A Wiser Retirement®

227. I’ve inherited $200k, what should I do?

• Wiser Wealth Management • Episode 227

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Can inheriting money truly change your life for the better, or could it create unforeseen financial pitfalls? On this episode of A Wiser Retirement® Podcast, Casey Smith, Missie Beach, CFP®, CDFA®, and Shawna Theriault, CFP®, CPA, CDFA® talk about what to do if you inherit $200k.

Related Podcast Episodes:
- Ep 171: I've inherited money, now what?
- Ep 127: The Cost of Inheriting Wealth, Estate Tax and Opportunities to Avoid It

Related YouTube Videos:
- Do you have to pay taxes on an inheritance?
- Does inheritance count as income?

Related Blogs:
- Inheritance Scams: How to Protect Yourself and Your Loved Ones
- What Should I Do with an Inherited 401(k) or IRA?

Learn More:
- About Wiser Wealth Management
- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
- Access Our Free Guides: Gain valuable insights on building a financial legacy, the importance of a financial advisor for business owners, post-divorce financial planning, and more!

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This podcast was produced by Wiser Wealth Management. Thanks for listening!

Speaker 1

Welcome to a Wiser Retirement Podcast, where we believe the best financial advice should always be conflict-free. I'm your host, Casey Smith, guiding you to financial freedom today, or my co host, Missy and Shana.

Speaker 3

Hey.

Speaker 1

Casey, how are?

Speaker 3

you.

Speaker 1

Great, we've got a little remote podcast going on today with me out of the office. Oh wait a minute, shauna, this is your first podcast with us.

Speaker 3

It is my first one.

Speaker 1

All right, Well, welcome, Shauna, to A Wiser Retirement. So to all of our listeners and our clients, I think we've announced you're joining our team pretty well, but 27-year industry veteran, CPA, CFP and a bunch of other names right After that, I think.

Speaker 3

Yes, just means I'm good at taking tests.

Speaker 1

Very smart, very brilliant, really good with the clients. Missy is the king or the best financial planner in the world, so I got to come up with a new nickname for you Sean. I had to give me a few weeks. I guess We've got Andrew, who's the king of data, right. And then world's best financial planner we have, missy. So you have to give me a little time. You kind of have to mesh with the team a little bit before we.

Speaker 3

Right, exactly.

Speaker 1

But yeah, so let's get started. Today's topic is something that we see a lot more of these days, where people are inheriting money. I mean, statistically that's going to happen to everyone eventually, but it's happening more now because the old baby boomer generation right getting older and then their parents are passing down assets through end of life as well. You know, the topic of the podcast was $200,000. I'd say for us at a wealth manager firm it's probably higher than that, but sometimes that's about it $200,000. So that can go really fast. I mean, you know, you get down to the BMW dealership.

Speaker 5

You could spend $140,000 pretty quick right, I mean, that is what we're going to talk about, right? No, maybe for you. Well, that's just the thing I mean. $200,000 means different things to different people. You know that can be life-changing to some people and others may think it's life-changing but in reality, when you work out the numbers, it's not really life changing. So occasionally we've gotten calls from prospective clients like, hey, I've inherited $100,000. You know, what can I do? Like how can I get a stream of income from this? And you're like, oh well, it doesn't really work like that. Or, you know, it's not really going to change the quality of your life that much incrementally. So it's not always what is cracked up to be and we have to start peeling back the layers.

Speaker 1

Yeah, I think it's going back to assessing your overall financial situation. And how does this help you be on more solid footing going forward for the majority of America? For I think a lot of our clients are already on solid financial footing, so maybe you can fund other things inside what we talk about opportunity funds right, we just go right to that opportunity fund, or maybe there's a a you want to use it to retire a year or so earlier or something like that. I don't know, but but I think, for if we're talking to the mass market, um, I I think it definitely changes. So if we pretended we were dave ramsey for a minute and say, what would we do with this? And we're talking to millions of people, we don't have quite that following yet. I mean, we've got, you know, hundreds of thousands, but not millions, right? So I think I think it goes back to step number one. You know, what do we when we do financial planning? Where do we always start?

Speaker 1

paying off debt first yeah looking at our debt I mean, if you're sitting there on with with a twenty thousand dollar in credit card debt, paying 30 percent interest doesn't make a whole lot of sense to be doing anything else with your money other than eliminating the credit card debt. I think for those families you have to make sure you don't get back into it. So you get it off, but how do you not accumulate it again? And so it might be using this opportunity to change some habits, right?

