Managing a Surprise Multi-Million Dollar Inheritance at 29

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rschwartz
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Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by rschwartz »

Background:

Update: My grandmother has passed. Please scroll down to my post on Mar 30, 2024, for my mother's current situation. Thank you!

I'm a 29-year-old STEM professional, and I've recently found myself in a unique and challenging financial situation and am seeking advice.

My 98-year-old grandmother, who was unexpectedly discovered to be a frugal multi-millionaire, is in rapidly declining health. She's left all her assets to my 63-year-old mother (TOD/POD). Other siblings either having passed away or are living in assisted care due to mental illness. My mother, previously unprepared for retirement with only $15,000 in savings and minimal financial knowledge, is now the sole beneficiary of this substantial estate.

Feeling overwhelmed, my mother has asked me to manage these assets to secure her retirement. In gratitude, she also plans to gift me about $500,000 in stocks. While I'm fairly versed in low-cost index fund investing, the realm of individual stocks and managing large portfolios is new territory for me.

I'm seeking to navigate this responsibly and tax-efficiently, aiming to rebalance this large portfolio to ensure my mother's needs are met throughout her retirement. Any insights, experiences, or guidance you can offer on managing such a scenario would be immensely appreciated.

The Assets:

Total market value: $3.4 million
Allocation: 54% fixed income, 46% equity

There are no tax-advantaged accounts. Everything is taxable.

Fixed Income: Comprised of various CDs spread across multiple banks. In due course, I’m contemplating consolidating all fixed income assets into a single account for ease of management.

Equities: Comprised of individual stocks across various sectors and industries:
  • Energy and Utilities: Includes stocks like BP, Shell, NextEra, and Excelon.
  • Consumer Goods: Companies such as Colgate and Fortune Brands.
  • Industrial: Includes Boeing and Waste Management.
  • Technology: Holdings in firms like Xerox and Conduent.
  • Healthcare: Represented by stocks like GSK and Haleon.
  • Other Holdings: Including companies in different sectors such as Corteva in agriculture, Dupont in materials, etc.
Real Estate: There is a vacant house with a current market value of ~$280,000.

Specific Questions:
  1. Transition to Index Funds: What are the best strategies for transitioning from a portfolio concentrated in individual stocks to a more diversified index fund portfolio? Are there specific considerations or steps I should take to minimize risks and maximize tax efficiency?
  2. Tax-Efficient Gifting/Transferring: What are the most tax-efficient methods for my mother to gift or transfer these stocks to me? Are there particular strategies or financial vehicles that could facilitate this process while minimizing tax liabilities?
  3. Legal Mechanisms for Asset Management: What legal mechanisms are available that would enable me to manage my mother’s inherited assets effectively? I am considering a Durable Power of Attorney, but are there other options or considerations I should be aware of?
Any insights, experiences, or guidance you can offer in navigating these challenges would be immensely helpful and greatly appreciated.
Last edited by rschwartz on Mon Apr 01, 2024 8:34 pm, edited 3 times in total.
increment
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by increment »

rschwartz wrote: Sat Jan 20, 2024 8:44 am My 98-year-old grandmother, who was unexpectedly discovered to be a frugal multi-millionaire, is in rapidly declining health. In a surprising turn of events, she's left all her assets to my 63-year-old mother. My mother, previously unprepared for retirement with only $15,000 in savings and minimal financial knowledge, is now the sole beneficiary of this substantial estate.
Will your mother receiving these assets as a literal inheritance, upon your grandmother's death? Or is she supposed to receive them in advance of your grandmother's death?

If she gets these assets as a standard inheritance, their tax basis resets on the date of your grandmother's death. This is probably the preferred method. Any unrealized capital gains (and associated future liability for capital-gains tax) are wiped away. Also, any problems associated with poor recordkeeping in the past go away.

If she receives these assets as a gift during your grandmother's life, then for the purposes of calculating ("realized") capital gains when assets are sold, she will need to know your grandmother's basis. (If assets with unrealized capital losses are given away, the recipient may not get the tax benefit of that capital loss as there are rules about how to handle that.)
What are the best strategies for transitioning from a portfolio concentrated in individual stocks to a more diversified index fund portfolio?
If the basis of the assets are reset, then you can sell those stocks (etc.) without much tax consequence, and reinvest as you like.
What legal mechanisms are available that would enable me to manage my mother’s inherited assets effectively? I am considering a Durable Power of Attorney, but are there other options or considerations I should be aware of?
There is the option of putting assets into a (revocable?) living trust, with you (and she) named as (co-)trustee. You would do this in addition to having a durable power of attorney (because it is not necessarily easy to put literally all property into a trust). Also, you probably want to have PoA paperwork filed everywhere possible, because banks/brokerages/etc. may be finicky about whose forms get used.

In any case, your mother should consult with an estate attorney to get an estate plan in order, even if her intentions seem simple.
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Johnsson
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Johnsson »

I'll just offer one simple thought (having just gone through assimilating inherited funds into our portfolio)...

If handled properly, the bases for all of those stocks were likely updated to the value on your Grandmother's date of death.

Assuming you can view these online, you should be able to see the current values, bases and gains/losses.

It MAY be easy to gather up a number of stocks with gains and a number of stocks with losses, that if sold all at once would end up with gains offsetting losses for a net gain of around zero. If all sold at once, the resulting sale would be at little cost to your Mom and provide funds to invest in another way.

I inherited 30 stocks and was able to pare the number to 8, pretty quickly, by doing this. I could have done more but the remaining stocks had realized significant gains in the months post-death making it not prudent to do with our situation at that time.

Note: You need to understand the financial situation of your mother and the overall portfolio to decide if this makes sense for her.

Others will offer many other thoughts.

Good luck!!

Sorry... I skimmed and assume GM had passed. My mistake. This option is still a possiblity depending on GMs current gains and losses.
Last edited by Johnsson on Sat Jan 20, 2024 9:33 am, edited 1 time in total.
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toddthebod
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by toddthebod »

rschwartz wrote: Sat Jan 20, 2024 8:44 am My 98-year-old grandmother, who was unexpectedly discovered to be a frugal multi-millionaire, is in rapidly declining health. In a surprising turn of events, she's left all her assets to my 63-year-old mother. My mother, previously unprepared for retirement with only $15,000 in savings and minimal financial knowledge, is now the sole beneficiary of this substantial estate.
If your grandmother is still competent, you should consider hiring an estate attorney for your grandmother now to have those assets left in trust. You don't mention if your father is alive, but a $3M inheritance could easily outgrow the estate tax limit (which is scheduled to fall to $6-$7M in two years) during your mother's lifetime, even with regular withdrawals for expenses.
Last edited by toddthebod on Sat Jan 20, 2024 9:49 am, edited 1 time in total.
LFS1234
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by LFS1234 »

rschwartz wrote: Sat Jan 20, 2024 8:44 am
My 98-year-old grandmother, who was unexpectedly discovered to be a frugal multi-millionaire, is in rapidly declining health. In a surprising turn of events, she's left all her assets to my 63-year-old mother....
Why is this a "surprising turn of events"? Are there other relatives out there who may feel that they've been disinherited?

Does your mother have a will which has been properly prepared, executed and witnessed in accordance with the applicable laws? If not, is she willing and able to (and legally capable of) executing such a document now?

My first stop would an estate attorney, to make sure that you stay on the right side of the law, take any necessary actions ASAP while grandma still is alive, and can ward off any challengers. This is not a do-it-yourself proposition.

