Inheriting stocks, advice?

[tractor]

My MIL recently passed away and the bulk of her estate was in income producing stocks. Her trust specified that those stocks be divided evenly, with the hope that each of her children continue to hold their share for long-term income generation.

My wife and I have no debt, except the house which has 8 years left in the note (paid off before I retire), both have traditional pensions and healthy 401k, traditional/Roth IRA balances.

The estimated value of our share of the stock is $100k. I know that once the stock is transferred into a separate account we are free to do whatever we want with it. I will probably move it to something more aggressive, as I have at least 10-years until retirement and we have no immediate need for the $$.

My question is, what would you do with it? This is just the first in a series of inheritance's we will be part of in the next 5-10 years and I want to be smart with the money. I never thought wealth accumulation would be so nerve racking, it's what were all supposed to want, but the overwhelming feeling of responsibility is frightening.

[jerseygirl]

Are the stocks in an IRA? If so you need to ‘empty’ in 10 years.
Might want to define the objective of this account as you already seem to want aggressive. Then HOW aggressive? Crypto?

[giramomma]

I would let it ride.

DH's taxable account is income generating. We now get about 10K of dividends a year, that are untaxed because we are in the 12% bracket.

His stocks have tripled in value in the 20ish years we've been married.

We stay more aggressive in our IRAs and 403b/457 plans.

I'm 47. Retiring at 56 with a full pension and for years of paid health insurance premiums. I'll have to work part time from 56-60 to cover health insurance costs from 60-65. I don't want to pull out 100K+ out of our retirement funds right away.. I should be able to hang it up at 60, when my youngest graduates HS.

[Bonny]

I assume you inherited a taxable acct and therefore have a stepped up value for the stocks?

If so, that's a lot of freedom to do what you want. DH had something similar 20+ years ago only the amount was substantially more. We had always said his inheritance would enable an early retirement. His situation was a little different in that he inherited from a by-pass Trust which meant he inherited at the Trust's cost basis for the stocks. Selling would have incurred some really large capital gains from most of the stocks.

We kept most of the original stocks since they were good dividend paying stocks.

In your shoes I'd look to sell and invest in an S&P or some other low cost broad stock fund. Set and forget! And it's funny, even though I never met DH's grandmother, I've always kept in mind about what she would have wanted. A little fun but also invest for the future.

Sorry for your loss and good luck with the investment.

[tractor]

Feb 1, 2023 10:41:58 GMT -5 jerseygirl said:

Are the stocks in an IRA? If so you need to ‘empty’ in 10 years.
Might want to define the objective of this account as you already seem to want aggressive. Then HOW aggressive? Crypto?

They are not in an IRA and are individually held. My SIL was a stockbroker (recently retired) and set everything up over the years to make sure my MIL has a steady income in retirement.

The amounts are amazing considering the family income never exceeded $40k and they raised 7 kids. The power of time, frugality and patience.

[haapai]

This is a trickier question than how to allocate the assets. 

This is your wife's stock portfolio. 

Her sister set it up and is probably immensely proud of it. 

You  may be stuck with this allocation unless your wife can flatter her sister into suggesting a more appropriate allocation.  If she is quite a bit younger than her sister, her sister might be receptive. 

[tractor]

Feb 1, 2023 13:52:00 GMT -5 haapai said:

This is a trickier question than how to allocate the assets. 

This is your wife's stock portfolio. 

Her sister set it up and is probably immensely proud of it. 

You  may be stuck with this allocation unless your wife can flatter her sister into suggesting a more appropriate allocation.  If she is quite a bit younger than her sister, her sister might be receptive. 

We already spoke with her sister, she really doesn't care what we do with it, even if we wanted to cash everything out and head to Vegas 😊 Once the money becomes my wife's, it her choice (although she really doesn't care either, so it's up to me...). Fortunately, my SIL knows it was set up specifically for my MILs needs at the time, and we all have deferent needs.

It will be 6-8 months before the trust is settled and the disbursements are made, so we have time to keep thinking it through. I do appreciate all the comments so far.

[haapai]

That's great news that your SIL realizes that your needs may be different. 

[Rukh O'Rorke]

I would honor MIL and keep them asis.....