Speaker 5

Yeah, oh yeah. Well, that's like the biggest gift ever. When you pay off your debt, you have freed up so much monthly cash flow that used to go to that debt. That's like free money in your cash flow. You know, you used to pay $800 a month for some nice fancy vehicle that you didn't really need, and now you've paid off that car. That's $800 a month for some nice fancy vehicle that you didn't really need, and now you've paid off that car, that's eight hundred dollars a month. You can throw towards your long-term plan, towards retirement, towards your oh well, we skipped a step there, sorry towards your emergency fund.

Speaker 3

that would be step number two well the casey's point changing your habits. So this is a reset for you if you're in that situation, a one time reset, where you did inherit money and it's like, ok, how can I do things differently. Because sometimes, when you're in that situation, sometimes it's accidental, like it's medical bills or something like that that you couldn't, you know, prevent, but sometimes it's the habit of what you're into and so really taking that opportunity to say, okay, I'm going to pay this off and then really evaluate your discipline and your habits to get ahead and not let that happen again and change what you're doing going forward and some people will never get that chance, you know, so I think that would be critical in that situation.

Speaker 1

While we're talking about paying off debt, I do want to acknowledge that any inheritance is what you have remaining from your loved one, and so they offer a credit card and that's gone, and that's a really good thing. It also is not something you can ever really see, other than mom or dad or grandpa or grandma got me on the right financial footing, and that's I'm not going to. You know I can. I'm going to thank them every day as I move forward. If you're not in that position or let's say, you don't have the debts already taken care of, but you still have a mortgage, I think a mortgage is a great place to put inheritance even at a even at

Speaker 1

a two, three, 4% interest rate, simply because you're not really spending the money. You're just putting it into your house and so you could always extract it out, I guess, if you had to, right. But you're putting it into your house and it's paying down your house that much faster, and now your loved one has helped put a roof over your head to keep it secure, right. Maybe do some light remodeling with it too, right, things that you can see, right. But you're also because we all want the houses to be paid off by the time we retire, at least our primary homes, so you can kind of check the legacy box, but also better financial footing box too.

Speaker 5

Yeah, yeah, I think you touched on a big point. Casey, is the legacy aspect and a lot of people, once they get the inheritance, it's so hard for them to let it go or to put it to work because they think like, oh, this represents, like my last memory of my mother or my father or whatever relative. It might be that they just see that in their bank account and they're so hesitant to spend it on paying down debt or paying off the mortgage or whatever it might be. So we really have to impress upon people that no, this is what your loved ones want you to do with this to improve your lives, to take that next step, like Shauna said, get rid of that debt and have that freedom, or to start paying off your mortgage and having that cash flow freedom and having that ability, and thanking their loved one for giving them that gift and giving them that newfound reset pathway in their financial lives. And that truly is a great legacy and you can thank your loved one all day, long, over and over, for having that newfound freedom.

Speaker 1

That's a good point. And then you know, the next step in financial planning is emergency reserves. So if you don't, if you have low debt or no debt, then how much cash are you carrying? I think it's hard to use a loved one's inheritance to say this is now my cash reserve and you're going to use it in an emergency. But potentially, if you've paid down debt, you could then build your own cash reserve with that. Or you just say, hey, I know I need to build up cash reserve and you could skip to. I'm going to apply this to my retirement inside a brokerage account and try to grow it. That's another option is your retirement target. You know, I don't think there's anything wrong with that at all, Just boosting retirement, and then more than likely, you're not going to spend it because none of our plans have people spending money to zero, because you don't know when the plan is going to end right Right.

Speaker 3

That would not be a good plan.

Family Legacy and Education Funding

Speaker 1

So you have that ability, which I think makes sense outside of paying off the house. Another one would be education. I mean, what better way to continue a family's legacy than having an education?

Speaker 5

Yeah. I love that yeah, like super funding a 529, just throwing a chunk in there right up front.

Speaker 1

Yeah absolutely.

Speaker 1

Yeah, or or or just putting in an account by itself and and knowing that that's for education. If they don't use it, you can still bring it back to you pretty easily. There's different ways of doing that, I don't know. Just because you have an education doesn't make you a successful person. It's a tool on a path to success. But I think it's important for each generation to figure out ways that they can get their children to the next level. And so that is it. All starts with an education. So if you don't have one paid off, maybe that allows them to go and I don't want to pick on any particular school, but a local school that has an okay education reputation to maybe a school that would allow that child to network with other people, to be able to then do something, maybe even bigger down the road. Or, you know, maybe it's helping children grown children get designations like CPA or something like that. Right, I mean something that they can really be a knowledge center and make money on. And then there's grandkids. I mean, if you inherit and you're old enough and you already have grandchildren, why not fund two generations down the education? I think that's.

