Inherited Stock and Legacy Investing?

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JaneNC
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Joined: Wed Mar 04, 2015 12:35 pm

Inherited Stock and Legacy Investing?

Post by JaneNC » Tue Jan 14, 2020 10:39 am

My most pressing question is what to do with taxable inherited stock which totals 23% of all of our (my husband's and my) financial accounts and 33% of our investments (as shown in Portfolios #1 and #2, below). Currently it is in an individual stock, one which my parents bought many years ago (in the 80’s?) with great results. My mother passed away last May at almost 94; my father, in 2006 at 81.

Here are some of the issues swirling around in my brain:

Since these funds will be taxable, should I move our existing IRA bond funds into stock and put these funds into something more tax-friendly? If so, what? I’m considering these funds (and any others remaining after we're gone, of course) as a legacy to our children and grandchildren. I wish now that I had done a Roth conversion before I started drawing Social Security (to save taxes). I will use a calculator to determine if I should convert any or all of my t-IRA funds to Roth before my RMD’s begin.

Should I increase our REIT holdings with Vanguard’s REIT fund, as Jane Bryant Quinn recommends? Or stick more with the three-fund portfolio?

After I make a decision on the stock, I have to decide about the house and land that were another part of my inheritance. That’s a very complicated issue. Better to hold on in hopes that it will increase in value by the time my children inherit it? Or sell and invest the proceeds? There is a promissory note on the house that is due in November, to “even up” the inheritance among the children, because my share included the house.

I’ve read the forum article on managing a windfall. (Technically, this wasn’t a windfall because it wasn’t unexpected. Also, it’s not a life-changing amount of money because we don’t plan to spend it.) I have not yet sold the stock because I’ve been giving myself some time to process, but I need to sell in the near future, for several reasons.

I’ve considered using a Vanguard Personal Advisor, but I’m not sure it’s necessary. I’ve also considered consulting a Financial Planner, perhaps from this group: https://paxfinancialgroup.com (a Dave Ramsey ELP), not for long-term fund management but to advise about any plan I put together. (Note: I just read https://www.whitecoatinvestor.com/how-d ... ou-astray/ so maybe not! Thanks, whitecoatinvestor.)

I also need to work on our overall asset allocation. Do we have too much in cash and escrow accounts (for insurance and recurring bills)? Many of you will say yes, probably, but we like having money markets from which to pull funds as we choose. As you will see at the end of this post, I have figured asset allocation on our funds in two different ways.


Background: My husband and I are both retired state employees in North Carolina. We have a sound pension plan. My husband’s pension is NC/Bailey vested and is not reportable for NC taxes. He started drawing Social Security at age 62, after retiring at age 54. I retired in 2008 at age 58 and started drawing Social Security at age 66.We live mainly from our pensions, which have sporadic cost of living increases, supplementing with money from Social Security as needs and wants require. We have never withdrawn any money from our retirement accounts. In 2015, I posted here viewtopic.php?f=1&t=160110 for retirement advice and made quite a few changes to our accounts. (You can read that post for additional background.) Now, in 2020, we have two very young grandsons in addition to our son and daughter. I hope to “pay it forward” by leaving them the money and feeling of security that my family left me.

My research: I’ve read lots of financial books over the years, including The Bogleheads’ Guide to Investing, Second Ed., and Jane Bryant Quinn’s Smart and Simple Financial Strategies for Busy People, Making the Most of Your Money Now, and How to Make Your Money Last. I use websites for research as well, including vanguard.com, but do not consider myself an expert, by any means.

Emergency funds: We have emergency funds in money market accounts and a couple of CD’s, with more than three years’ expenses readily available.
Debt: Just the promissory note on the house I inherited. We have no recurring debt (mortgage, school loans, etc.).(We’ve been in the same house since 1984.) We use credit cards but pay off the balances each month.

Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, State: last year we paid 5.5% of our taxable income in state taxes
State of Residence: North Carolina
Age: Husband: 73 in July 2020; Wife: 70 in June 2020
Desired Asset allocation: That is the question! I know we have to consider both risk tolerance and risk capacity, if that’s the right word. I’m thinking designated legacy funds should be all stock.
Desired International allocation: Not sure, 10-20% of stock, probably.

Current Asset Allocation: I have figured this two ways, both including and excluding the money markets (emergency savings and escrow accounts) at the North Carolina State Employees’ Credit Union (SECU).

