Episode 207: You Inherited A Lot of Money Or Assets. Now What?

Melissa Fradenburg explores the complicated nature of receiving an inheritance, especially as a woman. You'll get practical guidance on managing inherited assets, honoring the wishes of passed loved ones, and making informed decisions during this sensitive time. 

Listen and Learn:

• How to make what you inherit last & honor a loved one
• An easy way to prioritize the overwhelming list of to-dos
• Tax consequences to be aware of with a transfer of accounts
• Overlooked expenses that can surprise you with inherited property

Resources:

• Listen: Episode 59: Inheritance Mistakes with Cathy Curtis 
• Listen: Episode 138: How to Deal with Grief and Financial Decisions with Kathi Balasek 
• Read: Emotionally Charged Money: Inheritance
• Review: Can I Delay Distributions From The Traditional IRA I Inherited?

Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.

Transcript

Melissa Fradenburg: 0:05

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and founder of Pearl Planning. I'm Melissa Fradenburg, financial advisor. We dive deep into topics like work-life balance, financial planning, personal growth and the intricacies of the sandwich generation. Tune in for money conversations that every woman needs to have.

Melissa Fradenburg: 0:28

Hello and welcome to the Women's Money Wisdom Podcast. This is Melissa Freidenberg, and this week I am going to be talking about inheritance. I've had a few calls this last month actually women clients in the early stages just not sure what to do in the very beginning, how things were titled, and I'm helping her through that process. So again, I thought this would be a timely episode. Maybe there are others out there, our listeners, who maybe are going through the same thing and we'll find this helpful. So I'm calling this episode You've Inherited Now what we always want to make sure that we're able to inform our clients and listeners on personal finance and this being a very emotional and meaningful part of life. A lot of our listeners are in that Gen X age range where their parents, if they haven't passed it's likely to happen in the next decade or so. So I thought again, even if you haven't experienced this yet or not currently going through it. This will hopefully be an episode that you can come back to if this does come up, and it's often difficult to prepare for. So I want to talk about some of the emotional components, as well as the financial decision components, of an inheritance, and I will be discussing what is an inheritance and then some action steps that you can take, and fortunately we also have some resources that may be able to help you that I will also link in the show notes as well. So if you find yourself in the situation where you've either inherited a financial account with money, or maybe there is a home or other items of value that you've inherited, one of the biggest parts of that is the responsibility that one feels to be able to make that sustainable, make it used in a way that the person who left it to you would want you to, and sometimes it's not clear or laid out exactly what that may be. So again, there is like an emotional component, not just a responsibility of not losing these assets but making sure that they are used and preserved in a way that the person who left them would want.

Melissa Fradenburg: 2:51

I often hear women especially talking about this, and sometimes that almost paralyzes them into not knowing how or what vehicle to keep the investments in. A lot of times family is involved in maybe trusted friends, family friends and so when you have a loss in the family, you know people will rally around you. Family members will step up and sort of take charge. If it's not dictated who is in charge, hopefully there will be an attorney, an estate planning document that can help with this part of it, but certainly those are the documents you want to look for. I know when my father-in-law passed away, it was quite literally going through his apartment looking for documents, right, so nobody knew really where things were. Luckily they did find some things that helped kind of explain where things were going. But obviously it is a very emotional time, especially if it's a sudden death. So finding documentation, statements, figuring out where things are If the person who left you an inheritance was not super organized, that would be obviously the first step.

Melissa Fradenburg: 4:03

When something like this happens, there are a lot of people that may be in your personal network that are either interested in helping you or interested in having a say, and so sometimes this can get stressful. I would say one of the first things that's helpful is for you to figure out who your team is and really a team of professionals that should include an attorney, a CPA, maybe a financial advisor although I'm a little bit biased on that but get your team of people set up even before you know everything and what the numbers are. People that you can trust, have their phone number handy so that when you have questions you can reach out and really figure out who those people are that are going to help with this process. And it's hard when parents pass away and funds are going to adult children. There are always family dynamics that exist, especially when older children are married and add to the drama. So it is important again to have people that you can trust, a team of professionals that can help and help you navigate some of those dynamics. And sometimes it can be very clean and straightforward and everything is laid out perfectly.