Speaker 1

It also depends on what story comes with it we talk about this all the time that people just they pass away and the kids are surprised and they say, oh, wow, I didn't know they had much money, but there's no story with that. Where did the money come from? How has the money earned? What did they do with their inheritance when they got it? Like there's no, there's no legacy, we don't. You know, we don't. We're not supposed to talk about money, but but we should be, we should be telling our story, yeah, so that that's, that's important. That's an important part. You know, now you have within, even with a $200,000 inheritance, you have the capability of of changing the trajectory of your family, but not in the way people think.

Speaker 5

Oh, absolutely. And you know, one important thing too is I tell clients not every dollar has to be used to pay off debt or be invested for your future. I tell my clients carve out a thousand or whatever fits your budget in proportion to your inheritance and buy yourself something that maybe reminds you of your grandmother or whomever gave you that inheritance. If you have this newfound windfall, you don't have to completely deprive yourself and pay off every single debt out there. You know you can still treat yourself to a little extent, so you're not feeling that like, oh, I inherited all this money but it's already gone. So you know women like shoes and purses. So maybe you need yourself a little new bag. Or you know men, maybe you need a new set of wedges, whatever it might be. Hey, everybody's human, everybody needs a little self-gratification.

Speaker 1

That's a gold star wife right there when she brings out the new golf wedges. My gosh, missy John's a lucky guy. Does John even play golf, or is it just the boys?

Speaker 5

No, John plays as a result of the boys playing.

Speaker 1

Okay.

Speaker 5

They taught him how to play. Yeah, his game's getting a lot better just as a result of having kids.

Speaker 3

That's fun, though that's memorable.

Speaker 1

You know you guys get so dressed up for these podcasts, I'm sitting here in a golf shirt, but I was looking at your necklaces, even if you just went and you bought a necklace Necklace sitting here in a golf shirt, but, but I was looking at your necklaces, you know, even if you just went and you bought a necklace, and that's what you remember, you know. And then after that, with the remaining of the cash, you do the good, financial, sensible thing, exactly, you know. And now that necklace has a story and you pass that story on to your daughter or grandkids or whoever, and then you have to pass the necklace on too I know my mom's already gifted us the jewelry that she wants to give us I don't wear it, so she just gifted it to us you know, and my daughters too.

Speaker 3

As they're getting older, she's gifting them part of her jewelry.

Inheritance Tax and Estate Planning

Speaker 4

Are you curious why annuities keep coming up as a potential investment option? People are often told that annuities can effectively mitigate investment risks and help secure their financial future. However, annuities often benefit the salesperson and might not be the best choice for you as a consumer. To learn more about the various types of annuities, the negatives of owning them and better investment alternatives, we have a free ebook on our website just for you To download our ebook. Buyer, beware, why Do they Keep Trying to Sell you that Annuity? Simply click the link in the episode notes or visit wiserinvestorcom. Slash guides. Now let's get back to the episode.

Speaker 1

Let's answer some questions that often get asked. I just inherited $200,000. What are my tax consequences?

Speaker 3

That's usually the question. We get yes, zero. But some states do have inheritance tax, some do.

Speaker 1

I don't know how you get it. I mean, we hate these, got to shovel annuities, but what if you inherited an annuity?

Speaker 3

Yeah, there's taxes in there for sure, that's true. And an IRA account or you know, an inherited IRA and they've changed the rules on that, of course, for a non-spouse recently in the past couple of years. But you know, I've seen where someone inherits money and they distribute the whole thing against recommendation and go buy a house and guess what? April tax time, they owe taxes and they don't have any money because they bought a house. You can't liquidate a house to pay taxes, so it doesn't matter how you receive the money.

Speaker 1

Yeah, so a Roth, no problem. Ira if you liquidate it you got some problems and annuities, which this older generation has a lot of. It's a terrible thing. But yeah, annuities are not good for estate planning at all, so you want to avoid those. But yeah, if you just inherit cash or a brokerage account, there's no inheritance tax to the person receiving the money.

Speaker 5

Or life insurance proceeds, yeah.

Speaker 1

Right, right. Everyone thinks that they're going to have to pay this gift tax. And it's funny on $200,000, if it's cash or in a brokerage account, the stocks inside the brokerage account get a step up in basis, right? So if they paid $40, now it's worth a hundred, your basis is now a hundred. So if you sell it for a hundred, there's no tax. You sell it for 150, then you'll pay tax on the $50 gain. Same for a home.

Speaker 2

You know.

Speaker 1

think about how much homes appreciate in value of a home. If you paid $45,000 for a house in 1970 and you inherited it and now it's worth a million, there's a step up in basis, so you sell that house for a million and you don't have to pay any any tax. It's not as scary as people think it is.