If there aren't any legal problems, everything else should be rather simple. The tax bases of inherited assets are stepped up at date of death. Not so with gifted assets. Your mother can gift $500K in assets to you without incurring gift tax, unless she has used up her lifetime exclusion (extremely unlikely). She'll have to file a Form 709 and retain a copy of it for life. The estate attorney can advise you regarding all of this, and refer you to an accountant if necessary.
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Mullins
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Mullins »

Stay put until nature takes its eventual course and your grandmother passes. Then, her assets will receive the step-up basis as of her date of death. This means you could sell the stocks then for little to no capital gains tax liabilities and use those monies to buy total market index funds. Funds such as Vanguard's total stock market (VTSAX), S&P500 index (VFIAX), generate dividends which are mostly qualified, so they're more favorably taxed at the federal level.

Your mother could transfer stock to you, I believe that transfers to you the step-up basis as well. At $500,000 worth, mom would need to file a gift tax form but it wouldn't cost her anything and the amount would be under the Federal estate tax exclusion (for the amount after the $17,000 annual gift exclusion). Your state exclusion may vary.

For you to manage her assets, the POA can give you that authority but you'll still need to go about establishing that agent status according to each financial organization's individual procedures. Vanguard, for example, requires the account owner to file a notarized form of theirs with them giving you agent authorization, each bank has its own similar requirement.
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Johnsson
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Johnsson »

The $500k redirection of the inheritance could possibly be handled with a Deed of Variation after death, if Mom still wants to do it, if the Will can not be changed prior to passing. Just do your homework to see if it makes sens.
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Watty
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Watty »

rschwartz wrote: Sat Jan 20, 2024 8:44 am Feeling overwhelmed, my mother has asked me to manage these assets to secure her retirement. In gratitude for this assistance, she plans to gift me about $500,000 in stocks. While I'm fairly versed in low-cost index fund investing, the realm of individual stocks and managing large portfolios is new territory for me.
I am not a tax expert but the stocks should have a stepped up cost basis that is set on the day of your grandmother's death. This would mean that any individual stocks and her mutual funds could be sold and the only capital gain or loss would be relatively minor and be based on the difference in stock price on the day of her death and when the estate is settled and the stock is sold.

https://www.bogleheads.org/wiki/Step-up ... s#top-page

I vaguely recall that one minor exception to this would be with some sorts of trusts.

You will need professional tax advice with settling the estate so you can verify the details in the step up in cost basis with your tax advisor. With an estate this size even if it is relatively simple it would still be good to get professional tax help at least the first year.

Once you and your mom have verified the tax details then the inherited stocks, bonds, and mutual funds can be sold then reinvested in simpler index funds.

There would be a gift form that your mom will need to file for the $500K gift with her tax return but that will not cause her to pay any taxes. That gift will only come into play when your mom passes if she has a huge estate an there are estate taxes but that sounds very unlikely.

That is a generous gift by your mom to you but your mom needs to realize that $3 million is a lot of money but it could be quickly depleted if she give lots of money to charities, relatives, friends, etc and she may be targeted by people who find out that she now has some money. People like professional athletes and rock stars have had a lot more than that then run out of money. She can spend plenty of money and not be overly frugal like your grandmother may have been.

It would be best for her not to tell people how much she has inherited because people can be funny about money.
rschwartz wrote: Sat Jan 20, 2024 8:44 am Feeling overwhelmed, my mother has asked me to manage these assets to secure her retirement.
There should also be a plan to manage her money if something happens to you like you get hit by the proverbial Mack truck. If something happens to you then she could easily fall prey to "financial advisors" who will take advantage of her and charge her all sorts of fees and put her into junky expensive investments.

You should also try to keep her investments as simple as possible and on automatic pilot as much as possible. One possible risk that 20 years from now when she is 83 and in a nursing home that if she does not understand what you are doing then she may get confused and think that you are doing something inappropriate. Sadly financial abuse of seniors is way too common and if she says something to the caregivers in the nursing home about you doing something with her money then they will take it very seriously and may have the state investigate what is going on and possibly take over control of her money.

It sounds you are familiar with a three fund portfolio but I would take a look at that.
https://www.bogleheads.org/wiki/Three-fund_portfolio

I would suggest setting the mutual funds to not automatically reinvest dividends and interest so you could use those funds for her expenses and not need to sell investments as often.
rschwartz wrote: Sat Jan 20, 2024 8:44 am Any insights, experiences, or guidance you can offer on managing such a scenario would be immensely appreciated.
One thing she should do ASAP is to make sure that she has high limits on her car insurance and an umbrella policy for at least a million dollars. She is a lot more likely to get sued now that she she will have more money.

It is just my pet peeve and not any sort of consensus but it bugs me when people post about having a lot of money but don't drive relatively safe cars. Car safety has improved a lot especially since about 2018 when the new advanced safety features like automatic braking became a lot more common. I not saying that she should buy an expensive luxury car with all the safety bells and whistles but something like a mid-size mid-trim level Toyota or Honda might be a lot safer than what she is driving now. When shopping for a car I like to get cars which has a top safety pick, preferably with a plus rating.

https://www.iihs.org/ratings/top-safety-picks

You should also consider how safe your car is and your car insurance and umbrella policy situation.

You mom should also update her will and related paperwork like her power of attorney and medical directives. She is at the point where preprinted forms or DIY software are not appropriate for her so she have a lawyer do this and will be worth the few thousand dollars that it will cost.
Last edited by Watty on Sat Jan 20, 2024 10:09 am, edited 1 time in total.
NotWhoYouThink
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by NotWhoYouThink »

Are any of these assets in IRAs?
jaMichael
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by jaMichael »

When you say your grandmother has “left” these assets to your mother do you mean she has already given them or plans to give them in her will? Usually, people in your Mom’s situation would prefer to receive assets after death, because of the stepped up basis others have mentioned.

Assuming your mother receives these assets after your grandmother passes and so there are no unrealized gains to worry about, you should be able to sell all of the individual stocks, sell the house, and put the money in index funds at Vanguard, Fidelity, or Schwab. The three-fund portfolio is a good starting point. Personally, I would have an estate attorney involved.

In terms of taking care of your mother, she has several options. She could simply have a portfolio like a 60/40 stock-bond portfolio and withdraw funds annually in accordance with any reasonable safe withdrawal method, such as the 4% rule, the Variable Withdrawal Method, or the RMD strategy. Or you can choose a liability matching portfolio, such as a 30-year TIPS ladder to create a floor of guaranteed and inflation-adjusted income. Regardless, I would also set aside some money for your mother’s possible long-term care needs, unless she has good longterm care insurance. Somewhere between $250,000 and $1 million, though some will say $1 million is excessive. Given your grandmother’s longevity, I would err on the conservative side in setting up a withdrawal strategy for your mother—perhaps plan to age 105, for example.

Your mother should see an estate attorney and have a full suite of estate docs prepared, including advanced health care directive, will (possibly living trust), and durable power of attorney.

In terms of managing your mother’s investments, it would probably be sufficient for your mom to have her account at Vanguard, Fidelity, or Schwab and simply have you named as a designated representative or agent with full authority. This should provide you with adequate access and control. You can also be joint owner of your mother’s bank account(s).

In terms of giving you $500,000, my understanding is that it should be a non-taxable but reportable event, but I’d discuss it with the estate lawyer because of the possibility of your mother’s total gifts to you over time could trigger gift and estate taxes.

I’m very sorry to hear about your grandmother, though 98 is pretty impressive. If she is still competent, you may want to check to see that her own estate planning documents are complete and up to date, and to make sure provision has been made to have you or your mother manage her financial affairs if she becomes incompetent.

