Financial planning for future inheritance

[inheritanceae]

I may DD this, so PDQ.  

I have modest investments, with no current perceived need for professional assistance in managing money.  We have retirement accounts in target-year retirement funds and employer-chosen funds, 529s in age-based funds, and 5-figures of savings in Vanguard mutual funds we picked years ago that seem to perform decently.  

My dad recently told me that he wants me to find a financial advisor and thinks I should take time to work with someone and get to know/like/trust them, before I receive an inheritance.  He thinks my portion of the inheritance would be around 1 million, and I'd be executor of an estate that could be worth 2-3 million.    Of course this is all hypothetical because the person doing the giving is alive and not imminently dying, so there's really no way to forecast accurately on timeline or amount.  I think COVID has him thinking morbidly.  

My dad is right that I have no clue what to do with that amount of money and would be in over my head.  But I think it's silly to spend a lot of money on a financial advisor now, and possibly for years to come, while I don't really need it.

Is this a thing?  I can just figure this out if it ever becomes a reality, right?  

[Deleted]

Yes, you can figure it out. I wouldn’t worry about it until the time comes, if ever.

If you have a decent level of financial literacy, then you’ll be fine, IMO.

But, then again, every time I’ve talked to a FA I’ve always known more than they have sooooo... I’ve never been impressed.

[imojoebunny]

I have an MBA in finance, and was raised by a person who retired at 48 years old, who by economic measures is very successful, so my understanding of investing is more advanced than a lot of people. Many people can learn to manage $1M. You just have to be willing. There are lots of on-line investing classes, many offered by brokerages, with can be very useful, but others by educational institutions, like Edx. Try taking a few (most are free), and see how comfortable you are with the ideas. I have $1M invested in mostly low cost mutual funds that do quite well. I don't think a financial adviser would do any better over time. Definitely, you can learn to identify and buy stocks and do better, but the fees financial advisers charge, and the risk/return can be decent with a solid mutual fund. The biggest thing is being comfortable with the risk profile you are signing up for. I had a friend who had never invested who bought into a fund that was up 100% the year before, that looks great, but the volatility is big no bueno for me, still better most likely than it sitting in her checking account, which is what it had been doing. You can learn to invest!

[aspentosh]

I see no reason to hire an FA right now if you feel comfortable with where your money is and what it's doing for you. If the inheritance comes through, then it's always an option to hire one then. And likely not a bad idea, to help hold your hand through the process. But as others have said, it's definitely something you can read up on and do yourself if you feel so inclined.

[Wallflower]

Also keep in mind, and maybe mention to your Dad, *if* you inherit this money, you aren't required to act immediately to invest it. You can stick it in a savings account and take your time to find someone you like or to teach yourself.

[ssmjlm]

Does the person inheriting the money not like who is managing their money now? Or is it tied in something like real estate? If the FA is good I don't see a reason to move the money.

[ohgillian]

This isn't something I would do. You can always find someone later, when/if you inherit. You already said you have funds at Vanguard, and a higher level of assets there opens up more options in their advisor services anyway.

[ohgillian]

Apr 29, 2021 21:46:45 GMT -5 @akswartz85 said:

Yes, you can figure it out. I wouldn’t worry about it until the time comes, if ever.

If you have a decent level of financial literacy, then you’ll be fine, IMO.

But, then again, every time I’ve talked to a FA I’ve always known more than they have sooooo... I’ve never been impressed.

This has been my experience trying to get a CPA. I worked w/2 different ones and it wasn't good. Like, I shouldn't be explaining the tax code to you. Obviously I'm not saying all CPAs or all FAs are bad. Of course not. But it can take some navigating to figure out, unless you go thru a company that has weeded them out for you. 

[Cappy]

This may be more of a reflection of your dad's financial literacy than yours. I had a similar conversation w/ my father (almost identical) and came to learn he doesn't know jack. He 100% relies on advisors and in-person service with an expensive FA. He doesn't do anything online. For this reason he is in a position of reliance on an advisor. Meanwhile I've "grown up" financially buying index funds online and setting up my own asset mix. I don't think my dad even knows you can DIY.