Melissa Fradenburg: 5:12

So there's that too, and if you have been the executor of an estate or received funds from someone, you probably know how complicated that can be, the amount of paperwork that's involved, and so we always think of like first thing as triage right. So now, soon and later, it's important to make a list what needs to be done right now, immediately? What can we put on a list that needs to be handled in the next, say, six months and what are some things that we have maybe a year to kind of figure everything out and that really helps you tackle things into like bite-sized pieces of what needs to be done and can be super helpful, especially if you're receiving a complicated list of accounts, because, again, there's a lot of paperwork just to get the names of the accounts changed over and some things really can't be put off for a year. So, even if you're grieving and emotional, you do have a list of things that need to happen right away. One of the most important things that you'll find if you are involved in heriting assets or as the executor of an estate, would be the death certificate. You're going to need this and you're going to need certified copies of this and notifying financial institutions where there are accounts of the passing of your family member. So this really is something, again, that has to be done right away, sooner than later, just to kind of put that top of your list.

Melissa Fradenburg: 6:39

Something that doesn't have to be done right away is thinking about what you're going to do with these funds, especially if this is life-changing funds, something that is really going to change your financial picture and it may really send your mind racing and be thinking all the things that you can do with the money and again how that person who left it to you would want you to spend the money or save the money or use it for. And I really want people to pause because sometimes they feel like stuck or emotional or maybe guilty about receiving these funds and I really do feel like that part of the puzzle is something that does not need to be figured out right away and obviously you want to think about it, but I wouldn't make any major spending decisions until you've established, kind of, what your whole financial picture looks like and how this fits into it. It's okay to dream and write a list of things you want to do, but, again, the people that I see who do blow through money quickly when it comes to inheritance, typically don't take the time to really look at how that inheritance fits into their whole picture and what it can do over time, but more so, kind of right away, make some changes to their financial situation based on that amount, and that is really kind of a financial planner's nightmare. So, whether you sit down with a planner or whether you sit down with a family member, or just sit down with your numbers and yourself. Do take time before making decisions on how you're going to spend those assets. If that is what you have in mind Once the paperwork is sorted out or maybe somebody else in your family took care of it and you get a final dollar amount of what it is that you're inheriting one of the first things that I would ask for you to do is to sit down again, looking at your whole financial picture and look at where your weaknesses are.

Melissa Fradenburg: 8:33

So maybe it's a case of you have some debt or you have no emergency savings, and those are two areas that I would look at first when considering how you're going to incorporate this inheritance into your whole financial picture. You may want to pay off debt that has been established. So, rather than taking this money and putting it in an account somewhere or never looking at it because you don't want to lose it, or investing it in something where there could potentially be some downside risk, look at those kind of weaknesses in your plan and address those first. Some people really race to pay off a mortgage, and I will say this if, after looking at everything, that is something that really would help you sleep at night and make you feel good. It is not a terrible thing to do, but before jumping at it, I want you to run some of the numbers. So like, for instance, if you were someone who locked in a mortgage at 2.5% 3% a few years ago, it may not make sense to do that. Do keep in mind also, again, if you are going to need to access some of this money from your inheritance in the next few years, it is pretty hard to get money back out of a mortgage without paying an interest rate to get your own money back for that equity. So make sure that you have addressed other areas of your financial plan before just knee-jerk reaction doing that. Perhaps you could boost your retirement savings and invest it. So really thinking about what that money is going to pay for and thinking about how to allocate that.

Melissa Fradenburg: 10:16

Now one of the I don't want to say mistakes, because it's very personal what you want to do with money when you inherit it. But I sometimes see, especially women we take care of others first, right, so a lot of times if it's a parent who passed away, I will talk to somebody and they really want to like lock it in to pay for college for their kids. So for the grandkids, that's something that may they feel maybe their parent felt was a priority, and I'm not telling you not to use it for your kids college education but again, before you jump at that, look at your whole financial picture because if you are the primary person that is going to help your kids with a college education, you really want to make sure that this money, before putting it in an account for your kids, is working the best way to provide that life for your kids and for yourself. So, again, women were nurturers, but that is one of the areas where I see before really kind of plugging some of the holes in our own financial picture that really could help us be there better for our children. We are quick to kind of earmark it for something that maybe is a little ways off or may already be funded, and really just making sure that that is something that you want to do with it. Of course, if it is something where you're honoring a legacy and in terms of gifting it to the next generation, that might be something special that was meaningful to the person who left the money to you, and I do always love to figure out a way to make an inheritance special and meaningful and appropriate when there's an opportunity to do so. But I just want to make sure that you don't confuse the gift of money with a legacy. And this speaks back to people who just do not feel comfortable in doing anything. They never want to touch the money. Grandma invested in ExxonMobil 50 years ago and that's just how it'll stay. She wants us to keep that stock and never touch it. And you've got to try and separate yourself from how a particular person who left you the inheritance invested it and how it's best to invest in your financial picture, because it is yours now that you have inherited it.