I don’t know what state your grandmother lives in, but some states have estate taxes.
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by windaar »

rschwartz wrote: Sat Jan 20, 2024 8:44 amIn a surprising turn of events, she's left all her assets to my 63-year-old mother.
As someone who has dealt with relatives in the aftermath of an estate settlement this is a red flag or at least raises my antennae. Please explain why this is "a surprise turn of events" before going further.
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rschwartz
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by rschwartz »

Hello everyone,

Thank you very much for your guidance and questions. I've edited the original post for clarification.

Our immediate focus is on establishing a robust estate plan for my mother and efficiently managing the inheritance, with an emphasis on simplifying and safeguarding the portfolio. Any guidance on these next steps, especially regarding professional assistance, would be greatly valued.

Thank you again for your time and insights.
Last edited by rschwartz on Sat Mar 30, 2024 12:51 pm, edited 1 time in total.
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Raymond
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Raymond »

windaar wrote: Sat Jan 20, 2024 10:30 am As someone who has dealt with relatives in the aftermath of an estate settlement this is a red flag or at least raises my antennae. Please explain why this is "a surprise turn of events" before going further.
LFS1234 wrote: Sat Jan 20, 2024 9:31 am Why is this a "surprising turn of events"? Are there other relatives out there who may feel that they've been disinherited?...
That was my first question too - I hope OP won't have a follow-on post titled, "My mother is being sued by her siblings, what should she do?"

And as mentioned previously, it would be a good idea for your mother and you to keep your lips tightly sealed about this situation - the smell of money brings the hyenas around, including "financial advisors", new "friends", charities, and yes, sometimes even one's place of worship...

[Edit] Just saw OP's update - OK, no siblings in the picture, but are there potentially litigious nieces and nephews?
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jaMichael
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by jaMichael »

rschwartz wrote: Sat Jan 20, 2024 11:15 am Hello everyone,

Thank you very much for your guidance and questions. I’d like to provide some clarifications and seek further advice.
  1. Beneficiary Status and Will Context: My mother is the sole beneficiary of my grandmother's assets as per my grandmother’s will. This arrangement is due to the other siblings either having passed away or living in assisted care due to mental illness. My grandmother’s will was updated recently, and there's no option to revise it at this stage.
  2. Estate Planning for Mother: My mother doesn’t have a formal estate plan, and we recognize the importance of initiating this process immediately. We considered consulting the attorney with expertise in estate planning who recently prepared my grandmother's will and POA documents. This attorney has knowledge of my grandmother’s situation. However, given the multifaceted nature of our situation - encompassing financial, tax, and legal aspects - I’m wondering if it might be more prudent to engage a financial firm with expertise in trust & estate planning, financial planning, and tax planning, ideally on a fee-for-service basis. I would appreciate any recommendations or advice on selecting the appropriate professionals or firm.
  3. IRA and Portfolio Composition: Regarding the query about IRAs, there is an IRA in the portfolio, but it’s relatively small at $36,000. The rest of the assets are in taxable accounts.
  4. Managing Fixed Income Assets: I’m contemplating consolidating all fixed income assets, particularly the CDs spread across various banks accounts, into a single account for ease of management and to reduce paperwork (I suppose we could do the same with the individual stocks, taking advantage of any step up in cost basis as mentioned throughout this thread). Would this be advisable, and are there any potential pitfalls or better alternatives I should consider?
In summary, our immediate focus is on establishing a robust estate plan for my mother and efficiently managing the inheritance, with an emphasis on simplifying and safeguarding the portfolio. Any guidance on these next steps, especially regarding professional assistance, would be greatly valued.

Thank you again for your time and insights.
I would get a good estate attorney. Impossible to say based on the info we have whether your grandmother’s lawyer qualifies, but perhaps so. If you provide your location, people might private message you recommendations. I’m not sure you need more than that right now. Nothing wrong with getting financial advice from a professional, but the trick is finding a professional that is competent and in tune with the Bogleheads philosophy. Often, by the time you know enough to evaluate professional advice you know enough to forgo professional advice. If you go with a professional adviser, you can double check her advice here before executing on it.

I don’t know that you can consolidate CDs. Unless they are no-penalty CDs, there will be penalties for cashing them in early. Why not just let them mature and then move the money into your mother’s account at Vanguard, Fidelity, or Schwab?

There is no need to stick with your grandmother’s allocation to stocks and fixed income. I would liquidate everything (the CDs may take time) and come up with your own plan — using the three-fund portfolio as a starting place and potentially including a limited liability portfolio for your mother.
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rschwartz
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by rschwartz »

jaMichael wrote: Sat Jan 20, 2024 11:39 am
I would get a good estate attorney. Impossible to say based on the info we have whether your grandmother’s lawyer qualifies, but perhaps so. If you provide your location, people might private message you recommendations. I’m not sure you need more than that right now. Nothing wrong with getting financial advice from a professional, but the trick is finding a professional that is competent and in tune with the Bogleheads philosophy. Often, by the time you know enough to evaluate professional advice you know enough to forgo professional advice. If you go with a professional adviser, you can double check her advice here before executing on it.

I don’t know that you can consolidate CDs. Unless they are no-penalty CDs, there will be penalties for cashing them in early. Why not just let them mature and then move the money into your mother’s account at Vanguard, Fidelity, or Schwab?

There is no need to stick with your grandmother’s allocation to stocks and fixed income. I would liquidate everything (the CDs may take time) and come up with your own plan — using the three-fund portfolio as a starting place and potentially including a limited liability portfolio for your mother.
Thank you, jaMichael. I appreciate the advice. We're based in the Chicago area, so if anyone has recommendations for professionals or firms in this region who could assist in this situation, I would be grateful for a private message with that information.
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by sfmurph »

jaMichael wrote: Sat Jan 20, 2024 11:39 am
rschwartz wrote: Sat Jan 20, 2024 11:15 am In summary, our immediate focus is on establishing a robust estate plan for my mother and efficiently managing the inheritance, with an emphasis on simplifying and safeguarding the portfolio. Any guidance on these next steps, especially regarding professional assistance, would be greatly valued.
I don’t know that you can consolidate CDs. Unless they are no-penalty CDs, there will be penalties for cashing them in early. Why not just let them mature and then move the money into your mother’s account at Vanguard, Fidelity, or Schwab?

There is no need to stick with your grandmother’s allocation to stocks and fixed income. I would liquidate everything (the CDs may take time) and come up with your own plan — using the three-fund portfolio as a starting place and potentially including a limited liability portfolio for your mother.
Yes to consolidating and simplifying. With the step-up basis after death, there will be a lot more flexibility. Selling the stocks and moving the proceeds to Vanguard, Fidelity, or Schwab is a great plan. As for CDs, do check on the CD penalties. It may be that the interest rate is so low that it's worth paying the early termination fee. If your mom does want to have CDs, I know that Fidelity has brokered CDs. Also, the empty house should probably be sold, if there's no immediate plan to use it.
stan1
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by stan1 »

Cart seems to be before horse.

First, your grandmother would need to pass away. Do not shift assets from her to your mom (or you) now. If she would qualify for the capital gains exclusion on sale of her unoccupied residence her POA could proceed with selling that.

Who will be the executor of grandmother's estate? Your mom? You? Someone else?

The executor would work with the financial firms in question to provide death certificate and go through their process for transferring assets to the heirs. Your mom will get stepped up cost basis. The executor may direct the brokerage to liquidate stock holdings and place in cash which would probably be the best way for your mom to set her own asset allocation (taking advantage of her stepped up cost basis). Then you could invest that cash for your mom rather than being encumbered by the stocks your grandparents had in their accounts.