Portfolio #1, excluding emergency savings and escrow accounts, here’s our Asset Allocation:
66% stock
17% bonds
17% SECU IRA accounts, a couple of CD’s, and one “don’t touch” money market - low return but stable and insured
Therefore, 66% stock and 34% bonds and insured SECU accounts, split half and half.

Portfolio #2, including the emergency funds and escrow accounts:
47% stock
12% bonds and the TSA
41% SECU accounts in IRA’s, money markets, and CD’s (low return but NCUA insured)
Another way of analyzing Portfolio #2 is to take all our financial accounts and show the Asset Allocation like this:
30% taxable cash accounts
23% taxable stock (legacy fund)
2% t-IRA’s in the SECU
18% t-IRA’s & 403b’s in stock
12% t-IRA’s in bonds and the TSA
9% Roth IRA’s in the SECU
6% Roth IRA’s in stock (legacy fund)
100% total all accounts

Current Retirement Holdings:

I am listing the % of total portfolio based on the total in Asset Allocation Portfolio #1 above, excluding the amount in most of our cash accounts at SECU. The Asset Allocation for Portfolio #2 is listed above.


Taxable:
32.56% of Portfolio #1 above, Royal Bank of Canada (RY) stock inherited last year from my mother,
I cannot find an expense ratio listed on my investor website. Do individual stocks have expense ratios?

1.77% CD’s at SECU, interest rate of 1.9%

0.76% Money Market account at SECU, interest rate of 1.2%


His Traditional IRA at the State Employees’ Credit Union (SECU)
1.02% - an insured deposit account, currently paying 2%, no fees

His Roth IRA at the State Employees’ Credit Union (SECU)
5.93% - an insured deposit account, currently paying 2%, no fees

His Traditional IRA at Vanguard
7.60% Wellington Fund Admiral Shares (VWENX) (expense ratio 0.17%)
3.10% REIT Index Fund Admiral Shares (VGSLX) (expense ratio 0.12%)

His 403b’s at T. Rowe Price
8.51% Total Equity Market Index (POMIX) (expense ratio .30%)
5.48% US Bond Enhanced Index (PBDIX) (expense ratio .30%)
Note: According to the SECU, since he is NC/Bailey vested, he should not roll these funds to an IRA because he would lose the tax-free benefits on his withdrawals.

His Tax Sheltered Annuity (TSA) at Great American Life Insurance Company
1.47% Annuity Value (not surrender value, which is less)

Her Traditional IRA at the State Employees’ Credit Union (SECU)
1.96% - an insured deposit account, currently paying 2%, no fees

Her Roth IRA at the State Employees’ Credit Union (SECU)
5.94% - an insured deposit account, currently paying 2%, no fees

Her Traditional IRA at Vanguard
10.10% Total Bond Market Index - Admiral Shares (VBTLX) (expense ratio 0.05%)
5.71% Total International Stock Fund Index - Admiral Shares (VTIAX) (expense ratio 0.11%)

Total of All Retirement Account Holdings equals 100%.

Thank you for any advice you can offer. If you need clarification or more information, please let me know. I am excited to see what the Bogleheads recommend for us. Preparing this post has helped me understand the issues better, just as it did in 2015.
Last edited by JaneNC on Wed Jan 15, 2020 7:40 am, edited 1 time in total.

retired@50
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Re: Inherited Stock and Legacy Investing?

Post by retired@50 » Tue Jan 14, 2020 11:28 am

JaneNC wrote:
Tue Jan 14, 2020 10:39 am
My most pressing question is what to do with taxable inherited stock which totals 23% of all of our (my husband's and my) financial accounts and 33% of our investments (as shown in Portfolios #1 and #2, below). Currently it is in an individual stock, one which my parents bought many years ago (in the 80’s?) with great results. My mother passed away last May.

Taxable:
32.56% of Portfolio #1 above, Royal Bank of Canada (RY) stock inherited last year from my mother,
I cannot find an expense ratio listed on my investor website. Do individual stocks have expense ratios?

Thank you for any advice you can offer. If you need clarification or more information, please let me know. I am excited to see what the Bogleheads recommend for us. Preparing this post has helped me understand the issues better, just as it did in 2015.
My condolences on your loss.

Stocks don't have expense ratios.

I'd urge you to sell off the stock (RY) over time to reduce the percentage to below 5%. To me, this legacy stock is a yoke on the younger generation because they are reluctant to sell for fear of disappointing "Mom & Dad". Let YOUR legacy be diversification and smart investing strategies. This may sound cold and clinical, but watching the stock tank due to some business scandal would be a completely avoidable bad outcome.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Inherited Stock and Legacy Investing?