Melissa Fradenburg: 12:33

Let's switch gears for a minute and talk about when you inherit a physical asset such as a home, a vacation home or a car collection, it's really important to determine the costs and when I say costs, I'm not talking about the value, although that is important to figure out the value of those assets but, for example, a carrying cost. So if you were to inherit a home, let's say it's a home that maybe you and your family would use as a vacation home. You want to look at not just what that home is worth, but do you have the money to maintain it, to pay the taxes to care for it? Does it need a new roof or anything? As far as just you know, regular maintenance, lawn care, is there a pool? All of those things, because yes, it's great, maybe grandma would love for you to. You know, continue to have it in your family and bring your grig they're grandkids there and enjoy it.

Melissa Fradenburg: 13:31

But if you just don't have the assets to carry the physical asset and Afford to maintain it, you may need to sell it and that's okay. But just having all the numbers and really being honest with whether you can Maintain the property or the items, the collections that you may have inherited, that is something that is is really important in that decision-making process. Now my mom and she's still very much alive, but I know that when she passes I will have a lot of physical items to sort through and I've had clients that it's taken them years to get the house listed Because there's just boxes upon boxes of memories and things to go through. So Again, when you're thinking about the carrying costs, maybe you're going to sell it, but really setting a timeline and a reasonable timeline for getting that ready to sell and what those carrying costs are going to be before assets like bank accounts are divided up and Divvied out. Do you need to keep a bank account to pay property taxes before Splitting that with people? The answer that is usually yes Need to have money on hand to maintain those expenses for the property, even if you plan to sell it because it may not sell as quickly.

Melissa Fradenburg: 14:48

Things have gotten interesting in the real estate market. Some things go quickly Sometimes. If it's something that maybe your parents lived in for a long time, need some repairs a little outdated, it may sit for a period of time. Now, in some cases, you may have inherited retirement accounts Such as a 401k or an IRA, and that comes with some tax implications, and I don't see it too often, but there is always. In the case where people especially need liquid assets, where people will Not necessarily do the best thing for themselves Tax wise, when you inherit these type of accounts, it may make sense to open a retirement account in your name to receive these assets.

Melissa Fradenburg: 15:36

Now, depending on things such as your relationship to the deceased person, whether it was a spouse or whether it was a parent, whether the account holder had started taking required minimum distributions or RMDs, there are different tax consequences when inheriting these types of assets that are crucial for managing the tax implication of those assets. So this is where really talking to a professional, making sure that you are receiving these funds in the most tax efficient manner and planning accordingly with how you're going to distribute them, is so important and there's really too much to cover in a short podcast, but I am going to link a few resources on that exact thing, which is inheriting retirement assets, what your options are, because things have changed in recent years in how long you have to take those assets before having to pay taxes on them and what I mean by having to pay taxes on them. You will eventually have to pay taxes on retirement accounts that you've inherited, but you may have several options for distributing those funds, and those options depend on whether the account holder had reached that RMD age, your relationship to them and whether the account holder had designated beneficiaries. So options may include taking a lump sum, setting up an inherited IRA or taking distributions over your lifetime. Either way, again, this is where your team of professionals really come into play, whether it's a CPA or a financial advisor. It is important to really think about what these assets that you've inherited are labeled as before, kind of deciding how they're going to be spent or, of course, spending them. So those are just a couple of factors to get you started planning for the inheritance, taking your time and again.

Melissa Fradenburg: 17:32

The thing with inheritance is it is so emotional. Money is always emotional. However, when it comes to inheritance, you really have the opportunity to truly honor your family member that passed and also make a difference in your financial picture. So taking the time to make sure you're doing the right steps is really important. I hope that you found this episode helpful and, again, I'm gonna link some additional resources in the show notes so that you can find more specific information having to do with the type of accounts that you've inherited. As always, thank you for listening and I hope you're having a great day. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in our conversations, please take a moment to like, follow and subscribe. Wherever you're tuning in from. It helps us continue to bring these valuable insights every week. Head over to women'smoneywisdomcom. There you'll find tools, tips and a supportive community to help you gain financial confidence.