wwyd with this inheritance?

curlywhirly · September 2013

My husband will be getting a total of $167k in inheritance from his grandparents' estate. It will be in three installments- one in 2016, and two more 5 and 10 years after that. He wants to have a plan in place when the first installment is given to him.

What would you do with the money?

Our annual household income is ~$100k, in case that helps to contextualize the amount.

vlagrl29 · September 2013

I would pay off all debts if you have any and invest some in retirement.

Erikan73 · September 2013

Put a portion of it away to prepare for the taxes on it, then pay off any debts you have. If you don't have any taxes, then talk to a financial advisor about a good way to invest it for your retirement and if you have any kids may some of it towards their college fund.

Sisugal · September 2013

It is my understanding that the estate pays the taxes, but please check with your CPA.

What debt do you have - if any?

Do you have a good emergency fund in place? (6-8 months' expenses set aside)

Do you have ROTH IRA's?

Sisugal · September 2013

1) fund emergency fund

2) pay of consumer debt --(and then pay in full each month after that)

3) Pay off Mortgage (or use as downpayment)

4) Pay off Student loans

5) add to retirement accounts

KTdidit · September 2013

I recently received an inheritance, although not nearly that amount, and I didn't have to pay any taxes on it. But make sure that they took care of the taxes before distributing it, or you will have an unpleasant surprise. Aside form the tax concern I'd do the following:

emergency fund - I'd have at least 6 months if possible

consumer debt

get a financial advsior to help you figure out what to out to college funds for kids (if applicable), retirement, and investing.

Mom987 · September 2013

I would pay down the mortgage.

vlagrl29 · September 2013

yes the administrator of the estate pays estate taxes for sure. If you are not the admin then you should still talk to your cpa if you have one to see how it will affect your taxes. It would probably put you into a higher tax bracket.

hoffse · September 2013

Depending on distributions and whether the estate is closed or not when he gets the first installment, you may be paying taxes on it, rather than the estate. If you have to pay taxes you'll get a K-1. I would suggest contacting the accountant about that, and perhaps holding back a bit just in case. I've done some estates where we do partial distributions before closing, and in those cases the accountants have sent K-1s to the heirs for tax purposes. Nobody on these boards will be able to tell you for sure what to expect, but the accountant should be able to.

I would pay off consumer debt first, if any. Then fund your retirement accounts (Roths), then emergency fund (up to 6 months - I'm assuming that with your income you have at least a little stashed away already, but if you don't then do this first). Then come student loans. Finally I would either invest the rest or pay down a mortgage, depending on the interest rate for your mortgage. If you have a 4% interest rate on your house, it's usually better to put it in the market, particularly if you have no issues meeting your monthly obligations on the house.

Another idea - if your consumer debt, retirement, and student loan debt, etc. are all under control, you might consider setting some money aside for children's education accounts (like a 529) if you have kids or will be having kids soon.

But first and foremost is consumer debt. It has by far the highest interest rate and can destroy your credit if you have a lot of it.

MommyLiberty5013 · September 2013

vlagrl29 said:

yes the administrator of the estate pays estate taxes for sure. If you are not the admin then you should still talk to your cpa if you have one to see how it will affect your taxes. It would probably put you into a higher tax bracket.

This. Get the advice of a CPA. Taxes can vary by state and so can how estates/inheritances pay out.

kyrgyzstan · September 2013

I would invest pretty much all of it. I'd pretend like it doesn't even exist besides maybe taking a small percentage to take a vacation that reminded me of my grandparents.

Wulfgar · September 2013

I would pay off debt first then invest the rest once your debt is paid off. Since you will be getting this money in three installments over a total of 10 years I would try to save as much as possible for the future after you are debt free.

maple2 · September 2013

It's really hard to give advice without having a better sense of your overall financial picture. On the tax side of things, I agree with pps who suggest getting advice from experts as that can be really variable and you definitely want to be prepared.

In terms of what to do with everything else I would
1. establish an emergency fund,
2. pay off consumer debt,
3. invest in tax sheltered retirement accounts,
4. consider college savings or paying towards the mortgage (These will really depend on your circumstances. Do you have/plan to have kids? How much do you want to contribute to their education? What is the interest rate on your mortgage?).
5. invest the money for retirement using non-tax sheltered accounts (I would get professional advice on this since it can be complicated to maximize your growth while minimizing current tax liabilities).

wwyd with this inheritance?

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