Post by livesoft » Tue Jan 14, 2020 11:36 am

I didn't read the entire book of information. I will say that one should attach absolutely no sentimental value to any inherited stocks or funds that one receives. One's Asset Allocation and Investing Policy Statement rarely matches that of the Deceased. Furthermore, often the Deceased was at a different stage of life than the Beneficiary. Therefore, one should sell assets if they have received the step-up basis before they gain or lose much money and invest the proceeds according to one's own AA and IPS.

Furthermore, we have seen that many investors have legacy investments that they want to get out of, but won't or cannot because of large consequences. They know some of the investments will get a step-up basis and the heirs can get the investments without anybody paying the capital gains taxes. So even the deceased may not have attached any sentimental value to the albatross around their neck.

I have explicitly told my children (heirs) to attach no sentimental value to any investments that they inherit from me. They should feel free to sell and re-allocate according to their own desires. Yes, they may even spend the money.

Now I'll go back and read the entire post.

And now that I read the entire post, my advice is to sell the stock today and come up with your own AA plan using passively-managed, low-expense-ratio index funds located in a tax-efficient way. I would not increase REIT index fund holdings myself, but it really won't matter at all if you decide to do so.
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Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 7:50 am

retired@50 wrote:
Tue Jan 14, 2020 11:28 am
JaneNC wrote:
Tue Jan 14, 2020 10:39 am
My most pressing question is what to do with taxable inherited stock which totals 23% of all of our (my husband's and my) financial accounts and 33% of our investments (as shown in Portfolios #1 and #2, below). Currently it is in an individual stock, one which my parents bought many years ago (in the 80’s?) with great results. My mother passed away last May.

Taxable:
32.56% of Portfolio #1 above, Royal Bank of Canada (RY) stock inherited last year from my mother,
I cannot find an expense ratio listed on my investor website. Do individual stocks have expense ratios?

Thank you for any advice you can offer. If you need clarification or more information, please let me know. I am excited to see what the Bogleheads recommend for us. Preparing this post has helped me understand the issues better, just as it did in 2015.
My condolences on your loss.

Stocks don't have expense ratios.

I'd urge you to sell off the stock (RY) over time to reduce the percentage to below 5%. To me, this legacy stock is a yoke on the younger generation because they are reluctant to sell for fear of disappointing "Mom & Dad". Let YOUR legacy be diversification and smart investing strategies. This may sound cold and clinical, but watching the stock tank due to some business scandal would be a completely avoidable bad outcome.

Regards,
Thanks for the kind words and the advice. I have always planned to sell the stock, but I don't want to make a mistake with what I do with it. Much too risky to leave it in a single stock. Yes, lots of emotions tied up in this, but my dad (he died in 2006) put the "frug" in frugal and would want me to make the best move possible.

Re: selling the stock over time - is that better than selling all at once, which is my inclination? One of my siblings sold it all immediately and moved the proceeds into an e-trade account. I've held it since June - should I worry about dollar-cost-averaging or capital gains at this point, or just get it done all at once?

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 8:21 am

livesoft wrote:
Tue Jan 14, 2020 11:36 am
I didn't read the entire book of information. I will say that one should attach absolutely no sentimental value to any inherited stocks or funds that one receives. One's Asset Allocation and Investing Policy Statement rarely matches that of the Deceased. Furthermore, often the Deceased was at a different stage of life than the Beneficiary. Therefore, one should sell assets if they have received the step-up basis before they gain or lose much money and invest the proceeds according to one's own AA and IPS.
Today the stock is up $5400 since it was transferred to me. So it's okay to sell it all at once? Should be minimal taxes.
livesoft wrote:
Tue Jan 14, 2020 11:36 am
Furthermore, we have seen that many investors have legacy investments that they want to get out of, but won't or cannot because of large consequences. They know some of the investments will get a step-up basis and the heirs can get the investments without anybody paying the capital gains taxes. So even the deceased may not have attached any sentimental value to the albatross around their neck.
Right - that's why my mother didn't sell it. I just wish she and Daddy could have enjoyed some of it, beyond just knowing it was there.
livesoft wrote:
Tue Jan 14, 2020 11:36 am

I have explicitly told my children (heirs) to attach no sentimental value to any investments that they inherit from me. They should feel free to sell and re-allocate according to their own desires. Yes, they may even spend the money.

I will do that too!
livesoft wrote:
Tue Jan 14, 2020 11:36 am
Now I'll go back and read the entire post.

