables and they have to squeeze into the 5%. New kitchen? Plenty of arguments lurking there as to whether it's consumerism or adding to home value. OK, you can argue half heartedly :mrgreen: Good luck, but your DW is also right. YOLO!

VaR
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Re: Inheritance Changing Lifestyle

Post by VaR » Sun Apr 22, 2018 4:07 am

Does the inheritance mean you've "hit your number" and can retire now? Do you two want to retire this early?

Do you live under a current budget? If so, I'd recalculate the current budget given the extra assets. There are a couple of ways you could do this.

You say that 50% of the funds are in a trust. How much of the income from the trust is distributed to you? Does the trust ever dissolve?

For me, the bottom line would be recalculating what my expense desires are for the next 10 years until retirement as well as my expense desires are in retirement. I'd then compare that to current assets, income, savings and projected returns to determine which of the following situations I'm in:
1. Current assets will generate income greater than expenses.
2. Current assets will generate income greater than expenses after N years of continuing to work and save.

If you're in situation 2, you're really in the same situation you were in before the inheritance, just with a bigger budget.

If you're in situation 1, you have a different problem and we can discuss this problem in this thread after you tell us you need help with this situation.

Critical point: You probably do not want to be in a situation where you're looking at a significant decline in budget after retirement. For example, if you blow $1 million a year for the next 5 years, you will probably be very unhappy in year 6.

10YearPlan
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Re: Inheritance Changing Lifestyle

Post by 10YearPlan » Sun Apr 22, 2018 10:29 am

I didn't read the other responses yet, but the first thing that struck me is that there is a world between 4 and 5 that needs to be explored.

If you inherit $5M at age 50something, when already on track for retirement and don't change your lifestyle, that to me is a missed opportunity.

Unless you love your job(s), I'd be inclined to put retirement on the agenda for one or both of you.
I'd definitely tuck much of it away, and once you know you're "set", I'd also definitely look at my spending priorities, and my spouses' priorities (if different) and find a way to do/buy some of those things that have been on "the list" for a while now. Set aside some "mad money" for each of you to spend as you please: maybe that means Gucci loafers every once in a while. Wherever possible, I'd try to find a way to do both.

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Re: Inheritance Changing Lifestyle

Post by Glockenspiel » Sun Apr 22, 2018 10:40 am

Ask yourself “what will make me and my family happy?” Then, do that. $5m is enough to retire right now and spend time with your family and friends. I would focus on experiences over things. Do you enjoy traveling? It sounds like your wife does, so I would be open to negotiating to travel more. Education for grandkids will leave a lasting legacy and help set their families up for the future as well.

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Sandtrap
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Re: Inheritance Changing Lifestyle

Post by Sandtrap » Sun Apr 22, 2018 10:45 am

1
If you do not set financial and behavioral boundaries, then there will be none.
2
If you do not adhere to the above, self included, there will be none.

And, then the unspoken relationship will change from "team" to "enabler, provider, . . . AKA . . "the bank".
And, like a child's first taste of Halloween candy, there's no turning back once you've done #1, and #2.

$100 does not seem like much when given out from a $100,000 account. . . . just once. . .
Add digits and zeroes and it's the same. Not financial but behavioral. And, with each repetition, reinforcement of habit.

Regarding impartiality: it is human nature to do "me too" and "what about me". So while one might do well with compartmentalization. IE: charitable donation vs splurge vs gift vs need. Other's do not see it that way, and perhaps, may not be incapable of seeing it that way.

A lot of things about human relationships change when a substantial inheritance is in the equation. Some temporary, some permanent. Some good. Some not so. And, one thing for certain, the inherit nature of people will indeed be revealed, good or bad. So it is important not to be "jaded" about what is revealed in others. Here, discretion is the better part of . . .

Patience.
Do nothing for awhile, or for a very long time.
The urge to "do something" in these situations is strong. Doing nothing is doing something.
Stop for awhile. Don't talk about it. Don't do anything with the funds. Don't hand out anything. Don't spend or buy anything.
Resist the urge to "please others", "satisfy their needs and wants and desires and urges", or "react to the situation".
It will feel "lonely", "isolated", and "burdensome", but that is not different from the reality of things before the inheritance.
Let the fire down a bit by not feeding it.