Speaker 3

No and a lot of clients will ask us should they be on a brokerage?

Speaker 5

account with their elderly parent. What do you guys think about that?

Speaker 3

I don't like that setup for multiple reasons. Adding yourself to an account, that's a gift issue at the time the person's added, and then they could be unintentionally disinheriting the rest of the family, and so you say what I mean by that is okay. Let's say you add your daughter to the account and you have other children. Well, you know, when you pass away your daughter, who's on the account, technically, by law, order of operation and law inherits that account and they don't have to give it to anybody. You don't have to. Now everyone will say well, you know, her daughter will give it to how she wanted. That's true most of the time, but she doesn't have to. And then it makes it sticky because or issues, because now she's actually gifting money to people which comes with filing, and it's just, it's not clean and most people do what was intended. But when money is involved you sometimes see people change. I've seen it many times.

Speaker 1

Yeah, I've seen it change whenever a person who's like the dominant person in the family mom or dad pass away. Um, yeah, it's some really sad situations really. Uh, these are suing each other and just um, yeah, I, you know, I hope, I hope that my kids would someday be able to get along. I mean, they're young now, so does it seem like they get along that well? But hopefully if I wasn't here they wouldn't be like fighting over resources. But you better believe I'm gonna do some things in my planning. That makes it really hard.

Speaker 5

Yeah, no contest clause in that will yeah.

Speaker 1

Only problem with no contest clause is you have to have someone willing to execute it, and a lot of times the person that you put in charge of executing it is a softie and they're like no, I can't do that to my brother or to my sister, and they, they're just trying to figure it all out, you know, and you have to say, hey, you either get what you get or you do get nothing.

Speaker 5

You get what you get and you don't pitch a fit.

Speaker 1

Remember that. Yes, so I guess really what it comes down to is you have to set your own goals, set your identify, your own financial goals. Yeah, so anytime you know we always talk about, hey, what's your 10-year, three-year, one-year goal? What do you got to do this month? That your one-year goal? You kind of have to bring that back up and say, okay, well, how does this change my situation? What, what, what am I able to accelerate because of this? And maybe your goals is more on legacy planning and helping your family continue to be successful or be more successful, and so that $200,000 can help accelerate that. Right, we work with so many airline pilots doing financial planning and you think about the cost of going to flight school.

Speaker 2

it's like over one hundred thousand dollars.

Speaker 1

But then you look at the wages that they earn and there's I mean it's a really good wage and it has a pretty decent schedule. You know there's some downsides in the industry. It can be lonely, it is a bit dangerous, especially in the training phase, but but the ability to send someone debt free to go to flight school, I mean that's huge.

Speaker 3

Yeah.

Speaker 1

That's huge.

Speaker 3

That is huge. It's a good return on your investment too. You always want to look at that return. Yeah, I know, cause.

Speaker 1

I earlier when I was saying pay for education, I immediately thought, oh my gosh, like what happened if your kid decides to be a history major. I love history I could read a history book all day long, but, man, I don't know what you do with it. History undergrad only, without doing more, right yeah?

Speaker 5

My husband was a history grad undergrad.

Speaker 1

And what was his master's?

Speaker 5

in International management. Yeah, there's not much you can do undergrad.

Speaker 1

No no.

Speaker 5

There you have it.

Speaker 1

Yeah, you know, one of the schools I'm on the board of the current provost was, I think, a history major who became a history, got a master's in history and somehow became a provost. So you know, there's different ways to get at different things, but I don't know.

Speaker 1

It's like even with an art degree, it's like an art degree by itself without an education certificate, you know doesn't get you much, so you just have to be careful on that. I mean, we could have a whole podcast on that. I think that whenever you go into a school and you pick a major, that there should be a flow chart.

Speaker 1

That goes off what the average person makes out of industry and how much you're loaning for and say hey, you're going to go to Duke and you're going to be an elementary school teacher. Okay, your first year pay is 60,000. Your loan's going to be $3,000 a month.

Speaker 5

Right, yes, exactly this is what our recent class graduates are making first year.

Speaker 1

Right. And this is what you're going to pay for your four years here, and even go out into the industry and say over the next 10 years they should show average wage 10 years adjusted for the region that you live in and that would help these student loans, because there's definitely an incentive for these colleges to issue loans or help tell people to get them because they want to pay their professors and keep their. You know it's not their problem, right.

Speaker 3

Yeah.

Speaker 1

But anyway, it's not their problem, right?

Speaker 3

Yeah, but anyway, it's not even universities like Duke. Just out-of-state tuition at a state school is astronomical.