Only after all of this is done should your mother consider any gifts to you. If you do the above I don't see any reason she would gift you securities rather than cash.

If your mom's siblings have children (your cousins) my guess is they could be upset by this. Do you want to burn bridges with them possibly forever?

One way to avoid this would be for your mom to also give gifts to her nieces and nephews not just to you. That's up to her of course, and whatever family circumstances led to grandmother not considering her other grandchildren in her estate plans.
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by runningshoes »

rschwartz wrote: Sat Jan 20, 2024 11:54 am
jaMichael wrote: Sat Jan 20, 2024 11:39 am
I would get a good estate attorney. Impossible to say based on the info we have whether your grandmother’s lawyer qualifies, but perhaps so. If you provide your location, people might private message you recommendations. I’m not sure you need more than that right now. Nothing wrong with getting financial advice from a professional, but the trick is finding a professional that is competent and in tune with the Bogleheads philosophy. Often, by the time you know enough to evaluate professional advice you know enough to forgo professional advice. If you go with a professional adviser, you can double check her advice here before executing on it.

I don’t know that you can consolidate CDs. Unless they are no-penalty CDs, there will be penalties for cashing them in early. Why not just let them mature and then move the money into your mother’s account at Vanguard, Fidelity, or Schwab?

There is no need to stick with your grandmother’s allocation to stocks and fixed income. I would liquidate everything (the CDs may take time) and come up with your own plan — using the three-fund portfolio as a starting place and potentially including a limited liability portfolio for your mother.
Thank you, jaMichael. I appreciate the advice. We're based in the Chicago area, so if anyone has recommendations for professionals or firms in this region who could assist in this situation, I would be grateful for a private message with that information.
Sent PM as we live in the Chicagoland area and used someone to address similar needs. LMK if not received.
aristotelian
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by aristotelian »

Is there any way you can help her manage her own portfolio rather than you do it for her? I help my Mother in Law (who has zero knowledge) get into a Bogleheads portfolio. I have never once transacted for her or pressured her into making a move.
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windaar
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by windaar »

rschwartz wrote: Sat Jan 20, 2024 11:15 amMy mother is the sole beneficiary of my grandmother's assets as per my grandmother’s will. This arrangement is due to the other siblings either having passed away or living in assisted care due to mental illness.
Then there are siblings and their families could easily create problems and perhaps with good reason. I would move forward only with considerable trustworthy legal counsel.
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by HomeStretch »

Welcome to the forum.
rschwartz wrote: Sat Jan 20, 2024 11:15 am… Beneficiary Status and Will Context: My mother is the sole beneficiary of my grandmother's assets as per my grandmother’s will. This arrangement is due to the other siblings either having passed away or living in assisted care due to mental illness. My grandmother’s will was updated recently, and there's no option to revise it at this stage. …
If any of the accounts have POD or TOD (transfer/payable on death) beneficiary designations, such designations (and not the Will) will determine who inherits. Hopefully your grandmother reviewed any such designations with her estate attorney and updated them, if necessary.
… Estate Planning for Mother: My mother doesn’t have a formal estate plan, and we recognize the importance of initiating this process immediately. We considered consulting the attorney with expertise in estate planning who recently prepared my grandmother's will and POA documents. This attorney has knowledge of my grandmother’s situation. However, given the multifaceted nature of our situation - encompassing financial, tax, and legal aspects - I’m wondering if it might be more prudent to engage a financial firm with expertise in trust & estate planning, financial planning, and tax planning, ideally on a fee-for-service basis.
Engage an estate attorney for your mother’s estate planning and advise the best way to gift assets to you. The same attorney will be able to assist the Executor of your grandmother’s estate, if needed.

The Executor/TOD beneficiaries can work directly with the financial institutions to transfer your grandmother’s accounts when the time comes. One option is to sell everything immediately with no gain if the basis is stepped-up, consolidate and put the $ in a money market fund earning 5% at Fidelity or another low cost brokerage. Then take time (6 months is fine) to decide how to invest. A simple low-ER 3-fund portfolio at a low-cost brokerage such as Fidelity is not hard to manage.
billfromct
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by billfromct »

You don’t mention anything about your father or if your mother is divorced or a widow & if she’s still working (maybe I missed it) or if she’s collecting SS.

If she’s not collecting SS, you should do some investigating concerning when she should collect SS & spousal or survivor SS benefits.

You may also want to investigate a single premium immediate annuity (SPIA) for part of the inheritance to give her a stable monthly check, in addition to SS, to cover basic needs for the rest of her life. SS is indexed to inflation, but SPIAs usually aren’t indexed to inflation. Also with interest rates the highest in 10-15 years, now would be a good time to check out an immediate annuity.

Edit: According to immediateannuities.com, a $1,000,000 immediate annuity for your mother, collecting in 3 months, would provide about $5,985/month for life, if I put in the correct information. You may want to check that website referenced above. Since most of the monthly payment would be “return of capital”, there would be very little state or Federal income tax liability.

bill
Last edited by billfromct on Sat Jan 20, 2024 7:30 pm, edited 4 times in total.
HomeStretch
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by HomeStretch »

You and your mom may find the following BH wiki page helpful:
https://www.bogleheads.org/wiki/Managing_a_windfall
bsteiner
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by bsteiner »

rschwartz wrote: Sat Jan 20, 2024 8:44 am Background:

I'm a 29-year-old STEM professional, and I've recently found myself in a unique and challenging financial situation and am seeking advice.

My 98-year-old grandmother, who was unexpectedly discovered to be a frugal multi-millionaire, is in rapidly declining health. In a surprising turn of events, she's left all her assets to my 63-year-old mother. My mother, previously unprepared for retirement with only $15,000 in savings and minimal financial knowledge, is now the sole beneficiary of this substantial estate.

Feeling overwhelmed, my mother has asked me to manage these assets to secure her retirement. In gratitude for this assistance, she plans to gift me about $500,000 in stocks. While I'm fairly versed in low-cost index fund investing, the realm of individual stocks and managing large portfolios is new territory for me.

I'm seeking to navigate this responsibly and tax-efficiently, aiming to rebalance this large portfolio to ensure my mother's needs are met throughout her retirement. Any insights, experiences, or guidance you can offer on managing such a scenario would be immensely appreciated.

The Assets:

Total market value: $3.4 million
Allocation: 54% fixed income, 46% equity

Fixed Income: Comprised of various CDs spread across multiple banks.

Equities: Comprised of individual stocks across various sectors and industries:
  • Energy and Utilities: Includes stocks like BP, Shell, NextEra, and Excelon.
  • Consumer Goods: Companies such as Colgate and Fortune Brands.
  • Industrial: Includes Boeing and Waste Management.
  • Technology: Holdings in firms like Xerox and Conduent.
  • Healthcare: Represented by stocks like GSK and Haleon.
  • Other Holdings: Including companies in different sectors such as Corteva in agriculture, Dupont in materials, etc.
Real Estate: There is a vacant house with a current market value of ~$280,000.

