[USER]

It absolutely breaks my heart writing this …but my best friend will soon be in need of advice to manage some inheritance.

Unfortunately, she may be coming into some inheritance of a somewhat sizable amount (I’m not exactly sure of the amount) but from what she was told when she was much younger, she believes it is money coming from a grandparent’s retirement account (maybe $250,000) , stocks (assuming brokerage account) and some property (houses/farmland).

I know that is not a lot of details but it is all I know right now. She is confiding in me because her only family left is not reliable nor will be helpful in this given situation.

I’m just not exactly sure where to begin or who to seek the best advice from.

I would like to help her find the best resources or help so that she can manage it in the most efficient way possible and be able to transition as much as possible into her retirement portfolio.

I am also not sure of how tax laws or inheritance works .. or how receiving inheritance differs from receiving retirement accounts from grandparents vs parents upon death.

The only thing I have come across is that she may have up to 10 years to pull inherited funds from a retirement account out.. is that correct?

Any advice is much appreciated.. or pointing me in the right direction for the best resources regarding this situation is appreciated.

Thank you!

[Kris]

Yes. If it’s a retirement account they have up to 10 years to empty the account. If it’s a traditional 401(k) or IRA they will have to pay ordinary income tax on the distributions.

[Joel]

Retirement accounts are a special case. When she inherits cash, real estate, stocks or bonds outside of a tax advantaged account, these assets are valued based on their fair market value on the date of the decedent’s death.

The estate may owe federal or state estate taxes, if the amount exceeds available exemptions.

The federal government doesn’t collect inheritance tax, but a few states do.

When these assets are inherited they receive a stepped up cost basis, meaning any future gains are calculated based on that fair market value at death.

The retirement accounts are a bit more complicated. There are potential required minimum distributions.

And any Traditional/Pre-tax account distributions are taxable at ordinary income tax rates.

In most cases inherited retirement accounts must be fully distributed in 10 years.

To get this money invested they should open a brokerage account at a major online brokerage like Fidelity, Vanguard or Schwab.

Investing new dollars in a simple index fund like VTI is an excellent choice when early to mid career.

Later in career they may want to diversify with bonds and other assets.

They should also be using this windfall as an excuse to maximize any 401k, 403b, 401a, 457b, IRA and HSA contributions they are eligible to make.

Since money is fungible, they can choose to live off of this windfall while making the most of company benefits.

[Kenra]

Get a financial advisor. I’d say diversify her portfolio. Diversify platforms as well. Invest in HYSA. I invest in few platforms and each one is well diversified and profiting.

Is her emergency funds set up?

If yes, then proceed with the investment diversifation.

[Rick]

Avoid financial salespeople, mostly insurance side. At alone will be a big win.

When the family member passes away, valuations will be needed.

This is pretty easy for brokerage but the investments are weird quirky proprietary mutual funds or similar, you may need to get the brokerage firm to help.

For real estate, get an appraisal. You need valuations for the step up in basis, aka zero taxes.

[Mandi]

Good question!!! I was in a similar situation a couple of years ago. I can give some feedback. Feel free to dm me and I can help you little more.

[Scott]

Sorry your friend is going though this loss.
1) You don’t need to decide the day after the funeral what to do, the worst thing to do is rush and/or get talked into something you later regret investing in.

2) If the investment portfolio is a hodgepodge of stuff you aren’t sure you want, or is stocks say where the grandparents work it is OK just to move things to a Big 3 broker, liquidate it, and hold it in a money market settlement account for a few months.

Again during grieving one is not likely to make the best decisions and a few months to catch their breath will work out fine.

3) On the 401k/IRA…one administrative note is that the RMD (I’m assuming the grandparent is of RMD age…if not this is moot) needs to be taken in 2024 (if they pass this year).

The current IRA trustee should do this, it will avoid a lot of administrative heartache to have this done before the trustee starts making payments.
4) I’d probably decide sooner rather than later if the property will be kept or sold.

If it is where the loved one lived I understand it’s an emotional decision.

The way I would phrase it is if the grandparent had left cash instead of the property, would you use the cash to buy the property.

5) Strongly second/third all the recommendations to get a fee only planner, this is a life changing event and one to approach thoughtfully.

[Sharon]

Someone very close to me, in a short amount of time, inherited two farms and four homes, one of which was out of the country.

It is a juggling act to keep up and pay for the upkeep…

Your friend will want to prioritize if she is going to keep these properties, farmland preserve or sell, live in.

She’s going to need cash to manage all this and these decisions as some may need work too.

I suggest she gain an in depth understanding of what she is inheriting, her grandparents wishes for these properties and then see a few based advisor who will help her take this as well as her own finances and desires into consideration.

Also, because there is a farm especially, I’m wondering if there are family members who may be interested in the home contents – she’ll need a good understanding (again) of grandparent wishes and possibly advise from the attorneys who set up their will.

[Author]

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