There is nothing wrong with some "together time" with spouse, whether vacations, or inexpensive things to make her happy. That is sharing in your good fortunes. The feeling of doing and experiencing things together. It does not or may, or may not, mean the she is going to be a "spendthrift". If she was not before the "windfall" then odds are she will not be now, and vs vs.

Some random thoughts from personal experience.
aloha
j :D

NotWhoYouThink
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Re: Inheritance Changing Lifestyle

Post by NotWhoYouThink » Sun Apr 22, 2018 10:54 am

Not talking about it with friends is one thing. Not talking about it with your spouse is toxic.

$5M is surely not lifestyles of the rich and famous money. It might be Embassy Suites instead of Hampton Inn money. There is nothing particularly noble about not spending it ever or giving it all away, but you don't want to let it slip through your hands without really knowing where it went. So think it through, talk it out. Remember that even though it is your inheritance it affects your spouse as well, just as every other financial part of your life together has.

Hope you learn to enjoy it.

wrongfunds
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Re: Inheritance Changing Lifestyle

Post by wrongfunds » Sun Apr 22, 2018 11:06 am

I think the advice "cut spouse off now" must be a joke but with BH, one never knows! I do agree that with $5M, great divorce lawyer could be found.

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Re: Inheritance Changing Lifestyle

Post by Dottie57 » Sun Apr 22, 2018 11:35 am

arf1410 wrote:
Sat Apr 21, 2018 11:42 pm
OP here! Lots of great comments. OP is a male, spouse female, but it was fun to watch the speculation! I was intentionally non sex specific at first, but I guess it doesn't really matter

The total charitable donations were about 5% of estate, in part because we (sibling and I) wanted to honor our parents legacy, but also because there were some retirement funds distributions that could NOT be rolled into an inherited IRA, and we each had separate appreciated securities... so the net cost of those donations was not as great. But yes, as several here noted, that did cause some resentment from wife.. Small residual put in Donor Advised Fund, for future use, that was put in in 2017 to take advantage of tax rules in place then,

Good observations that /5/ is the big deal...

Good example about me begrudging a wife a new set of pots... as essentially that was a real example! I was actually fine with new pots , but refusal to get rid of old ones, and large kitchen getting so full cabinets and drawers don't close does frustrate me

Good suggestions about taking a portion of the earnings (% or specific $$) that wife can have more or full control over.

Already gifting to kids up to Roth IRA limits...but over the next several years will up that..

searched this forum for "windfall" , but most of what I saw is financial / investment questions and advice, not "life" or marital advice (maybe a psychiatrist or marriage counselor would have been a better place to go than this forum? :) )

And based on other comments in Bogleheads, already got Beyond the Grave to read!

please continuing providing input, I do appreciate it!
OP

I do hope you and spouse take the dividends each year and spend. Fully fund kids college - didn't hurt me in the least to be debt free at the end of college. And taking interesting vacations would be high on my list. Activities at home you might have never pursued. Learning to create pottery, glass, stained glass. There is a rocking chair that feels wonderful on my back - it is about 7k , handmade with very interesting wood. With 5m, I think I would buy the chair.

A rule to get rid of old before bringing in something new is an excellent Idea for anything in the house.

And of course don't defer any needed home or car maintenance.

SQRT
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Re: Inheritance Changing Lifestyle

Post by SQRT » Sun Apr 22, 2018 12:25 pm

NotWhoYouThink wrote:
Sat Apr 21, 2018 6:41 pm
Inherited wealth should change your life. Why else would people leave money to their families? It won't make you different people, but it will allow you to make some different choices. It already has, since you have made some large gifts.

On the other hand, there is no amount of money so large you can't blow through it quickly by being profligate. So you need a plan. Maybe that's increasing your monthly budget by x%, maybe it's by putting together a list of home improvement and travel "wants" that you and your spouse prioritize. But there is no need to treat inherited wealth like a Beanie Baby collection - something weird your parents collected that you will keep to remember them but not use in any way.
This is a reasonable view. It does take a while to get comfortable with a new higher wealth level, especially if it arrives suddenly. My net worth went from nil to well into 8 figures in about 5-7 years. I struggled with some of the issues you mention. Takes time. Don’t change your lifestyle too much before you get comfortable with your new wealth. In the overall scheme of things $5million generates an extra $100-200k pretax per year. Think $100-200k not $5million. Big percentage increase but perhaps not really that hard to deal with?