And now that I read the entire post, my advice is to sell the stock today and come up with your own AA plan using passively-managed, low-expense-ratio index funds located in a tax-efficient way. I would not increase REIT index fund holdings myself, but it really won't matter at all if you decide to do so.
"tax-efficient way" - put IRA's in stocks, the proper AA of the inherited stock in bonds for lower taxes? Of course, I won't have to pay taxes on the stock if I don't take dividends or sell, correct?

Thanks!

Jack FFR1846
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Re: Inherited Stock and Legacy Investing?

Post by Jack FFR1846 » Wed Jan 15, 2020 8:33 am

With the stepped up basis, the sooner you sell ALL the stock, the better. As you hold it, it's going to move. Could move up, then you have tax to pay and it becomes harder to sell...or it could go down, which could also make it hard to sell because you may want it to "just come back up to being even". Really....just sell it this morning.

On the property, I have a similar feeling. The quicker it goes, the quicker it's converted into cash than can buy into your mutual funds. VTSAX isn't going to require liability insurance to protect you when someone comes into the house to cut out all the copper plumbing and wiring and falls down some stairs. I've seen friends "fix up" the house before selling and indeed, they sold for a far higher price, but the money and time they put into fixing up and the family riffs caused by one member doing virtually all the work certainly didn't make it better. We had a family member go into assisted living. We cleaned out anything of value, then paid for a dumpster and moving guys to move everything else into the dumpster and sold the house almost immediately. 2 years later, I know that if this place wasn't sold, it would have been burned down by now.
Bogle: Smart Beta is stupid

Grt2bOutdoors
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Location: New York

Re: Inherited Stock and Legacy Investing?

Post by Grt2bOutdoors » Wed Jan 15, 2020 8:47 am

No, don't use an ELP (Dave Ramsey) they will fleece you. No need to pay 1+% expenses. Ask your questions here, if you don't get the responses you want then find a fee-only financial planner who acts as a fiduciary to you.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Inherited Stock and Legacy Investing?

Post by livesoft » Wed Jan 15, 2020 8:57 am

JaneNC wrote:
Wed Jan 15, 2020 8:21 am
Today the stock is up $5400 since it was transferred to me. So it's okay to sell it all at once? Should be minimal taxes.
Inherited stock has a long-term basis no matter how long anyone held it. So tax will likely be around $810, but could be less; could be more.

"tax-efficient way" - put IRA's in stocks, the proper AA of the inherited stock in bonds for lower taxes? Of course, I won't have to pay taxes on the stock if I don't take dividends or sell, correct?
No, put bonds in tax-deferred IRAs and tax-efficient broad market stock index funds in taxable. Put stock index funds in IRAs, too, along with bond index funds. Put stock index funds in Roth IRAs, but bond index funds can go into Roth IRAs, but are not usually recommended for Roth IRAs.

You won't have a choice of where to put inherited taxable money: It has to go in a taxable account unless you use some of it make any allowed contributions to your retirement plans. For example, some people change their 401(k) contribution to a high percentage of their paycheck and to pay expenses, they use inherited money. The net effect is to slowly move inherited money into their 401(k).

You will have to pay taxes on dividends if you get some. Taxes on dividends does not matter whether you sell the stock or not. (Well, if you sell the stock, then you won't get any dividends from the stock either.)
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retired@50
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Re: Inherited Stock and Legacy Investing?

Post by retired@50 » Wed Jan 15, 2020 9:36 am

JaneNC wrote:
Wed Jan 15, 2020 7:50 am
retired@50 wrote:
Tue Jan 14, 2020 11:28 am
JaneNC wrote:
Tue Jan 14, 2020 10:39 am
My most pressing question is what to do with taxable inherited stock which totals 23% of all of our (my husband's and my) financial accounts and 33% of our investments (as shown in Portfolios #1 and #2, below). Currently it is in an individual stock, one which my parents bought many years ago (in the 80’s?) with great results. My mother passed away last May.

Taxable:
32.56% of Portfolio #1 above, Royal Bank of Canada (RY) stock inherited last year from my mother,
I cannot find an expense ratio listed on my investor website. Do individual stocks have expense ratios?

Thank you for any advice you can offer. If you need clarification or more information, please let me know. I am excited to see what the Bogleheads recommend for us. Preparing this post has helped me understand the issues better, just as it did in 2015.
My condolences on your loss.

Stocks don't have expense ratios.