Specific Questions:
  1. Transition to Index Funds: What are the best strategies for transitioning from a portfolio concentrated in individual stocks to a more diversified index fund portfolio? Are there specific considerations or steps I should take to minimize risks and maximize tax efficiency?
  2. Tax-Efficient Gifting/Transferring: What are the most tax-efficient methods for my mother to gift or transfer these stocks to me? Are there particular strategies or financial vehicles that could facilitate this process while minimizing tax liabilities?
  3. Legal Mechanisms for Asset Management: What legal mechanisms are available that would enable me to manage my mother’s inherited assets effectively? I am considering a Durable Power of Attorney, but are there other options or considerations I should be aware of?
Any insights, experiences, or guidance you can offer in navigating these challenges would be immensely helpful and greatly appreciated.
According to this article in Kiplinger's, $3.4 million is enough to put someone in the top 2% in the United States: https://www.kiplinger.com/personal-fina ... e-you-rich. But it's relatively modest in this context.

If your grandmother is able to revise her Will, your grandmother should provide for your mother in trust rather than outright. That will keep her inheritance out of her estate for estate tax purposes, and will protect it from her creditors and spouses, and Medicaid.

When the time comes, while many large firms in major cities wouldn't take an estate of this size, there are many good trusts and estates lawyers who can handle it.

If you're the sole contingent beneficiary, instead of your mother giving you $500,000, she can disclaim $500,000 of your grandmother's estate. In that way, it won't be a taxable gift.

If your grandmother is unable to revise her Will, your mother should revise her Will to provide for her children in trust rather than outright, for the same reasons. As you point out, she can give you a power of attorney. The lawyer can prepare that at the same time that he/she prepares her Will.

Except for her IRA, your grandmother's assets will get a new basis equal to the value at her death. So your grandmother's executors may sell them with no tax consequences (other than the gain, if any, between the date of death and the date of sale). Your mother may invest the money as she wishes. As you point out, she can invest in low-cost diversified index funds.
stan1
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by stan1 »

bsteiner wrote: Sun Jan 21, 2024 11:27 am That will keep her inheritance out of her estate for estate tax purposes, and will protect it from her creditors and spouses, and Medicaid.
How many of your clients with millions (or more) in assets go on Medicaid? Is this a real thing that people are choosing to do?
bsteiner
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by bsteiner »

stan1 wrote: Sun Jan 21, 2024 11:30 am
bsteiner wrote: Sun Jan 21, 2024 11:27 am That will keep her inheritance out of her estate for estate tax purposes, and will protect it from her creditors and spouses, and Medicaid.
How many of your clients with millions (or more) in assets go on Medicaid? Is this a real thing that people are choosing to do?
Some clients have children or grandchildren with disabilities who get Medicaid, at least if their inheritances are in trust rather than outright.

In this case, the original poster's mother only has $15,000, so if the grandmother provides for the mother in trust, the mother will be able to get Medicaid if she ever needs it.

The trust can be used for things that Medicaid doesn't pay for.
Topic Author
rschwartz
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by rschwartz »

Dear Bogleheads community,

My grandmother has passed away. From here on, I would like to focus this thread on creating a retirement portfolio and plan for my mother with her inheritance. Below is an update of the situation followed by some questions. We are both feeling a bit overwhelmed and are deeply grateful for all the valuable insights and guidance throughout this thread.

I helped my mother open a taxable brokerage account with Vanguard. She granted me full agent authorization and durable power of attorney.

She recently had a Will prepared by a highly-respected estate planning attorney, well-regarded in the Bogleheads community. Any remaining assets will be left in trust for beneficiaries. She is currently seeking an Illinois lawyer to execute the Will in accordance with Illinois law.

Mother’s Updated Retirement Assets
Estimated total is $2.68M, excluding the two houses (~$500K):
• $1.7M in Vanguard settlement fund (VMFXX-Vanguard Federal Money Market Fund)
• 820K in individual stocks with transfer agents, currently being retitled to my mother. The current plan is to transfer these to Vanguard, sell them ASAP with the new basis, and create a fresh plan involving index funds, as detailed below.
• 92K in I-bonds through Treasury Direct

Estimated Supplemental Income:
1. $1088/month Social Security. This includes benefits from her ex-husband plus her own benefits.
2. $696/month pension from Illinois Municipal Retirement Fund (IMRF)

Debt: None
Tax Status: Single. Marginal bracket is uncertain but will increase this year because of the inheritance.
State of Residence: Illinois
Age: 63

Tentative Plan:

I've encouraged her to prioritize the eventual disposition of the houses. Meanwhile, for the vacant house, she's installed security cameras, checks on the house weekly, and has helpful neighbors who also keep an eye out for potential issues.

In the short term, considering stashing everything in Vanguard Treasury Money Market Fund (VUSXX) or brokered CDs within FDIC limits (both currently ~5% 7-day SEC yield), until we figure out a long-term plan.

Considering redeeming her 92K of inherited I-bonds for simplicity and to avoid the complexities of managing a Treasury Direct account. This decision is partly due to the frustrations expressed by members here regarding Treasury Direct ( The Eternal Wait and No Way To Track Transfer ), and because these bonds won’t mature for 10-20 years. From my understanding ( IRS 599 p.15 ), we can accrue the interest from these bonds on my grandmother’s final tax return, leveraging her lower marginal bracket from having passed away early in the year.

Regarding a long-term plan, Bill Bernstein suggests in the 2nd Edition of Four Pillars establishing a "liability matching portfolio" (LMP) with at least 25 years of residual living expenses (RLE). He recommends a 30-year TIPS ladder with maturities that match retirement needs, and any remaining assets in a "risk portfolio" (RP) for heirs, etc. However, a key challenge is forecasting my mother’s RLE. Used to living off a $25,000 salary, her net worth has suddenly increased by over one order of magnitude. I've tried approximating her expenditures from past bank statements, but past spending may not be a reliable predictor of future needs.

In light of this, I am leaning towards a simple "three-fund" portfolio. Based on suggestions, perhaps a 60/40 (stocks/bonds) allocation.

For the equity portion, considering:
1. Total Stock Market ETF (VTI)
2. Vanguard Total International Stock Index Fund (VXUS)

For the “bond” portion, leaning towards fixed-income assets backed by a U.S. government guarantee, following Bernstein’s advice. There are many options, and I'm unsure what would be most suitable. This could be CDs under the FDIC limit, or Treasuries purchased at auction. Vanguard also offers various Treasury ETFs and mutual funds, including TIPS funds.

I'm considering setting up a conservative withdrawal rate, such as 2.5% ($67K), with automatic transfers from her Vanguard account into her local bank account, reevaluating her needs annually.

Questions:
1. Feedback on the tentative plan above?
2. Recommendations for specific Vanguard funds or fixed-income products?
3. Suggestions for better forecasting my mother’s RLE?
4. Should we invest in a lump sum?
5. Should my mother withdraw her Social Security claim and defer, e.g., until 70? She is in good health and received her first check less than one year ago.
6. Many have suggested updating her insurance (health, auto, adding umbrella). Should we hire an agent, or shop around ourselves?
7. Any other guidance or considerations?

Thank you again for your ongoing guidance.

My best regards,

rschwartz
Last edited by rschwartz on Mon Apr 01, 2024 9:21 am, edited 2 times in total.
PoppyA
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by PoppyA »

I’m sorry for your loss. You seem to be very thoughtful & your Mother is lucky to have as an advisor.

Have you searched the wiki for 3 fund portfolio? Here is what it recommends for vanguard:

Choosing three funds
For Bogleheads, the answer for "which mutual funds" to use in a three-fund portfolio is "low-cost funds that represent entire markets."

If you ask different people to choose funds for a three-fund portfolio, you will get different fund choices. The differences are usually of no fundamental importance, and are usually the result of a) making choices between nearly identical, almost interchangeable funds, and b) simplifying further by using combination package funds. Watch out for high expense ratios, particularly in the bond funds.