My spouse and I still sit down every year and agree on how we will generally spend our cash flow for the next three years. Setting priorities is fun, especially when the cash flow is sizeable. Over time you will hopefully converge in your thinking.

Sit down with your spouse and put together a new spending plan focussing on the extra yearly cash flow. Funding education, charitable giving, travel, some renos, and its pretty well gone. You can only spend itor give it away, now or later. Good problem to have.

warner25
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Re: Inheritance Changing Lifestyle

Post by warner25 » Sun Apr 22, 2018 1:18 pm

Boglegrappler wrote:
Sat Apr 21, 2018 6:43 pm
If you have $5 million, invested in the S&P500, it will generate around 2% of dividends annually... that means you have an additional household "earner" who can generate about $100k of annual income, pretax, which will be sustainable. That's it. Its like having a veteran teacher live with you and turn over all his income. Nice, but hardly life changing...
I'm wondering: What would you define as "life changing?"

First of all, withdrawing only 2%, especially for someone already in his 50s, is exceptionally conservative, even for Bogleheads. Call it 4% and we're talking $200k annually. That might be 2x the OP's current spending level, and it's totally passive.

In my case, I'd set aside $1 million to buy a very nice house and send my kids to college. Then spending 3% (I'm 20 years younger than the OP) of the remaining $4 million would let me quit my job for something more fun while simultaneously increasing spending by 3x or 4x. That's certainly life changing to me.

Your estimate of a $100k salary for a veteran teacher says you probably live in a very high-cost area, which I guess skews perspective.

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Re: Inheritance Changing Lifestyle

Post by Sam1 » Sun Apr 22, 2018 2:50 pm

I strongly disagree that this isn’t a lot of money and isn’t life changing. Like you, I live a HCOL City. The vast majority of my income (over 80 percent!) is spent on housing, childcare, retirement savings and 529s.

You say you’re on track for retirement already so you don’t even need this money for retirement. I’m assuming you don’t have childcare expenses or 529s?

Instead, I’d go and buy a $2 mm property in a desirable neighborhood. Life is short. Where have you always wanted to live? $2 mm isn’t enough to move someplace crazy like Malibu, but it is enough to even buy a decent apartment in Manhattan.

Then take the other $3 million and invest it in index funds. Continue working whether it’s in your new or same location so you don’t have to spend down your portfolio.

On another thread I commented how I spend over 80 percent of our taxhome pay on fixed costs and savings. If I received $2 million and could knock out our college savings and housing, I’d be in fantastic shape. Right now we pull in around 425k and only spend 60-70k outside of housing, taxes, savings, childcare and 529s. Meaning I really only need 60-70k to live off of if I didn’t have these costs. Of course we try and save between 5-7k each month outside of retirement, but still....

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Re: Inheritance Changing Lifestyle

Post by arf1410 » Sun Apr 22, 2018 3:02 pm

Obviously, $5M is not Rockefeller money... but if one considers not the baseline of $200k annual salary, but say, after taxes and expenses are paid, one has $25k left to "play" with ... now one has $125k left to play with... so that could be considered life changing - 5X the discretionary spending available...

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Re: Inheritance Changing Lifestyle

Post by Sam1 » Sun Apr 22, 2018 3:11 pm

arf1410 wrote:
Sun Apr 22, 2018 3:02 pm
Obviously, $5M is not Rockefeller money... but if one considers not the baseline of $200k annual salary, but say, after taxes and expenses are paid, one has $25k left to "play" with ... now one has $125k left to play with... so that could be considered life changing - 5X the discretionary spending available...
Exactly. And the ability to purhAse property in a HCOL in cash is HUGE.

arf1410
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Re: Inheritance Changing Lifestyle

Post by arf1410 » Sun Apr 22, 2018 3:14 pm

Sam1 wrote:
Sun Apr 22, 2018 3:11 pm
arf1410 wrote:
Sun Apr 22, 2018 3:02 pm
Obviously, $5M is not Rockefeller money... but if one considers not the baseline of $200k annual salary, but say, after taxes and expenses are paid, one has $25k left to "play" with ... now one has $125k left to play with... so that could be considered life changing - 5X the discretionary spending available...
Exactly. And the ability to purhAse property in a HCOL in cash is HUGE.
We've already got a ~$1.5M house in a nice neighborhood, that is almost paid for... would probably need $3-5M to really get an "oh wow" house around here... we are considering a second home ...