I'd urge you to sell off the stock (RY) over time to reduce the percentage to below 5%. To me, this legacy stock is a yoke on the younger generation because they are reluctant to sell for fear of disappointing "Mom & Dad". Let YOUR legacy be diversification and smart investing strategies. This may sound cold and clinical, but watching the stock tank due to some business scandal would be a completely avoidable bad outcome.

Regards,
Thanks for the kind words and the advice. I have always planned to sell the stock, but I don't want to make a mistake with what I do with it. Much too risky to leave it in a single stock. Yes, lots of emotions tied up in this, but my dad (he died in 2006) put the "frug" in frugal and would want me to make the best move possible.

Re: selling the stock over time - is that better than selling all at once, which is my inclination? One of my siblings sold it all immediately and moved the proceeds into an e-trade account. I've held it since June - should I worry about dollar-cost-averaging or capital gains at this point, or just get it done all at once?
I only mentioned the possibility of selling over time to manage tax consequences. If you are sitting on substantial capital gains in the RY stock position you may want to do some calculations beforehand. As an inheritor, your cost basis is typically the value on the date of death of the person who gave you the stock. You can find historical price data for stocks on yahoo.com if you don't have records on the topic. I'd be inclined to sell all at once too, if the tax hit won't be too much.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 9:38 am

Jack FFR1846 wrote:
Wed Jan 15, 2020 8:33 am
With the stepped up basis, the sooner you sell ALL the stock, the better. As you hold it, it's going to move. Could move up, then you have tax to pay and it becomes harder to sell...or it could go down, which could also make it hard to sell because you may want it to "just come back up to being even". Really....just sell it this morning.
I like the sound of that! Mama knew we would sell after she was gone.
Jack FFR1846 wrote:
Wed Jan 15, 2020 8:33 am
On the property, I have a similar feeling. The quicker it goes, the quicker it's converted into cash than can buy into your mutual funds. VTSAX isn't going to require liability insurance to protect you when someone comes into the house to cut out all the copper plumbing and wiring and falls down some stairs. I've seen friends "fix up" the house before selling and indeed, they sold for a far higher price, but the money and time they put into fixing up and the family riffs caused by one member doing virtually all the work certainly didn't make it better. We had a family member go into assisted living. We cleaned out anything of value, then paid for a dumpster and moving guys to move everything else into the dumpster and sold the house almost immediately. 2 years later, I know that if this place wasn't sold, it would have been burned down by now.
Whew! My name's been on the deed with Mama's since 2009; she moved into assisted living in 2010. After we cleaned the house out in 2016, I rented it a couple of times and used the rent for her assisted living bills, with bad experiences both times. The second time I even used a rental management company. It's been empty for most of the last nine years. My siblings each own adjoining property (my parents divided their original acreage), one lives there, and if I sell, it will be to my nephew (right of first refusal for family), who will rent it out. In 2009 I had hoped that one of my kids might want to live there, but that's not going to happen. My son thinks I should hang on to it, my daughter is okay either way. I know it's not good for the house to sit empty. Not an easy decision.

petulant
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Re: Inherited Stock and Legacy Investing?

Post by petulant » Wed Jan 15, 2020 9:52 am

Jack FFR1846 wrote:
Wed Jan 15, 2020 8:33 am
With the stepped up basis, the sooner you sell ALL the stock, the better. As you hold it, it's going to move. Could move up, then you have tax to pay and it becomes harder to sell...or it could go down, which could also make it hard to sell because you may want it to "just come back up to being even". Really....just sell it this morning.

On the property, I have a similar feeling. The quicker it goes, the quicker it's converted into cash than can buy into your mutual funds. VTSAX isn't going to require liability insurance to protect you when someone comes into the house to cut out all the copper plumbing and wiring and falls down some stairs. I've seen friends "fix up" the house before selling and indeed, they sold for a far higher price, but the money and time they put into fixing up and the family riffs caused by one member doing virtually all the work certainly didn't make it better. We had a family member go into assisted living. We cleaned out anything of value, then paid for a dumpster and moving guys to move everything else into the dumpster and sold the house almost immediately. 2 years later, I know that if this place wasn't sold, it would have been burned down by now.
This this this. OP should certainly get a move on to sell the inherited stock to take advantage of the step-up in basis and redeploy to optimum investments like a diversified stock and bond portfolio. The tax consequences of this should be minimal due to step-up basis and in light of the significant concentration risk being avoided.

