So, I’ve just learned that I’m about to inherit some money - not a huge amount, as money goes, but in the low 6 figures, WAY more than I’ve ever had in a single lump before in my life.
And I don’t know what to do now! I think I need to see a professional money person, but I don’t know what kind or how to find one. I don’t even have a tax guy, I’ve always done all that myself, and I’m a 1040-EZ kind of girl. I work for the State so I have an old-fashioned pension, no 401k to sock it into.
So - how do I find a person who will tell me what to do with this? I’d like to put some of it as the downpayment on a house, and pay off my debts, and I know some will need to be put aside for taxes (but not how much) and I just have no freaking clue. :smack:
So. What sort of professional or professionals do I need to find? How do I know if they’re any good, or if they’re honest? And anyone have any referrals for this sort of person in the Los Angeles area?
For starters, do nothing. Don’t spend it, don’t but a house, don’t buy a new car. Take some time and learn about your options and what is the best course of action. The money isn’t going anywhere. You don’t have to make any quick decisions.
I would recommend you check out the “Help with Personal Investments” forum at Bogelheads.org. I’d say they’re kind of like the SDMB - but strictly personal finance matters. Create a post (they have a template) detailing your current financial situation, age, risk tolerance, etc., and consider their advice.
You could also speak to a financial advisor. I very strongly recommend a fee-based advisor. A fee-based advisor is paid only to provide advice - not based on commisions or placing your money into a certain family of funds. A fee-based advisor doesn’t have any incentive to recommend less than ideal financial products, and there isn’t a conflict of interest.
I second a fee-based advisor. They make their money by providing advice rather than selling products.
Do you have any high-interest debt? Credit cards, car loans, etc? That’s a good place to start. Do you have an emergency fund set aside?
You probably will not owe any taxes. Assuming it’s a straightforward inheritance, the estate taxes will be paid by the estate before you get the money.
Correct - as of a couple years ago, you’d have to inherit over $3 million in the US to trigger any inheritance tax. Not sure what the limit is now, but you should be well under it. You shouldn’t end up paying any taxes, although the taxes of the person you are inheriting FROM will need to be squared away before everything is finalized (as friedo notes) - when my mom passed a couple years back, my brothers and I disbursed the bulk of the inheritance and held back enough to cover any taxes she owed, and then disbursed the last little bit after that.
I was in kind of the same boat, and looking to do much the same as you - I got a fee based advisor recommended from a friend, and ended up putting my money into a brokerage account with Vanguard - the bulk of my money is in an S&P Index fund, with some other funds and bonds providing some variety. After a couple years, I was ready to buy a house and used some of the money for the down payment. I’ve also been socking the max amount into a Roth IRA (also through Vanguard) each year - the great thing there is that with a Roth IRA you don’t pay taxes on the money when you pull it out after retirement; the idea is that you paid taxes now; but in my case, there were no taxes to begin with (as I was under the inheritance tax threshold).
To find an advisor? I’d just ask around amongst friends, or if you have any trusted mentors at work that you think might be amenable to recommending folks. I deal a lot with some of the lawyers in the legal department at work, so if I were in a position to get a new advisor, I’d probably ask one of them if they knew anyone.
While there may be no federal tax, you should check with a tax advisor about the situation in your state. State tax laws differ.
As for a financial advisor, my advice is to interview some of them. Check on their charges, avoid those selling their company’s products, but see if they are interested in your investment goals. Which means they ask, and not tell, and do things like measure how much risk you are willing to take on.
I got hooked up with a good one from a seminar about saving for college when my kid was 4, and was glad I had him already when I got my leaving the company windfall. I’ve had several since, some better than others. You don’t want someone who will encourage you to do stuff you are not comfortable doing. That doesn’t mean always agreeing with you. When Google was 185 I thought it was too high, and my adviser talked me out of selling, a good move.
Once you find someone you trust and get along with, then you can think about paying off debt etc.
I would definitely recommend talking to a CPA. Some may give you a free consultation; it doesn’t hurt to ask. If they can’t help you outright, they could steer you towards someone who can.
Downpayment on a house? Heck, buy one outright if you can.
When I was working, I made a lot more money than I could ever spend, and mine is split between my 403(b), savings bonds, and laddered CDs which I will admit are not earning much interest, but they’re a safe investment.
Well, for example, my home mortgage is at 3.75%. If I had a windfall, I could put it toward my mortgage. But what if I need to buy a new car in a few years? Probably I would not be able to borrow money for a car at anything close to that rate–so I would be better off to save the price of a car now, preferably in an interest-bearing something, and pay cash for the car. This is true for all sorts of purchases. Paying off very low interest, long term debt is bad if it means you pick up short-term high interest debt later.
If I don’t need the money for 30+ years (my case, not necessarily the OP’s), paying off low-interest debt would be a very poor decision compared to a variety of investment options. Debt is not bad.
If I’m planning on kicking the bucket in the near term, I might rather have that money in accounts that will go to heirs rather than paying off creditors.
Not to mention that depending on ones tax situation your effective mortgage interest rate may be below 3.75%, while consumer debt interest is not deductible.
Plus, homes are about the only place where normal consumer can use leverage.
Say you have a $100,000 house (in California, an outhouse) and have a mortgage for $90,000. If the house value goes to $110,000. You’ve doubled your money. If you owned it outright you’ve only made 10%. The bank does not share in your good fortune.
Though we saw the inverse of this in the crash.
That said, it would probably be a good idea to pay off credit card debt ASAP, though not longer-term lower-interest debt.
Consult with a CPA and/or a fee-based financial advisor. They should be able to tell me what to do with the rest of the $, as well as whether it would be worth it to put it toward a house. (Mom is a Real Estate Agent, so she’s going to be pushing me hard to do that - but she’s also biased in that direction, and I need a more objective opinion.)
Further questions, because I really do have no idea how these things work:
Are the CPA and the Fee-Based Financial Advisor generally the same person? If not, what aspects of the money does each one specialize in?
Will they handle doing my taxes as well? Because I’m pants at my taxes, and I have a feeling I’ve been doing it wrong for years.
How much do their services usually cost? Is it per thing I have them do, a flat monthly fee, or something else?