Speaker 1

No, no, yeah, Very true.

Speaker 3

It's unbelievable.

Speaker 1

So to bring it back into our conversation, you know if a child doesn't have that debt when they come out, they have a huge head start right now.

Speaker 1

Huge head start, it's like start, yeah, and then if you're doing the attorney route or the doctor route, you're probably going to have some student loans. These doctors have a half million dollars in student loans but they have the wages. Typically, unless you're a general practitioner, you won't have the wages. I think they're making like 150 grand a year or something as a general practitioner these days. But if you, but if you have a specialty and you start making the wage to pay them off, um then then that that's a little different, you know if you're doing heart surgery.

Speaker 1

it's a little different than you know working in in, uh, the pediatric place.

Speaker 5

So oh, yeah, absolutely.

Speaker 1

So, anyway, well, you know, I think that I think we've we've gotten through this. I think that people just have to take a deep breath.

Speaker 5

Don't do anything right away. There you go, Casey.

Speaker 1

Park the money and go back to your goals and aspirations and figure out what direction you should be going. I think a financial advisor plays a great role in helping take the emotion out of the decision making. Right, yeah, and same with spouses. If maybe you didn't inherit, maybe you're a spouse and your husband or your other spouse passed away, your other spouse passed away, same thing. It's much like divorce, actually, where it's just like this whole year, everything's kind of cloudy, and so you need to make sure you really don't take much action other than that you're financially secure going forward and then just wait.

Speaker 1

You see it all the time. People sell the house, they move, they do drastic things and then they end up regretting it and they have to go back and undo it or change their living situation because they made a decision a little too fast, without fully thinking about things.

Speaker 5

Yeah, that triggered one more thought. When you receive an inheritance, you might want to keep it in an individual account instead of co-mingling it in a joint account. If there's any sort of marital discord or any sort of divorce pre-talks or anything like that, you could keep it as your own separate property instead of once you put it in a joint account. That's joint property. So there's kind of that, yeah, and if there's enough in resources.

Speaker 1

what we see a lot of families do that sits in a separate account but then it has a transfer on death to their kids directly and not the spouse. So if the spouse, if the spouse separated for some reason, or even if they just pass away, the spouse will never see those resources. Those resources go directly to the next generation of the bloodline follows the bloodline, which is normal and that follows the law as well. It typically goes down. The bloodline doesn't include spouses you have to add spouses to it in other cases.

Speaker 3

Lots of nuances. Yeah, exactly, and reason to talk to an advisor about the best way to handle it.

Speaker 1

For sure, very true. So, shauna.

Speaker 3

Yeah.

Speaker 1

Welcome to Wiser.

Speaker 3

I'm so glad to be here. I'm glad to be here.

Speaker 1

So it's been. You've been here. What a couple of weeks now. Yes, this is my fourth week. Fourth week, I will say that each of you individually probably have more financial knowledge than I would ever hope to have, so I'm so glad to have you a part of the team. I've been doing this a long time, but I'm also the business owner and so I get sucked in a lot of different directions. So having you two on the platform going forward hopefully forever is going to be until retirement. I'll give you retirement.

Speaker 5

Okay, thank you. Nothing else prior to that, not till infinity.

Speaker 1

Not till infinity. That's right. That's right Is amazing. So if you're listening to this and you're already a Wiser client, you'll probably be meeting Shauna. You've been kind of shadowing me in some of my meetings and I think we're about to kick you out though on your own here. I think you're meeting with some prospects in the next few weeks. But, yeah, we have a growing team. We have a growing office. No-transcript, we got it covered. We're getting trained up, All right guys. Well, it was good talking to you and I think if you guys want to see our pretty faces, don't forget we have a YouTube channel called A Wiser Retirement. On YouTube We've referenced a few things in our show notes.

Speaker 1

We have two links. Do you have to pay taxes on an inheritance? We already answered that today. If you want to see a short video about that, you can follow that in our show notes. Does inheritance count as income? You can watch that video Also. We know we've been doing this for a while. So this is episode 227 that you're listening to. Episode 171, I've inherited money. Now, what it might be going to listen to, episode 127, the cost of inheriting wealth, estate tax and opportunities to avoid it. I think premise on that one was definitely to avoid annuities. That's not going to help you avoid the shocker on the transfer there. If you want to learn more about Wiser Wealth Management, you can certainly go to our website wiserinvestorcom and schedule a meeting there with one of our financial advisors. Thanks for listening. We'll see you guys next week.

Speaker 2

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out.

Speaker 2

This episode was produced by Rachel Dotson. This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guests may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated or not guaranteed, be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.