The land/house could also be sold (my recommendation), but if it is intended to be left to children for sentimental reasons, it could be another issue. We would need more information about the land/house and related issues to say more.

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 10:31 am

petulant wrote:
Wed Jan 15, 2020 9:52 am
Jack FFR1846 wrote:
Wed Jan 15, 2020 8:33 am
With the stepped up basis, the sooner you sell ALL the stock, the better. As you hold it, it's going to move. Could move up, then you have tax to pay and it becomes harder to sell...or it could go down, which could also make it hard to sell because you may want it to "just come back up to being even". Really....just sell it this morning.

On the property, I have a similar feeling. The quicker it goes, the quicker it's converted into cash than can buy into your mutual funds. VTSAX isn't going to require liability insurance to protect you when someone comes into the house to cut out all the copper plumbing and wiring and falls down some stairs. I've seen friends "fix up" the house before selling and indeed, they sold for a far higher price, but the money and time they put into fixing up and the family riffs caused by one member doing virtually all the work certainly didn't make it better. We had a family member go into assisted living. We cleaned out anything of value, then paid for a dumpster and moving guys to move everything else into the dumpster and sold the house almost immediately. 2 years later, I know that if this place wasn't sold, it would have been burned down by now.
This this this. OP should certainly get a move on to sell the inherited stock to take advantage of the step-up in basis and redeploy to optimum investments like a diversified stock and bond portfolio. The tax consequences of this should be minimal due to step-up basis and in light of the significant concentration risk being avoided.

The land/house could also be sold (my recommendation), but if it is intended to be left to children for sentimental reasons, it could be another issue. We would need more information about the land/house and related issues to say more.
Thank you! If no one else were involved, I think I would have already sold the house. Some complicated family issues that I need to sort through. I may post more about the house later after I get the stock taken care of. That's my priority at the moment.

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 10:51 am

livesoft wrote:
Wed Jan 15, 2020 8:57 am
JaneNC wrote:
Wed Jan 15, 2020 8:21 am
Today the stock is up $5400 since it was transferred to me. So it's okay to sell it all at once? Should be minimal taxes.
Inherited stock has a long-term basis no matter how long anyone held it. So tax will likely be around $810, but could be less; could be more.


So I would've paid some tax if I had sold it the same day it was transferred to me? Just wondering....

"tax-efficient way" - put IRA's in stocks, the proper AA of the inherited stock in bonds for lower taxes? Of course, I won't have to pay taxes on the stock if I don't take dividends or sell, correct?
No, put bonds in tax-deferred IRAs and tax-efficient broad market stock index funds in taxable. Put stock index funds in IRAs, too, along with bond index funds. Put stock index funds in Roth IRAs, but bond index funds can go into Roth IRAs, but are not usually recommended for Roth IRAs.


"tax-efficient broad market stock index funds in taxable" - is VTSAX tax efficient? or VTIAX?

You won't have a choice of where to put inherited taxable money: It has to go in a taxable account unless you use some of it make any allowed contributions to your retirement plans. For example, some people change their 401(k) contribution to a high percentage of their paycheck and to pay expenses, they use inherited money. The net effect is to slowly move inherited money into their 401(k).

I did that the last year I worked - used inherited money from my dad for expenses and put my entire paycheck into a Roth IRA. Since we're both retired, no more allowed contributions.

You will have to pay taxes on dividends if you get some. Taxes on dividends does not matter whether you sell the stock or not. (Well, if you sell the stock, then you won't get any dividends from the stock either.)

Yes. I got one dividend last year and will pay taxes on it.

Thanks for your advice!

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 10:53 am

Grt2bOutdoors wrote:
Wed Jan 15, 2020 8:47 am
No, don't use an ELP (Dave Ramsey) they will fleece you. No need to pay 1+% expenses. Ask your questions here, if you don't get the responses you want then find a fee-only financial planner who acts as a fiduciary to you.
Thanks! Good advice.

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 10:58 am

JaneNC wrote:
Wed Jan 15, 2020 10:53 am
Grt2bOutdoors wrote:
Wed Jan 15, 2020 8:47 am
No, don't use an ELP (Dave Ramsey) they will fleece you. No need to pay 1+% expenses. Ask your questions here, if you don't get the responses you want then find a fee-only financial planner who acts as a fiduciary to you.
Thanks! Good advice.
P.S. Does the Vanguard Personal Advisor qualify as a fee-only financial planner? Or should I find someone independent of Vanguard? I apologize if I should already know the answer to that.

livesoft
Posts: 69557
Joined: Thu Mar 01, 2007 8:00 pm

Re: Inherited Stock and Legacy Investing?