Sam1
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Re: Inheritance Changing Lifestyle

Post by Sam1 » Sun Apr 22, 2018 3:18 pm

Interesting. Are you in LA? Because even in Manhattan $3 million gets you a pretty decent place. And I have expensive taste.

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Re: Inheritance Changing Lifestyle

Post by Sam1 » Sun Apr 22, 2018 3:21 pm

arf1410 wrote:
Sun Apr 22, 2018 3:14 pm
Sam1 wrote:
Sun Apr 22, 2018 3:11 pm
arf1410 wrote:
Sun Apr 22, 2018 3:02 pm
Obviously, $5M is not Rockefeller money... but if one considers not the baseline of $200k annual salary, but say, after taxes and expenses are paid, one has $25k left to "play" with ... now one has $125k left to play with... so that could be considered life changing - 5X the discretionary spending available...
Exactly. And the ability to purhAse property in a HCOL in cash is HUGE.
We've already got a ~$1.5M house in a nice neighborhood, that is almost paid for... would probably need $3-5M to really get an "oh wow" house around here... we are considering a second home ...
I misread your post and thought you meant you needed $4.5 million to get a wow house.

I’m in DC and agree that $1.5 is an average house. I think when you get over the $2 mm mark is when you start getting more for your money.

We are at $1 million and only have one full bath.

arf1410
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Re: Inheritance Changing Lifestyle

Post by arf1410 » Sun Apr 22, 2018 3:23 pm

Seattle ... Not saying $2-2.5M wouldn't get us a house a little nicer... but there is really no point in the PITA of moving, to get just a "little nicer." Some newer data shows that this area is now as, or more expensive than both LA and NYC, only behind Bay Area, Honolulu, and maybe DC. About the only thing that would really be an improvement at this point is waterfront. And $2-3M would probably get you a starter/ fixer-upper on the water, but house itself would be much worse, and smaller than we have now ..

Sam1
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Re: Inheritance Changing Lifestyle

Post by Sam1 » Sun Apr 22, 2018 5:47 pm

arf1410 wrote:
Sun Apr 22, 2018 3:23 pm
Seattle ... Not saying $2-2.5M wouldn't get us a house a little nicer... but there is really no point in the PITA of moving, to get just a "little nicer." Some newer data shows that this area is now as, or more expensive than both LA and NYC, only behind Bay Area, Honolulu, and maybe DC. About the only thing that would really be an improvement at this point is waterfront. And $2-3M would probably get you a starter/ fixer-upper on the water, but house itself would be much worse, and smaller than we have now ..
Yeah sorry I don’t buy that Seattle is as expensive as LA and NYC. Just going to Redfin I can find some adorable homes in what appear to be good Seattle neighborhoods for $1 million with decent rates elementary schools. $1 million gets you a one bedroom apartment in Manhattan.

I find it hard to believe that spending an extra $1 million wouldn’t get you a nicer home. For example this one.

https://www.redfin.com/WA/Seattle/356-G ... ome/132492

I also see multiple homes in water views between $2-3 that aren’t starter homes. Sorry, but there aren’t $2 million dollar starter homes anywhere in the US. There simply isn’t enough money in Seattle to support $2 million starter homes!

https://www.redfin.com/WA/Seattle/1965- ... ome/288734

Hug401k
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Re: Inheritance Changing Lifestyle

Post by Hug401k » Sun Apr 22, 2018 6:28 pm

Did I just read you inherited $5M and you are upset your wife bought new pots and pans? :shock: :oops:

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Pajamas
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Re: Inheritance Changing Lifestyle

