Help me save my inheritance.

December 12, 2012 1:07 PM

Help me save my inheritance.

I'm about to inherit roughly $750k from the family trust when my remaining parent passes away. The trust is a mix of stocks, bonds, funds etc. that will be split with my other siblings. This is in the US.

My wife and I have no kids, a modest mortgage ($85k) and a small amount of debt (>$5k). We earn about $20 - 40k as self-employed artists and live very frugally. This inheritance will be a big change for us.

Help me to set up my own trust and wisely invest this money.

What is some sage advice on wealth and investing? Where is there good information on learning to invest and track investments? What are some alternative ways to invest? What financial consultants would you recommend?

Any and all advice is much appreciated.

posted by anonymous to work & money (20 answers total)

You need a fee-based financial advisor and an attorney, not necessarily in that order; both need to be experienced and should come highly recommended from financially well-off acquaintances based on personal experience. You will likely want to have a tax accountant, as well, as your taxes are about to get significantly more complicated.
posted by Inspector.Gadget at 1:11 PM on December 12, 2012 [8 favorites]

Standard AskMe response here: fee-based planner, tax attorney. If the trust already has an attorney and/or trustee associated with it, start there for recommendations.

There are a good number of previouslies under the "inheritance" tag that address the "big change" part and the goals you ought to set yourself.
posted by holgate at 1:13 PM on December 12, 2012

I think as your fist priority, you should invest in a sock puppet account, because you're not going to get good pointers towards the professional advice you need unless you can answer some questions. Chief among them: are you folks planning to have kids later? Because that fundamentally changes the strategy when you're inheriting against a marginal income.
posted by DarlingBri at 1:14 PM on December 12, 2012 [1 favorite]

I recommend that you do not solicit investment advice on the internets and instead do as others have suggested and get a financial planner and a tax accountant. You do not need to use the same lawyer who set up your trust to set up one for your kids.

Update your will ASAP.
posted by elizardbits at 1:15 PM on December 12, 2012 [2 favorites]

I was recently in a similar situation. My best advice is that if the money is being managed by a professional currently, you may want to see if they will continue to manage it for you once it's no longer in the trust, or if it's even mandatory to remove it form the trust. I don't know how many siblings you have, but it may be that keeping the money together and invested [if you are in a position to do that] and drawing down from it may be a smarter fiscal decision than cashing it all out [and taking the tax hits] and then being left with a pile of money.

The things you have to consider are

- the paperwork - whoever is the executor will be the person who is the point person dealing with this, if this person is not you it may be a good idea to talk to the person who will be dealing with it, they can make choices that may affect you.
- the tax implications (usually with trusts you don't get the money out until taxes have been dealt with, at least in the US so there is a good chance whatever money is coming will come to you free and clear)
- the timing - even though trusts don't go through probate getting stuff like this resolved is a huge pain in the ass and takes seemingly forever so you often can't do anything quickly
- your goals - other than paying down initial debt you and your wife should be thinking about what your goals are as this will affect investment decisions
- your will - now is the time to HAVE ONE if you don't already

And agreeing strongly with Inspector.Gadget. Fee-based financial advisor is the way to go. I would personally, under no circumstances, try to learn about investing enough to try to do a better job than professionals. In the situation I'm in, there were a few "decisions" I made [i.e. "please don't sell Apple stock right now"] which you can still make and directions [i.e. "We would like more green funds"] but it's usually a better deal to pay someone to handle this sort of thing. I'm a frugal person and this has been a ridiculously hard lesson for me to internalize, but the peace of mind involved in having stuff like this competently handled has been huge.

Additionally, there is a good chance you don't want to put the money away in your own trust [to do that you would definitely need an attorney] and having competent professional advice on whether this is a sensemaking proposition for you. As DarlingBri says the differences between planning for a family and planning to be a childless artist couple are night and day in many ways.
posted by jessamyn at 1:17 PM on December 12, 2012 [2 favorites]

Consider if the trust that your parents have set up has been well managed (ask the living parent if possible). If so consider setting up something very similar with the same team/lawyer/bank etc. It seems likely that your parents may have already put a lot of thought in to this that you can make use of. Also I am sorry for your pending loss.
posted by saradarlin at 1:18 PM on December 12, 2012

Also, speaking from extremely frustrating and litigious personal experience, be VERY VERY VERY FUCKING SERIOUSLY INCREDIBLY OH MY FUCKING GOD careful who you assign as the trustee(s) for your future children's trusts. BE VERY FUCKING CAREFUL.
posted by elizardbits at 1:24 PM on December 12, 2012 [4 favorites]

What is some sage advice on wealth and investing? Where is there good information on learning to invest and track investments? What are some alternative ways to invest? What financial consultants would you recommend?

In general, keep your investments diversified and simple enough that you can understand it. As you get older, you'll want to gradually move towards safer investments (that is, out of the stock market).

For this much money, I would absolutely talk to a lawyer and a financial advisor. Also, if I had this much money, I would pay off all of your debts immediately, and then never touch the principle without some kind of emergency. You could potentially never have to work again with this much money if you use it wisely.
posted by empath at 1:27 PM on December 12, 2012

As you're setting your appointment with your financial planner, sit down and have a serious talk with your wife. A good advisor will help you meet your goals, and help you decide which goals are possible. Therefore the first thing they will ask is, what are your goals?