Post by livesoft » Wed Jan 15, 2020 3:59 pm

JaneNC wrote:
Wed Jan 15, 2020 10:51 am

So I would've paid some tax if I had sold it the same day it was transferred to me? Just wondering....

Very likely, because "the same day it was transferred" is usually weeks and months after the date of death. The stock could have gone up or down during that time.


"tax-efficient broad market stock index funds in taxable" - is VTSAX tax efficient? or VTIAX?

Both VTSAX and VTIAX are fine in a taxable account.
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retired@50
Posts: 992
Joined: Tue Oct 01, 2019 2:36 pm

Re: Inherited Stock and Legacy Investing?

Post by retired@50 » Wed Jan 15, 2020 4:40 pm

JaneNC wrote:
Wed Jan 15, 2020 10:58 am
JaneNC wrote:
Wed Jan 15, 2020 10:53 am
Grt2bOutdoors wrote:
Wed Jan 15, 2020 8:47 am
No, don't use an ELP (Dave Ramsey) they will fleece you. No need to pay 1+% expenses. Ask your questions here, if you don't get the responses you want then find a fee-only financial planner who acts as a fiduciary to you.
Thanks! Good advice.
P.S. Does the Vanguard Personal Advisor qualify as a fee-only financial planner? Or should I find someone independent of Vanguard? I apologize if I should already know the answer to that.
VPAS is an AUM fee arrangement, not fee-only. Vanguard *might* be able to do some planning work for a fee, I've never looked into that. Typically, Vanguard PAS charges 0.30% annually, which is much cheaper than most "asset under management" arrangements, but not necessary if you can adopt a simple portfolio.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

Gill
Posts: 5851
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Inherited Stock and Legacy Investing?

Post by Gill » Wed Jan 15, 2020 4:48 pm

livesoft wrote:
Wed Jan 15, 2020 3:59 pm
JaneNC wrote:
Wed Jan 15, 2020 10:51 am

So I would've paid some tax if I had sold it the same day it was transferred to me? Just wondering....

Very likely, because "the same day it was transferred" is usually weeks and months after the date of death. The stock could have gone up or down during that time.


"tax-efficient broad market stock index funds in taxable" - is VTSAX tax efficient? or VTIAX?

Both VTSAX and VTIAX are fine in a taxable account.
The date "transferred to you" is usually irrelevant to establish basis. Date of death value is the usual date to establish basis.
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

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 5:48 pm

Gill wrote:
Wed Jan 15, 2020 4:48 pm
livesoft wrote:
Wed Jan 15, 2020 3:59 pm
JaneNC wrote:
Wed Jan 15, 2020 10:51 am

So I would've paid some tax if I had sold it the same day it was transferred to me? Just wondering....

Very likely, because "the same day it was transferred" is usually weeks and months after the date of death. The stock could have gone up or down during that time.


"tax-efficient broad market stock index funds in taxable" - is VTSAX tax efficient? or VTIAX?

Both VTSAX and VTIAX are fine in a taxable account.
The date "transferred to you" is usually irrelevant to establish basis. Date of death value is the usual date to establish basis.
Gill

Thanks for the clarification.

Topic Author
JaneNC
Posts: 21
Joined: Wed Mar 04, 2015 12:35 pm

Re: Inherited Stock and Legacy Investing?

Post by JaneNC » Wed Jan 15, 2020 5:55 pm

retired@50 wrote:
Wed Jan 15, 2020 4:40 pm
JaneNC wrote:
Wed Jan 15, 2020 10:58 am

P.S. Does the Vanguard Personal Advisor qualify as a fee-only financial planner? Or should I find someone independent of Vanguard? I apologize if I should already know the answer to that.
VPAS is an AUM fee arrangement, not fee-only. Vanguard *might* be able to do some planning work for a fee, I've never looked into that. Typically, Vanguard PAS charges 0.30% annually, which is much cheaper than most "asset under management" arrangements, but not necessary if you can adopt a simple portfolio.

Regards,


Got it! Thanks, I understand now. Our first financial planner back in the late '90's did the AUM fee arrangement.

NotWhoYouThink
Posts: 2797
Joined: Fri Dec 26, 2014 4:19 pm

Re: Inherited Stock and Legacy Investing?