[savan]

Sounds like my dad! I can not have a conversation with him right now that doesn't revolve around the money I may/may not receive. He has told me repeatedly that I need to research what to do with the inheritance he will leave me. He tells me not to worry so much about retirement because he will take care of me. I tell him I love him but he needs to spend that money on himself. If/when that money ever appears, I will deal with the financial planning but I still have hope he will live it up for another 20+ years.

[gt7301b]

I agree with the others and I don't see the need to meet with a financial advisor now.

It might be beneficial to start to do more research on investing, but honestly, what you are doing seems like it would work for any future inheritance that you might receive.  Vanguard has advisory services that are inexpensive and could provide guidance.

I also think your dad is incorrect on your financial literacy, it seems like you are doing just fine to me.  Warren Buffett has instructed most of his assets to be invested in low cost index funds upon his death - exactly what you are doing with Vanguard.

[inheritanceae]

Apr 30, 2021 6:49:32 GMT -5 Wallflower said:

Also keep in mind, and maybe mention to your Dad, *if* you inherit this money, you aren't required to act immediately to invest it. You can stick it in a savings account and take your time to find someone you like or to teach yourself.

While true, I think this might give my dad a heart attack.   

[inheritanceae]

Apr 30, 2021 6:49:34 GMT -5 ssmjlm said:

Does the person inheriting the money not like who is managing their money now? Or is it tied in something like real estate? If the FA is good I don't see a reason to move the money.

It's invested now, combination of retirement accounts and non-retirement accounts and a small portion in the inhabited residence.  The person managing the money now is also in his 70s, with a plan for his son to eventually take over... I think my dad doesn't know much about the son.  I think my dad is also stuck in a world where your advisors should live in the same place as you, and the person managing the money now is not local to me.  But given the internet I think this may not matter. 

I think part of what is bugging my dad is that he recently inherited some money from someone else and someone who did not know what they were doing was the executor and they made (what he believes to be) some bad decisions about how to manage retirement funds that cost my dad 6-figures in extra taxes. resulted in a 6 figure tax bill.    

[Cappy]

The situation you describe sounds like a tax efficiency/financial vehicle issue vs. an investment holdings issue. It could be worth a CPA consult re: tax strategy for asset transfer (where both of you attend). I've considered something similar.

Also-- take that with a grain of salt...I'm a newbie :-)

[inheritanceae]

Apr 30, 2021 7:57:55 GMT -5 Cappy said:

This may be more of a reflection of your dad's financial literacy than yours. I had a similar conversation w/ my father (almost identical) and came to learn he doesn't know jack. He 100% relies on advisors and in-person service with an expensive FA. He doesn't do anything online. For this reason he is in a position of reliance on an advisor. Meanwhile I've "grown up" financially buying index funds online and setting up my own asset mix. I don't think my dad even knows you can DIY.

I think he has decent financial literacy, but grew up in a culture of using a professional to manage it, and views me as not very knowledgeable about money....  my impression is that things have changed a lot in that regard, but I could be wrong.    He's also worried because of one the other beneficiaries of this money views himself as quite knowledgeable about money, but my dad trusts my judgment more if that makes sense....    I think he's worried that I will let the other person make decisions because he's confident.  

[inheritanceae]

Apr 30, 2021 10:53:01 GMT -5 Cappy said:

The situation you describe sounds like a tax efficiency/financial vehicle issue vs. an investment holdings issue. It could be worth a CPA consult re: tax strategy for asset transfer (where both of you attend). I've considered something similar.

Also-- take that with a grain of salt...I'm a newbie :-)

Hm, this is an interesting point.  I think he's worried about both, but the tax efficiency stuff is probably more pressing and more unfamiliar to me.  

[sicilygirl]

Apr 30, 2021 12:46:42 GMT -5 inheritanceae said:

Apr 30, 2021 10:53:01 GMT -5 Cappy said:

The situation you describe sounds like a tax efficiency/financial vehicle issue vs. an investment holdings issue. It could be worth a CPA consult re: tax strategy for asset transfer (where both of you attend). I've considered something similar.

Also-- take that with a grain of salt...I'm a newbie :-)

Hm, this is an interesting point.  I think he's worried about both, but the tax efficiency stuff is probably more pressing and more unfamiliar to me.  