[lurkyloo]

Jumping in to say that I appreciate the discussion. My grandparents’ trusts are being dissolved, with my father’s death last year as the triggering event.  I will inherit a chunk of income producing farmland, which I will keep, and there are a bunch of stocks as well-I think my share will be $300-500K.  I’m inclined to leave them be for the moment since both my dad and grandpa were very smart people and I’m confident they chose wisely, but at some point I’ll need to analyze and manage them a little more thoroughly.

Dad also left a trust and I’m not going to worry about the specifics of that for a while...it can be my brother’s headache.

Ugh. We really ought to find a financial advisor because we don’t have the bandwidth to actively manage finances right now and they keep getting more complicated.

[haapai]

With that long of a timeline, you could try asking Liz Weston. 

She'll probably send you to a pro, or two.  Which may be exactly the right thing to do.  There are so many questions that need to be asked that it is almost impossible to anticipate them and include the answers in a request for advice. 

Don't be too proud to take that advice even if you have always managed money on your own.  You sound a bit paralyzed.  Get thee to a money shrink. 

[Bonny]

Feb 1, 2023 16:24:41 GMT -5 lurkyloo said:

Jumping in to say that I appreciate the discussion. My grandparents’ trusts are being dissolved, with my father’s death last year as the triggering event.  I will inherit a chunk of income producing farmland, which I will keep, and there are a bunch of stocks as well-I think my share will be $300-500K.  I’m inclined to leave them be for the moment since both my dad and grandpa were very smart people and I’m confident they chose wisely, but at some point I’ll need to analyze and manage them a little more thoroughly.

Dad also left a trust and I’m not going to worry about the specifics of that for a while...it can be my brother’s headache.

Ugh. We really ought to find a financial advisor because we don’t have the bandwidth to actively manage finances right now and they keep getting more complicated.

What the tax basis for these stocks? Do you get a step up basis? That's the first question to understand because that may very well drive a lot of the decision. In DH's case most of the stocks had been purchased in the 70s. Most were winners but over a long period of time things change. GE is one of best example. Used to be a great blue chip stock but no longer. The other thing to consider is the need to keep rebalancing.

Honestly, unless you like actively managing your money you can probably get some good portfolio advice from a big outfit like Fidelity. Yeah there's a little bit of conflict as they may try to get you into more actively managed funds (and there's some benefit to them) but you can politely decline and stick with some kind of ratio of stock/bond/cash funds.

If you want to be absolutely correct you can hire a fee-only CFP who will review your stuff and you pay an hourly fee.

ETA We're likely going to be in the same boat when MIL passes this year if she hasn't disowned DH (yeah she's threatened but I don't think she's got the mental capacity to actually change or amend her Trust). In her taxable account she has stocks she inherited from her father 20 years ago. She hasn't sold them "because they were his and he was smart". It's not a good reason to keep a stock.  I guess these generational changes can really force a re-evaluation. That's a good thing!

[haapai]

My dad was a CPA back when independence rules and auditor rotation were more common and before IRAs existed.  He had to build his own retirement portfolio. 

We used to get mountains of annual reports and proxies.  Does that still happen?  Do they still send all that mail? 

[Rukh O'Rorke]

Feb 2, 2023 14:01:45 GMT -5 haapai said:

My dad was a CPA back when independence rules and auditor rotation were more common and before IRAs existed.  He had to build his own retirement portfolio. 

We used to get mountains of annual reports and proxies.  Does that still happen?  Do they still send all that mail? 

yes

[haapai]

Feb 2, 2023 14:35:33 GMT -5 Rukh O'Rorke said:

Feb 2, 2023 14:01:45 GMT -5 haapai said:

My dad was a CPA back when independence rules and auditor rotation were more common and before IRAs existed.  He had to build his own retirement portfolio. 

We used to get mountains of annual reports and proxies.  Does that still happen?  Do they still send all that mail? 

yes

Wow, there's an argument for going with a fund in that answer. 

It really stacked up when I was younger and I was told never to talk about it.  Even though it never contained details about how much stock my parents owned, it definitely created the impression of wealth.  

My parents usually burned it.  Before shredders became common, that was the easiest way to get rid of it and they did not feel comfortable throwing it in the garbage or recycling.  They didn't want the envelopes with their names and the name of the company floating around in the waste stream. 