Post by NotWhoYouThink » Wed Jan 15, 2020 6:18 pm

retired@50 wrote:
Wed Jan 15, 2020 4:40 pm
JaneNC wrote:
Wed Jan 15, 2020 10:58 am
JaneNC wrote:
Wed Jan 15, 2020 10:53 am
Grt2bOutdoors wrote:
Wed Jan 15, 2020 8:47 am
No, don't use an ELP (Dave Ramsey) they will fleece you. No need to pay 1+% expenses. Ask your questions here, if you don't get the responses you want then find a fee-only financial planner who acts as a fiduciary to you.
Thanks! Good advice.
P.S. Does the Vanguard Personal Advisor qualify as a fee-only financial planner? Or should I find someone independent of Vanguard? I apologize if I should already know the answer to that.
VPAS is an AUM fee arrangement, not fee-only. Vanguard *might* be able to do some planning work for a fee, I've never looked into that. Typically, Vanguard PAS charges 0.30% annually, which is much cheaper than most "asset under management" arrangements, but not necessary if you can adopt a simple portfolio.

Regards,
People really need to start using the words the way they are commonly understood in the real world, not the way we would like them to be understood on this board.

AUM is Fee Only!!! It is the very definition of fee only!!! You pay a fee based on a per cent of the Asset Under Management!!!!! As opposed to a commission based service, in which you pay a commission for trades

AUM is not flat fee, or hourly fee. If you want to pay a flat fee for a plan, ask for a flat fee advisor. But "fee only" includes both flat fee and AUM.

retired@50
Posts: 992
Joined: Tue Oct 01, 2019 2:36 pm

Re: Inherited Stock and Legacy Investing?

Post by retired@50 » Wed Jan 15, 2020 6:23 pm

NotWhoYouThink wrote:
Wed Jan 15, 2020 6:18 pm
retired@50 wrote:
Wed Jan 15, 2020 4:40 pm
JaneNC wrote:
Wed Jan 15, 2020 10:58 am
JaneNC wrote:
Wed Jan 15, 2020 10:53 am
Grt2bOutdoors wrote:
Wed Jan 15, 2020 8:47 am
No, don't use an ELP (Dave Ramsey) they will fleece you. No need to pay 1+% expenses. Ask your questions here, if you don't get the responses you want then find a fee-only financial planner who acts as a fiduciary to you.
Thanks! Good advice.
P.S. Does the Vanguard Personal Advisor qualify as a fee-only financial planner? Or should I find someone independent of Vanguard? I apologize if I should already know the answer to that.
VPAS is an AUM fee arrangement, not fee-only. Vanguard *might* be able to do some planning work for a fee, I've never looked into that. Typically, Vanguard PAS charges 0.30% annually, which is much cheaper than most "asset under management" arrangements, but not necessary if you can adopt a simple portfolio.

Regards,
People really need to start using the words the way they are commonly understood in the real world, not the way we would like them to be understood on this board.

AUM is Fee Only!!! It is the very definition of fee only!!! You pay a fee based on a per cent of the Asset Under Management!!!!! As opposed to a commission based service, in which you pay a commission for trades

AUM is not flat fee, or hourly fee. If you want to pay a flat fee for a plan, ask for a flat fee advisor. But "fee only" includes both flat fee and AUM.
Sorry to set you off on this topic. When I think of fee-only I think of paying by the hour, like my plumber. I wouldn't pay my plumber based on the number of gallons of water that run through my pipes and think I was paying him "fee-only". Just my two cents.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

NotWhoYouThink
Posts: 2797
Joined: Fri Dec 26, 2014 4:19 pm

Re: Inherited Stock and Legacy Investing?

Post by NotWhoYouThink » Wed Jan 15, 2020 6:31 pm

Are you paying your plumber an hourly fee, or a flat fee for fixing the leak? Not the same thing, although both are fees. You have to make sure your words convey the meaning you intend.

User avatar
BL
Posts: 9221
Joined: Sun Mar 01, 2009 2:28 pm

Re: Inherited Stock and Legacy Investing?

Post by BL » Wed Jan 15, 2020 7:39 pm

How about "advice only"?

I see too many folks here who go to a "fee-only" advisor and it turns out to be high AUM fee instead of just a fee for advice and not managing.

Almost the same problem with the word " fiduciary". To many AUM folks claim to be fiduciary even though they charge +- 1% AUM fees, and who knows what ERs their funds have or what else they try to sell you such as insurance products. I don't consider this "fiduciary", but they still like to use it.

VPAS is a low-cost AUM adviser and I would consider them to be fiduciary as they use low-ER index funds and don't try to sell other expensive things.

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