- do you want to have kids?
- do you want to continue living in the house you have the $85k mortgage on?
- are you happy with your career?
- is there any further education either of you would like to do?
- is there another way that money could help your career path?
- are you happy living the frugal lifestyle (as you have so far) indefinitely?

Another thing to have prepared is a summary of your current financial situation. This is not like a tax return where you're trying to list as many things as possible as business expenses and show the least net income possible. You want to look at gross income and all the ways you spend money, which will help you think about your needs and wants better.
posted by aimedwander at 1:28 PM on December 12, 2012

Be careful that anyone you pay is on a fixed fee and that any investments you make don't have sales charges and commissions. Examples of low cost investments would be index funds (stocks, bonds, and REITs) at Vanguard and Fidelity (as opposed to "managed funds" that have higher costs but not necessarily better returns). Make sure your investments are diversified (by geography, industry, type, number of different funds, etc.) in order to reduce risk. Do not buy individual stocks unless your risk tolerance is extremely high. Make sure you pay attention to how liquid the funds are in case you need some part of them on short notice (early withdrawal/redemption fees, etc.). Pay attention to if and how proceeds are automatically reinvested. See if you can get tax favorable retirement savings treatment for some portion of it (see interesting recent NY Times article here). Be skeptical about marketing pitches from the investment industry (read The Big Investment Lie to develop that healthy skepticism).
posted by Dansaman at 1:36 PM on December 12, 2012

This is the kind of thing that is worth calling a lawyer (and paying a lawyer) to get right. Please do that no matter what savings / investing advice folks give you here or anywhere else online. If you tell the mods your state of residence (since you use dollar signs, I assume you are in the US), perhaps people here can make recommendations if you need that rather than just asking your friends.

Beyond that, aimedwander's suggestion is probably a really good one; while the loss of money can obviously stress relationships badly, gaining money can also be really stressful when the partners have different priorities for how to use it.
posted by Joey Buttafoucault at 1:39 PM on December 12, 2012

[This is a followup from the asker.]

As a follow up to my original question, we are in our mid-fifties and won't be having kids.

We fully intend hiring financial advisor, tax atty, etc.; however, people who use those services don't run in our circle of friends. Any advice on finding them that isn't based on word of mouth? The original atty and financial advisor of the original trust are out of state or deceased.

Finally, I want to learn more about investing not so I can run my trust, but that I may be better able to understand the advice that I get. I agree with Jessamyn and others that I'm not going to do a better job than the professionals.

posted by cortex at 1:56 PM on December 12, 2012

Oh also, you may want to consider a post-nup. The purpose, pros and cons of this and the particulars for your state is something your attorney should review with you. If you think this idea is ridiculous, that's great: when you have one another's best interests at heart is exactly when to work out a pre- or post-nup.

On preview, statistically divorce is less likely after 50 but it does happen. What happens more is depletion of assets to deal with medical costs. With this money comes the urgent need for estate and eldercare planning.
posted by DarlingBri at 2:04 PM on December 12, 2012

A relative in your situation, who inherited a slightly smaller amount derived from a family trust, did what saradarlin suggests ... so far so good, they report. At the least, you want to deal with your current debt, get health insurance if you don't have it, and plan for retirement.

If you are in New England, I could point you to who my relative is using, particularly if you provide a throwaway email address.

The advice to get a lawyer as a start is spot on, as you will need to do things like update your wills or do wills, as well as deal with the financial side. If you are in your 50's, you can go ahead and join AARP (you just have to be over 50; you don't need to be retired) and use their legal services network, to start.
posted by gudrun at 2:05 PM on December 12, 2012

Keep in mind that by "fee-only" or "fee-based" financial advisor, in my opinion what you are looking for is someone who charges you an hourly rate for their time. I imagine three variations of financial advisors:

Some are "financial advisors" really in name only, but are really salespeople/brokers that will sell you products on which they will earn a commission. This would be a little bit like going to a Honda salesperson to get advice on a car purchase. Even if that person knows a ton about cars, you're going to wind up with a Honda whether it is the best car for you or not.

Then there are financial advisors who aren't salespeople and you pay. They come in two flavors. The first is someone who will manage your portfolio for a percentage of the action, like 1%. This is an enormous price to pay for this kind of help, since you'll be reducing the after tax value of your return by like 20% or so in most cases. This is superior to hiring a salesperson to do this work and it's superior to making really horrible decisions on your own, but it's inferior to the third type of advisor, who is...

...someone you pay a flat hourly rate for their time. This might not seem as attractive since you actually have to cut a check for their bill (and the people who want to manage a percentage of your money say things like "I only make money if you make money!" and that sounds really neat, except that you can accomplish the same goals by spending a lot less money).