I agree with this.

I know a lot of people here are very knowledgeable about finances, investments, and taxes, but I wouldn't discount the perspective that a professional can offer.  I don't think there's any reason to hire someone that you don't need now, but when the time comes, it would definitely be worth setting up a few meetings in my opinion. 

My husband and I are both CPAs - I work in public accounting on the tax side and he has a finance background and works in real estate.  We met with a financial advisor when we had some significant income/asset changes a couple of years ago, and he was incredibly helpful.  We did not hire him to manage our investments (which we do ourselves), but we did work with him on a short-term basis to get ideas on the best way to proceed in our new situation, many of which we implemented.   We'll work with him again in the future if/when we find ourselves in a situation where things are changing dramatically again.

Finding competent professionals is HARD.  When the time comes, I would recommend a fee-only financial advisor who works for a large local or regional firm that specializes in comprehensive financial planning AND tax-optimized investment management.  The combination of these services is where I think the real benefit comes from.

[lemoncupcake]

Apr 30, 2021 12:38:31 GMT -5 inheritanceae said:

Apr 30, 2021 7:57:55 GMT -5 Cappy said:

This may be more of a reflection of your dad's financial literacy than yours. I had a similar conversation w/ my father (almost identical) and came to learn he doesn't know jack. He 100% relies on advisors and in-person service with an expensive FA. He doesn't do anything online. For this reason he is in a position of reliance on an advisor. Meanwhile I've "grown up" financially buying index funds online and setting up my own asset mix. I don't think my dad even knows you can DIY.

I think he has decent financial literacy, but grew up in a culture of using a professional to manage it, and views me as not very knowledgeable about money....  my impression is that things have changed a lot in that regard, but I could be wrong.    He's also worried because of one the other beneficiaries of this money views himself as quite knowledgeable about money, but my dad trusts my judgment more if that makes sense....    I think he's worried that I will let the other person make decisions because he's confident.  

I think I'm confused on the situation you're describing - it sounds like your dad isn't the one you're preparing to inherit from? 

And even if this son is knowledgable about money, if you're named the executor of the estate then that's it - you are the executor and will fulfill those duties regardless of how knowledgeable he is. And I wasn't aware that executors made that many decisions vs. just carrying out the will as written. 

[orval]

Apr 30, 2021 13:39:54 GMT -5 lemoncupcake said:

Apr 30, 2021 12:38:31 GMT -5 inheritanceae said:

I think he has decent financial literacy, but grew up in a culture of using a professional to manage it, and views me as not very knowledgeable about money....  my impression is that things have changed a lot in that regard, but I could be wrong.    He's also worried because of one the other beneficiaries of this money views himself as quite knowledgeable about money, but my dad trusts my judgment more if that makes sense....    I think he's worried that I will let the other person make decisions because he's confident.  

I think I'm confused on the situation you're describing - it sounds like your dad isn't the one you're preparing to inherit from? 

And even if this son is knowledgable about money, if you're named the executor of the estate then that's it - you are the executor and will fulfill those duties regardless of how knowledgeable he is. And I wasn't aware that executors made that many decisions vs. just carrying out the will as written. 

I agree with this.  For retirement funds, they are ira's, 401'ks they should have a beneficiary/s.  The executor has no say in how those are distributed.  For example, I inherited an annuity from my mom split 50-50 with my sister.  We each had a choice as to how we took the money. The executor(my sister) had no say in how I took my half. 

[inheritanceae]

Apr 30, 2021 13:39:54 GMT -5 lemoncupcake said:

Apr 30, 2021 12:38:31 GMT -5 inheritanceae said:

I think he has decent financial literacy, but grew up in a culture of using a professional to manage it, and views me as not very knowledgeable about money....  my impression is that things have changed a lot in that regard, but I could be wrong.    He's also worried because of one the other beneficiaries of this money views himself as quite knowledgeable about money, but my dad trusts my judgment more if that makes sense....    I think he's worried that I will let the other person make decisions because he's confident.  

I think I'm confused on the situation you're describing - it sounds like your dad isn't the one you're preparing to inherit from? 