Vanguard funds
From Vanguard's list of "core funds," the funds that are best for a three-fund portfolio are:

Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
So, a "three-fund portfolio" might consist of 42% Total Stock Market Index, 18% Total International Stock Index, and 40% Total Bond Market fund. For example, Taylor Larimore's "Lazy Portfolio" consists of these three funds based on the investor's desired asset allocation.

Of course, you could use ETFs rather than mutual funds. For example, you could use Total Stock Market ETF (VTI),[note 1] Vanguard Total International Stock Index Fund (VXUS)[note 2] for international, and Vanguard Total Bond Market ETF (BND).
GAAP
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by GAAP »

The first step is to figure out what a "secure retirement" means to your mother. Once you know the parameters and the timing, it is much easier to make choices to get there.

FWIW, I'm retired, and I expect the following:
The overall portfolio is expected to provide six key functions with varying needs and characteristics.

Financial Reserves provide funding for unexpected large expenses that generally don’t occur, yet have the potential for significant financial impact. Examples include major home repairs, large medical expenses, earthquake insurance deductible. The key requirement is to maintain a real (inflation-adjusted) value with limited exposure to interest rate risk or unexpected inflation.

Estate Settlement provides funding for Estate Taxes, Pet Trust, and other final expenses. The amount necessary is somewhat uncertain since tax policy is subject to change, house values can be volatile, and portfolio value can be volatile. The key requirements are sufficient growth (long term >3% real growth) to minimize additional funding needs, location in a taxable joint account to simplify estate distribution, and minimal tax and/or IRMAA impacts.

Longevity Insurance provides a reliable source of income in the event of an extended lifetime. The key requirement is reliability and consistency of the income, potentially with some degree of inflation protection and ideally real growth.

Liability Matching provides funding for known future real expenses. These expenses include income to compensate for deferred Social Security benefits, accelerated taxes due to Roth IRA conversions, and future purchases of annuities to provide longevity insurance. The key requirement is to provide a known real amount at multiple future points in time.

Variable Income provides assets to support income needs, provides any additional funding needed by the other functions, and provides the bulk of the financial estate. The key requirement is to provide long-term real income growth.

Daily Expenses provides the funding for day-to-day expenses. The key requirement is for immediate cash access.

There is no specific Bequest motive for this portfolio. No specific allocation is made for this purpose. No specific attempt is made to provide for generational or multi-generational wealth.
Your mother may have entirely different requirements, but my guess is that they all fit into general categories like this.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
ivgrivchuck
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by ivgrivchuck »

My two cents.

When investing this money you should start with risk tolerance considerations.

Objectively I think 60/40 allocation or 50/50 are fine choices in this situations.

However such allocations only make sense if an individual is able to tolerate the risk (subjective risk tolerance). As a rule of thumb one must be able to lose 50% of money they invest in stocks in an economic downturn. Such downturns are common place and likely to happen several times in one's lifetime. Is your mother okay with the idea of losing 30% of her money in economic down turn (assuming 60/40 stocks/bonds portfolio)? If not, you need to choose less aggressive allocation (like 40/60 or even 30/70). Getting this right is the most important step in investing.

After you've figured out the risk tolerance, things are rather straightforward if you choose 3-fund style portfolio. The actual split between VTI and VXUS doesn't matter that much as long as allocation to VXUS is somewhere in the range of 20%-50% of your stock investments (nobody knows the future). For the fixed income, you may use rolling CDs or some high quality bond fund (VGSH, VGIT, BND, VTIP, SCHP, etc.), it doesn't really matter that much in the big picture as long as you choose something low risk and sensible.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
peteyboy
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by peteyboy »

If i were in your shoes I’d probably keep things simple - as simple as possible - and go with a 60/40 mix of stock/bond using funds that rebalance themselves. And keep 5% in cash.

I’d invest as follows:
- 5% in VMFXX or VUSXX
- X% in VBIAX (60/40 all US)
- Y% in VSMGX (60/40 - mix US and OUS)
Where X + Y = 95
Maybe I’d set X = 35 and Y = 60.

I’d set the account to the following:
- No reinvestment of dividends and gains. Dividend and gains go to VMFXX (settlement acct). And Dividends are about 2.5%
- Set up automatic monthly withdrawals of of $5,000 or $5,500 from settlement fund.
- Check account every 3 to 6 months.

Dividends would likely cover the withdrawal amount and with 5% in cash (VMFXX) you’d likely never have to sell any shares. It would stay 60/40 (automatic rebalance nature of those funds). The amount of X vs Y would be based on how much international exposure you wanted. Could be all X or all Y or a mix.

If you wanted 50/50 you could use VSCGX (40/60) in place of VSMGX (60/40) or VBIAX (60/40).

Of course taxes would likely have to be paid quarterly on the brokerage earnings. However, you likely could set up so withholding from pension and SS would cover all tax burden for the year —> no need for estimated quarterly payments to IRS.

If your curious about durability of this 60/40 approach with a more aggressive withdrawal rate, look at the forward looking example by livesoft using a VPW approach - link below.

viewtopic.php?t=284519
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blaugranamd
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by blaugranamd »

LFS1234 wrote: Sat Jan 20, 2024 9:31 am
rschwartz wrote: Sat Jan 20, 2024 8:44 am
My 98-year-old grandmother, who was unexpectedly discovered to be a frugal multi-millionaire, is in rapidly declining health. In a surprising turn of events, she's left all her assets to my 63-year-old mother....
Why is this a "surprising turn of events"? Are there other relatives out there who may feel that they've been disinherited?

Does your mother have a will which has been properly prepared, executed and witnessed in accordance with the applicable laws? If not, is she willing and able to (and legally capable of) executing such a document now?

My first stop would an estate attorney, to make sure that you stay on the right side of the law, take any necessary actions ASAP while grandma still is alive, and can ward off any challengers. This is not a do-it-yourself proposition.

If there aren't any legal problems, everything else should be rather simple. The tax bases of inherited assets are stepped up at date of death. Not so with gifted assets. Your mother can gift $500K in assets to you without incurring gift tax, unless she has used up her lifetime exclusion (extremely unlikely). She'll have to file a Form 709 and retain a copy of it for life. The estate attorney can advise you regarding all of this, and refer you to an accountant if necessary.
This. The single most important thing would be getting an estate attorney to work with your grandmother and your mother to set up the most cost effective and legally appropriate inheritance for both of them, not the least of which is ensuring a legally valid will is in place. Assuming your 98 year old grandmother in declining health remains legally competent. A large estate going through probate if your grandmother is not set up well legally could invite other less scrupulous people out of the woodwork trying to lay claim to the estate.

I think the surprising was that she was unexpectedly wealthy
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---
myfrogger
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by myfrogger »

@peteyboy How did you come up with the $5000/5500 monthly withdrawal amount and why keep 5% cash?
Parkinglotracer
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Parkinglotracer »

I like a 5 year cd ladder or treasury ladder for the 35% of our portfolio we have in fixed income. I have not ventured into tips which some recommend you might include. Sorry for your loss … congrats on having a thrifty grandmother who could think ahead. Maybe your mom could start a small scholarship or donation in your grandmom’s name for a cause she would believe in as a tribute to her.

Sounds like you are smarter than the average 29 year old. Your mom is lucky to have you help her.

Bsteiner had some excellent ideas to consider - at this point maybe having your mom set up a trust.