Among the reasons that you should choose this third option are:

(1) the advice you get is completely objective and without regard for your advisor either pushing products on which s/he gets a commission or taking unnecessary risk/being unnecessarily conservative since their own financial wellbeing is bound up with yours and they may have different goals/values than you have;

(2) it is almost certainly cheaper--1% of $750k is $7500/year, and you should be able to get the help you need for much less than this--certainly it's not an expense you need to incur every year, even if you need more help and time in the first several years.

You may or may not want to put this money in trust. If you don't put the money in trust, you really do not need a lawyer, except that yes, it's time to update your will and do other estate planning stuff. I can't really think of any good reason to put your own money into a trust, though, at least before you're near the end of your life. So, yes, by all means, see a lawyer, but see the financial planner first so you know why you need to see a lawyer. If you just approach a lawyer about this, sure, they'll help you, and you'll pay for it, but it could very well be a lot of money on lawyers you don't need to spend.

Also, it's not as hard to learn about investing as you might think, and there's no reason to pay off your mortgage now, given that you live frugally. Sure, you might choose to do this, but it's not a no-brainer must do. It depends on the interest rate of your mortgage, whether you'll get a tax deduction to subsidize that mortgage, and whether you can make better use of that money elsewhere (among other things).

If you want to do terrific reading on investing, here are three books I have found especially influential: The Little Book of Commonsense Investing, by John C. Bogle; The Investment Answer, by Gordon S. Murray; and Ordinary People, Extraordinary Wealth, by Ric Edelman. Key take aways from all of those books are these:

-Diversify your investments: this means spreading the risk and opportunity out, so that all of your assets don't rise and fall at once. This is the KEY investment concept.

-Keep investment expenses low to maximize your return: this is why you choose a financial planner in the way I recommend, and it's also the reason you choose mutual funds that don't have high transaction fees/expenses associated with them. It's also why you don't churn through investments and constantly buy and sell.

-Buy low, sell high: this seems obvious, but you would be amazed at how many people "chase" what they perceive to be hot investments (ie, buy high) and then sell those investments when the market takes a downturn (sell low). Patience and discipline are rewarded. This concept complements the diversification strategy.

Anyway, yes, you want to solicit recommendations for lawyers and financial advisors, but please be very careful when you do. There are a lot of medicore ones out there. DarlingBri's suggestion to get a sockpuppet account for this is a good one--your locality would be useful information.
posted by MoonOrb at 2:10 PM on December 12, 2012 [4 favorites]

Finding financial planning professionals. It is more comprehensive and helpful advice than the brief advice you will get here.

I'll highlight one item: "When hiring a planner, interview at least three pros to find the one who can deliver the services you need and who's compatible with your style." It links to this directory. It's very tempting to just talk to one person and then sign up if he seems nice and responsible. This is a crass generalization, but I bet most financial advisors don't typically work with extremely frugal self-employed artists, so you might not find someone you mesh with on the first shot. And after you choose someone, get and check references before committing.

The rest of the Money 101 guide looks like good background to start with, but I'd suggest going to the library and asking the librarian for a book recommendation that is right for you.
posted by Mr.Know-it-some at 2:12 PM on December 12, 2012 [1 favorite]

>We fully intend hiring financial advisor, tax atty, etc.; however, people who use those services don't run in our circle of friends. Any advice on finding them that isn't based on word of mouth?

You can start here. But don't end here. A personal recommendation is invaluable.

http://napfa.org/
http://www.wealthcounsel.com/members-by-name/
http://www.aicpa.org/ForThePublic/FindACPA/Pages/FindACPA.aspx
posted by megatherium at 2:17 PM on December 12, 2012 [1 favorite]

I came here to say exactly what MoonOrb has already said. So to repeat, it is very important if you go talk to a professional that you understand how they are getting paid. You need both to understand the different types of fees and be assertive enough to directly ask about them. You can do that by educating yourself with books and links previously mentioned, and I'd also suggest the Bogleheads wiki as a start.

One other option that hasn't been mentioned is what I consider an amazing resource, the Bogleheads forum. While you should be wary of asking internet strangers for financial advice, the people at Bogleheads are knowledgeable, level-headed, and most importantly disinterested. They can help educate you and point you towards other resources to educate yourself, which as you already understand is necessary whether or not you decide to manage your finances yourself.
posted by Durin's Bane at 3:15 PM on December 12, 2012

Here's what little I know that may help. I inherited a dab of money. First thing I did was pay off my mortgage and a good chunk of my debt. I then bought myself a small present(nice bedroom furniture). From my Mother's advice I have not touched the principle. I then looked around for decent return rates and tax free investments. It all depends if you want a little bonus income as you go or if you want to put a good part away for retirement . If you have kids a good 529 plan helps for college. For retirement Roth IRAs are the best. CD's suck right now and the little dab of return you get is taxed. Look around and good luck.
posted by PJMoore at 4:07 PM on December 12, 2012

For these particular investors, 529 plan is not applicable and Roth IRAs have a limit that is far smaller than the amount they're dealing with.

I would recommend Bogleheads (forum for followers of the founder of Vanguard), and to check out the book reviews and posts on windfalls from Get Rich Slowly. Maybe check the book reviews first and read a few of the top rated ones so you will know what the other resources are talking about.
posted by treehorn+bunny at 6:35 PM on December 12, 2012