And even if this son is knowledgable about money, if you're named the executor of the estate then that's it - you are the executor and will fulfill those duties regardless of how knowledgeable he is. And I wasn't aware that executors made that many decisions vs. just carrying out the will as written. 

Sorry, I think I'm being needlessly cryptic about this because even talking about it anonymously on the internet makes me nervous.  It's my dad I would inherit from, and the other person I'm referring to is my BIL.  

[inheritanceae]

Apr 30, 2021 13:56:01 GMT -5 orval said:

Apr 30, 2021 13:39:54 GMT -5 lemoncupcake said:

I think I'm confused on the situation you're describing - it sounds like your dad isn't the one you're preparing to inherit from? 

And even if this son is knowledgable about money, if you're named the executor of the estate then that's it - you are the executor and will fulfill those duties regardless of how knowledgeable he is. And I wasn't aware that executors made that many decisions vs. just carrying out the will as written. 

I agree with this.  For retirement funds, they are ira's, 401'ks they should have a beneficiary/s.  The executor has no say in how those are distributed.  For example, I inherited an annuity from my mom split 50-50 with my sister.  We each had a choice as to how we took the money. The executor(my sister) had no say in how I took my half. 

So I think what happened in the other situation I was referring to is that a relative passed away with a lot of money in retirement accounts.  Another elderly relative with absolutely no retirement savings basically just cashed everything out and sent the cashed out proceeds to the people who were supposed to get it.  It was a long, drawn out, painful process due to the deceased having no will and the courts finding some extra relatives who legally became beneficiaries, etc. etc.  I was not a beneficiary in this situation and only know the most basic details that my dad has shared.  

As for my dad's situation - he's not worried that my BIL will legally take power from me as executor, he's worried that I will ask BIL what to do and defer to his judgment.  

[lemoncupcake]

May 1, 2021 12:02:08 GMT -5 inheritanceae said:

Apr 30, 2021 13:39:54 GMT -5 lemoncupcake said:

I think I'm confused on the situation you're describing - it sounds like your dad isn't the one you're preparing to inherit from? 

And even if this son is knowledgable about money, if you're named the executor of the estate then that's it - you are the executor and will fulfill those duties regardless of how knowledgeable he is. And I wasn't aware that executors made that many decisions vs. just carrying out the will as written. 

Sorry, I think I'm being needlessly cryptic about this because even talking about it anonymously on the internet makes me nervous.  It's my dad I would inherit from, and the other person I'm referring to is my BIL.  

That makes sense - and I was totally misinterpreting the “person who manages the money and his son will soon take over” as a potential beneficiary, not a professional advisor over the funds today.

[orval]

May 1, 2021 12:08:11 GMT -5 inheritanceae said:

Apr 30, 2021 13:56:01 GMT -5 orval said:

I agree with this.  For retirement funds, they are ira's, 401'ks they should have a beneficiary/s.  The executor has no say in how those are distributed.  For example, I inherited an annuity from my mom split 50-50 with my sister.  We each had a choice as to how we took the money. The executor(my sister) had no say in how I took my half. 

So I think what happened in the other situation I was referring to is that a relative passed away with a lot of money in retirement accounts.  Another elderly relative with absolutely no retirement savings basically just cashed everything out and sent the cashed out proceeds to the people who were supposed to get it.  It was a long, drawn out, painful process due to the deceased having no will and the courts finding some extra relatives who legally became beneficiaries, etc. etc.  I was not a beneficiary in this situation and only know the most basic details that my dad has shared.  

As for my dad's situation - he's not worried that my BIL will legally take power from me as executor, he's worried that I will ask BIL what to do and defer to his judgment.  

Sounds like that person had no beneficiaries on his retirement accounts.  So with no will and no benefiiciaries named on the accounts, that could be a nightmare!  This is a good reminder to make sure you have those beneficiaries on your 401K, IRA etc accounts.  That way no will is necessary for those.

[konapoppy]

The only thing I would be doing right now is making sure his estate is set up so you can avoid probate. That would be worth talking to an estate attorney about if you are not sure. Your company may even offer an EAP with legal services so you can just get a sense of what you may need to talk to your dad.