My favorite quote that might apply is having money is being rich. Spending that money to improve your life and others is prosperity. Good luck . Think long term!
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dodecahedron
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by dodecahedron »

My condolences for your family’s loss. Your mother is indeed fortunate to have such a thoughtful son.

Securing the two houses (both vacant?) and arranging for their eventual disposition needs to be a priority. You need to make arrangements to keep insurance, especially liability insurance in place until they are sold and to make sure that, e.g., they are not broken into by drug dealers, etc. Insurance rates can be high on vacant homes. Undetected plumbing leaks, fires caused by rodents eating wiring, etc. are all concerns. There is a snowstorm possible in Midwest this week and soon grass/weeds will need mowing.

Identifying a trustworthy real estate agent who can keep an eye on things and help your mom realize as much as possible of their value in an efficient manner, that needs to be a priority.

The houses are probably the least diversified assets in the portfolio and the ones with the greatest carrying costs (prop taxes, insurance, maintenance.). Unless your mother has strong emotional ties to either property (e.g., a childhood home?), it would be ideal to get them on the market soon and off your list of headaches to deal with.

If your grandmother has any papers (old stock certificates, life insurance policies, etc.) or possible valuables such as jewelry in either home, you should help your mom arrange for a prompt search and inventory. There may be additional assets squirreled away by your secretive grandmother in one or both homes. Items with sentimental value (old family photographs, letters, other meaningful things) should be retrieved as well.
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dodecahedron
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by dodecahedron »

ivgrivchuck wrote: Sun Mar 31, 2024 5:28 pm My two cents.

When investing this money you should start with risk tolerance considerations.

Objectively I think 60/40 allocation or 50/50 are fine choices in this situations.

However such allocations only make sense if an individual is able to tolerate the risk (subjective risk tolerance). As a rule of thumb one must be able to lose 50% of money they invest in stocks in an economic downturn. Such downturns are common place and likely to happen several times in one's lifetime. Is your mother okay with the idea of losing 30% of her money in economic down turn (assuming 60/40 stocks/bonds portfolio)? If not, you need to choose less aggressive allocation (like 40/60 or even 30/70). Getting this right is the most important step in investing.
I don’t think it is possible for OP to get a good answer to a hypothetical question like “Is your mom okay with the idea of losing x% of her money” right now. Mom is likely overwhelmed and needs time to process her grief and feelings. She also has zero experience dealing with sums of this magnitude.

No reason for her to make asset allocation decisions right now. Park money in safe assets for now, deal with the houses, and long term asset allocation decisions can be made later.

I do think revisiting her SS claiming decision is a priority, since she may have good options to withdraw her recent claim. Getting a full picture of her SS situation is essential (e.g., I assume she does not have a current spouse, does she have one or more former spouses on whose work record she can claim as well as her own?). Especially if former spouse is deceased, she may have options neither of you realizes such as claiming only widow’s benefits now and waiting to age 70 for own record benefits or claiming own record benefits only right now but deferring widow’s benefits until her full retirement age of 67.

OP, my heart goes out to your mom. There are aspects of her situation to which I can relate. I became unexpectedly widowed when I was roughly your mom’s age (just a bit younger at 59) and while the size of the assets was approximately known to me, my husband’s unexpected death from heart attack in his sleep, out of the blue, with no warning, shocking his doctors and everyone who knew him, I was overwhelmed by suddenly and unexpectedly having total responsibility for decision making, combined with grief. She is fortunate to have your help and (indirectly) this forum for wise perspectives. Best advice I got was don’t rush on long term decisions such as asset allocation that can safely wait.
Last edited by dodecahedron on Mon Apr 01, 2024 5:23 am, edited 1 time in total.
4nursebee
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by 4nursebee »

Sorry for your loss.
Going though similar here. Everything takes time and patience.
A lot of the answers lie in what your mother wants and tolerates. Such things might better be hashed out with a finance professional, as one can get for free at Schwab and/or Fidelity. An in person meeting is likely possible where you live, subsequent can be via Zoom. FREE
500K is overly generous.
Estate attorney is likely going to be 30K for us, similar for executor.
We like having an annuity from our asserts to provide regular recurring money. Perhaps, if she stays overly generous, put some of her money and your 500K into a joint life one, provide for all her needs while alive, then give you payments. Make it a large enough chunk that the rest of assets might pass on to you also. I'd leave the rest in a blend of low cost MF or ETFs, mix of US/international.

There is no easy pat answer.
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dodecahedron
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by dodecahedron »

Also, important question for OP. What is your mom’s health insurance situation? If currently on Medicaid, eligibility will cease soon based on income generated by her assets, so arrangements should be made to find replacement coverage. Not sure if MAGI can be managed to get eligibility for an ACA subsidized policy but withdrawing from SS (if desirable for other reasons) might also help with that.

In three years she will be eligible for Medicare, but meanwhile securing health insurance needs to be a priority. Keeping my fingers crossed that maybe her govt retirement pension also comes with retiree health insurance benefits?
HomeStretch
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by HomeStretch »

Your mother should consult with a trust and estate attorney to update her estate plans - Will, durable power of attorney, healthcare POA/advance directives, account/life insurance beneficiary designations. She may want to leave the assets in trust(s) to her beneficiaries.

Also use professionals as needed to settle the estate, taxes, etc.
Topic Author
rschwartz
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Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by rschwartz »

rschwartz wrote: Sat Mar 30, 2024 1:14 pm Dear Bogleheads community,

My grandmother has passed away. From here on, I would like to focus this thread on creating a retirement portfolio and plan for my mother with her inheritance. Below is an update of the situation followed by some questions. We are both feeling a bit overwhelmed and are deeply grateful for all the valuable insights and guidance throughout this thread.

I helped my mother open a taxable brokerage account with Vanguard. She granted me full agent authorization and durable power of attorney.

She recently had a Will prepared by a highly-respected estate planning attorney, well-regarded in the Bogleheads community. Any remaining assets will be left in trust for beneficiaries. She is currently seeking an Illinois lawyer to execute the Will in accordance with Illinois law.

Mother’s Updated Retirement Assets
Estimated total is $2.68M, excluding the two houses (~$500K):
• $1.7M in Vanguard settlement fund (VMFXX-Vanguard Federal Money Market Fund)
• 820K in individual stocks with transfer agents, currently being retitled to my mother. The current plan is to transfer these to Vanguard, sell them ASAP with the new basis, and create a fresh plan involving index funds, as detailed below.
• 92K in I-bonds through Treasury Direct

Estimated Supplemental Income:
1. $1088/month Social Security. This includes benefits from her ex-husband plus her own benefits.
2. $696/month pension from Illinois Municipal Retirement Fund (IMRF)

Debt: None
Tax Status: Single. Marginal bracket is uncertain but will increase this year because of the inheritance.
State of Residence: Illinois
Age: 63

Tentative Plan:

I've encouraged her to prioritize the eventual disposition of the houses. Meanwhile, for the vacant house, she's installed security cameras, checks on the house weekly, and has helpful neighbors who also keep an eye out for potential issues.

In the short term, considering stashing everything in Vanguard Treasury Money Market Fund (VUSXX) or brokered CDs within FDIC limits (both currently ~5% 7-day SEC yield), until we figure out a long-term plan.

Considering redeeming her 92K of inherited I-bonds for simplicity and to avoid the complexities of managing a Treasury Direct account. This decision is partly due to the frustrations expressed by members here regarding Treasury Direct ( The Eternal Wait and No Way To Track Transfer ), and because these bonds won’t mature for 10-20 years. From my understanding ( IRS 599 p.15 ), we can accrue the interest from these bonds on my grandmother’s final tax return, leveraging her lower marginal bracket from having passed away early in the year.