Post by Pajamas » Sun Apr 22, 2018 6:35 pm

Hug401k wrote:
Sun Apr 22, 2018 6:28 pm
Did I just read you inherited $5M and you are upset your wife bought new pots and pans? :shock: :oops:
I didn't interpret it that way, seems like he is more worried about the clutter:
arf1410 wrote:
Sat Apr 21, 2018 11:42 pm
Good example about me begrudging a wife a new set of pots... as essentially that was a real example! I was actually fine with new pots , but refusal to get rid of old ones, and large kitchen getting so full cabinets and drawers don't close does frustrate me

arf1410
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Re: Inheritance Changing Lifestyle

Post by arf1410 » Sun Apr 22, 2018 8:43 pm

Sam1 wrote:
Sun Apr 22, 2018 5:47 pm
arf1410 wrote:
Sun Apr 22, 2018 3:23 pm
Seattle ... Not saying $2-2.5M wouldn't get us a house a little nicer... but there is really no point in the PITA of moving, to get just a "little nicer." Some newer data shows that this area is now as, or more expensive than both LA and NYC, only behind Bay Area, Honolulu, and maybe DC. About the only thing that would really be an improvement at this point is waterfront. And $2-3M would probably get you a starter/ fixer-upper on the water, but house itself would be much worse, and smaller than we have now ..
Yeah sorry I don’t buy that Seattle is as expensive as LA and NYC. Just going to Redfin I can find some adorable homes in what appear to be good Seattle neighborhoods for $1 million with decent rates elementary schools. $1 million gets you a one bedroom apartment in Manhattan.

I find it hard to believe that spending an extra $1 million wouldn’t get you a nicer home. For example this one.

https://www.redfin.com/WA/Seattle/356-G ... ome/132492

I also see multiple homes in water views between $2-3 that aren’t starter homes. Sorry, but there aren’t $2 million dollar starter homes anywhere in the US. There simply isn’t enough money in Seattle to support $2 million starter homes!

https://www.redfin.com/WA/Seattle/1965- ... ome/288734
Actually we live in suburban Seattle, not Seattle itself. When we did a local "move-up" 15 years ago, though the numbers were of course smaller, we had to double what we sold our previous house for, to "move-up". I'm not saying that 50% more $$ wouldn't have gotten us a nicer house, but not enough nicer to make the complete hassle of moving worth the effort. AS far as that redfin house you listed. The house looked nice, but the area, not so much. That second home you posted was one step nicer than what we've got, but not enough to really make moving worth the hassle.

$2M is indeed the cost for a "starter home" on Mercer Island, and a few other high end spots. That said, a "starter home" there isnt necessarily a 1200 sqf shack. Also - I said ON THE WATER, not water view. Big difference! In fact we've got a friend who about 3-4 years ago, spent $2.4M for a house on the water of a"lesser" lake near us, and it was essentially a tear down and re-build.

Just checked some data - you are correct, NYC is still much more $$$, but southern CA, comparable.

In my neighborhood of $1.3-1.6M houses (near MSFT), the few that have gone on the market have averaged ~12 offers, the first weekend listed, and generally sell for about 10% over asking.

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HomerJ
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Re: Inheritance Changing Lifestyle

Post by HomerJ » Sun Apr 22, 2018 8:51 pm

Sandtrap wrote:
Sat Apr 21, 2018 12:04 pm
Make it clear beyond a doubt that this is "your money" and you will "honor your parents legacy" by being as careful, prudent, and frugal with it as they have and wished you to have.
Yikes, do not do that unless you want to get divorced.

Convince her, don't just tell her.

PhilosophyAndrew
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Re: Inheritance Changing Lifestyle

Post by PhilosophyAndrew » Sun Apr 22, 2018 9:02 pm

HomerJ wrote:
Sun Apr 22, 2018 8:51 pm
Sandtrap wrote:
Sat Apr 21, 2018 12:04 pm
Make it clear beyond a doubt that this is "your money" and you will "honor your parents legacy" by being as careful, prudent, and frugal with it as they have and wished you to have.
Yikes, do not do that unless you want to get divorced.

Convince her, don't just tell her.
+1

Marriages are financial partnerships. Honest, adult conversation is needed, not ultimatums or lectures.

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