Regarding a long-term plan, Bill Bernstein suggests in the 2nd Edition of Four Pillars establishing a "liability matching portfolio" (LMP) with at least 25 years of residual living expenses (RLE). He recommends a 30-year TIPS ladder with maturities that match retirement needs, and any remaining assets in a "risk portfolio" (RP) for heirs, etc. However, a key challenge is forecasting my mother’s RLE. Used to living off a $25,000 salary, her net worth has suddenly increased by over one order of magnitude. I've tried approximating her expenditures from past bank statements, but past spending may not be a reliable predictor of future needs.

In light of this, I am leaning towards a simple "three-fund" portfolio. Based on suggestions, perhaps a 60/40 (stocks/bonds) allocation.

For the equity portion, considering:
1. Total Stock Market ETF (VTI)
2. Vanguard Total International Stock Index Fund (VXUS)

For the “bond” portion, leaning towards fixed-income assets backed by a U.S. government guarantee, following Bernstein’s advice. There are many options, and I'm unsure what would be most suitable. This could be CDs under the FDIC limit, or Treasuries purchased at auction. Vanguard also offers various Treasury ETFs and mutual funds, including TIPS funds.

I'm considering setting up a conservative withdrawal rate, such as 2.5% ($67K), with automatic transfers from her Vanguard account into her local bank account, reevaluating her needs annually.

Questions:
1. Feedback on the tentative plan above?
2. Recommendations for specific Vanguard funds or fixed-income products?
3. Suggestions for better forecasting my mother’s RLE?
4. Should we invest in a lump sum?
5. Should my mother withdraw her Social Security claim and defer, e.g., until 70? She is in good health and received her first check less than one year ago.
6. Many have suggested updating her insurance (health, auto, adding umbrella). Should we hire an agent, or shop around ourselves?
7. Any other guidance or considerations?

Thank you again for your ongoing guidance.

My best regards,

rschwartz
Thank you all for your condolences and for taking the time to share your insights and guidance on my mother’s updated situation.

In light of recent comments, I’ve updated my March 30 post (quoted above) to include clarifications on her Social Security situation, our efforts in preparing her Will, and our plans for the disposition of the houses, among other things.

As many of you recommended, we're looking into updating her insurance to reflect this unexpected inheritance. However, I must admit that insurance is not my area of expertise, and given everything else on our plate, shopping around for the best options seems daunting. I am therefore contemplating the idea of seeking out a trustworthy and reputable insurance agent to guide us through this process. Does anyone have positive (or negative) experiences they’d be willing to share, or specific suggestions for finding such a professional?

I greatly appreciate the variety of financial plans and fund suggestions provided throughout this thread. It appears that there are several sensible financial plans we could implement. I recognize the importance of not rushing into long-term decisions and am considering consulting with a one-time fee-for-service financial advisor to review our final plan before it's implemented. Rick Ferri and Allan Roth are both highly regarded by members of the Bogleheads community. Although they are booked for many months, this delay may afford us the necessary time to continue processing all this change and to gather more information. Would others consider seeking out a one-time consultation under these circumstances?

Please don't hesitate to provide any further suggestions. Thank you again for all the support in navigating this situation.
DebiT
Posts: 1000
Joined: Sat Dec 28, 2013 12:45 pm

Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by DebiT »

I think it has been touched on, but with all the stress, you may not have noticed. Please call the house insurance agent for the two vacant houses and make sure that you learn how to secure “vacant house insurance “. It may not be the same company, and you may have to use a different agent, but it is very important. Buried in the current policy will be some sort of exclusion for houses that are vacant more than x number of weeks or months. It will annoying and expensive, but it is vital.

My condolences, and acknowledgment that all of this is very big task.
Age 66, life turned upside down 3/2/19, thanking God for what I've learned from this group. AA 40/60 for now, possibly changing at age 70.
PoppyA
Posts: 1182
Joined: Sat Oct 11, 2014 4:24 pm

Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by PoppyA »

If you haven’t already, take a look @ the wiki re: insurance.

Keep in mind some consider insurance reps to be straight up salesmen akin to used car salesmen especially the “friends” who sell insurance.

If after reading the wiki you still have insurance questions I would come back here and ask. Starting a new thread may garner the best response from knowledgeable boggelheaders.
HomeStretch
Posts: 11557
Joined: Thu Dec 27, 2018 2:06 pm

Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by HomeStretch »

Regarding insurance on the two inherited homes…

Seems like step 1 may be for the Executor to contact the current insurer asap regarding the death/vacancy and to do what is needed to keep the current policy in-force for now.

How long does your mom intend to hold them before listing?
If not long, be careful about switching home insurers unless you have to. There are a lot of policy cancellations and fast-rising rates in certain parts of the country. You may also switch insurers for policy premium savings only to find out after the switch that the insurer requires an onsite inspection to continue coverage. The inspections may result in required work (often related to roofs, etc.) that if not completed (often on short timeframes) the insurance policy is cancelled.

If you are stuck for a broker, I used and liked selectquote.com (online insurance broker) a few years ago. The agent assigned to me was knowledgeable, secured multiple quotes and advised on enhancing coverage/best quotes. But I was surprised after the fact with the mandatory onsite inspection. It was pitched as making sure my coverage limit was appropriate but it was a risk assessment (checked roof, electrical panels, etc.).
Topic Author
rschwartz
Posts: 8
Joined: Mon Jan 15, 2024 7:41 am

Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by rschwartz »

@DebiT, @PoppyA, HomeStretch, Thank you all for your guidance regarding insurance. My mother and I have confirmed the details about the vacant house and are able to keep the current policy in force while she prepares the houses for sale. We’re also in the process of getting her an umbrella policy for a few million. I appreciate all the comments throughout this thread. If anyone has further insights or guidance regarding my mother’s new financial situation, please let me know.
Harmanic
Posts: 960
Joined: Mon Apr 04, 2022 10:19 am

Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by Harmanic »

rschwartz wrote: Thu Apr 11, 2024 3:18 pm @DebiT, @PoppyA, HomeStretch, Thank you all for your guidance regarding insurance. My mother and I have confirmed the details about the vacant house and are able to keep the current policy in force while she prepares the houses for sale. We’re also in the process of getting her an umbrella policy for a few million. I appreciate all the comments throughout this thread. If anyone has further insights or guidance regarding my mother’s new financial situation, please let me know.
She is very fortunate to have you to research these issues for her. The advice so far is good. The only caveat is to be very wary of financial advisors and estate attorneys who might decide to liberate you from your inheritance. Keep control over the accounts yourself, use a fee only attorney / advisor, and do not trust anyone with your money. Keep it at a large brokerage like Schwab or Fidelity and use a reputable name-brand accounting/law firm for the tax and estate issues. Don't use your small town family friend to do this for you. It is too easy to make a mistake or become a victim of fraud.

This is not paranoia, just years of experience seeing family and friends (and strangers) being scammed out of their hard-earned money.
The question isn't at what age I want to retire, it's at what income. | - George Foreman
HomeStretch
Posts: 11557
Joined: Thu Dec 27, 2018 2:06 pm

Re: Managing a Surprise Multi-Million Dollar Inheritance at 29

Post by HomeStretch »

Thanks for the update.

Your mom has received a life changing amount of money. You and she seem to have a handle on the investing side and settling the estate. Consider discussing reasonable withdrawal rates with her so she understands the amount of money she can spend annually (which is larger than the $25k/year she was spending) while being reasonably assured the portfolio will last her lifetime.
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