There was always a stack of it in the bedroom, or the office, or piled next to the fireplace. 

[jerseygirl]

Go online and request proxy and annual reports be emailed

[haapai]

Feb 2, 2023 16:45:50 GMT -5 jerseygirl said:

Go online and request proxy and annual reports be emailed

much less volume of mail.  You'll still get a one-page notification by mail, but it's easier to shred than those fancy annual reports, and probably comes in a much smaller and less distinctive envelope.

There appears to be a loophole that allows a company in which you own stock to ignore your desires, but I doubt that they would.  The postage on those annual door-stoppers is substantial. 

[lurkyloo]

Feb 2, 2023 12:38:58 GMT -5 Bonny said:

Feb 1, 2023 16:24:41 GMT -5 lurkyloo said:

Jumping in to say that I appreciate the discussion. My grandparents’ trusts are being dissolved, with my father’s death last year as the triggering event.  I will inherit a chunk of income producing farmland, which I will keep, and there are a bunch of stocks as well-I think my share will be $300-500K.  I’m inclined to leave them be for the moment since both my dad and grandpa were very smart people and I’m confident they chose wisely, but at some point I’ll need to analyze and manage them a little more thoroughly.

Dad also left a trust and I’m not going to worry about the specifics of that for a while...it can be my brother’s headache.

Ugh. We really ought to find a financial advisor because we don’t have the bandwidth to actively manage finances right now and they keep getting more complicated.

What the tax basis for these stocks? Do you get a step up basis? That's the first question to understand because that may very well drive a lot of the decision. In DH's case most of the stocks had been purchased in the 70s. Most were winners but over a long period of time things change. GE is one of best example. Used to be a great blue chip stock but no longer. The other thing to consider is the need to keep rebalancing.

Honestly, unless you like actively managing your money you can probably get some good portfolio advice from a big outfit like Fidelity. Yeah there's a little bit of conflict as they may try to get you into more actively managed funds (and there's some benefit to them) but you can politely decline and stick with some kind of ratio of stock/bond/cash funds.

If you want to be absolutely correct you can hire a fee-only CFP who will review your stuff and you pay an hourly fee.

ETA We're likely going to be in the same boat when MIL passes this year if she hasn't disowned DH (yeah she's threatened but I don't think she's got the mental capacity to actually change or amend her Trust). In her taxable account she has stocks she inherited from her father 20 years ago. She hasn't sold them "because they were his and he was smart". It's not a good reason to keep a stock.  I guess these generational changes can really force a re-evaluation. That's a good thing!

Yes, I’ve been wondering about whether you still get the step up in cost basis with a trust.  My dad was actively managing and capable of doing so up until maybe 3-4 years ago, and he chose advisors to manage both his and his parents’ stock assets.  Worst case would probably be just leaving them in charge for a while (Dad was fairly savvy and interested so I would trust his choice at least for the short term).  Complication:  they’re in another state from us, farmland in 3rd state, and we still have our rental property in CA.  I really hope it doesn’t mean filing a 4th state return   That’d be an automatic trigger to move to an in state advisor.

I have the names of some recommended advisors buried in my email somewhere...honestly not convinced that whoever Fidelity or similar would assign would have that much training themselves, beyond your standard well-informed amateur.  Ugh.  Let me get past this round of crises at home and maybe I’ll have the bandwidth to figure out how I want to set it up.
Thanks for the response!

[Bonny]

Feb 3, 2023 9:22:20 GMT -5 lurkyloo said:

Feb 2, 2023 12:38:58 GMT -5 Bonny said:

What the tax basis for these stocks? Do you get a step up basis? That's the first question to understand because that may very well drive a lot of the decision. In DH's case most of the stocks had been purchased in the 70s. Most were winners but over a long period of time things change. GE is one of best example. Used to be a great blue chip stock but no longer. The other thing to consider is the need to keep rebalancing.

Honestly, unless you like actively managing your money you can probably get some good portfolio advice from a big outfit like Fidelity. Yeah there's a little bit of conflict as they may try to get you into more actively managed funds (and there's some benefit to them) but you can politely decline and stick with some kind of ratio of stock/bond/cash funds.

If you want to be absolutely correct you can hire a fee-only CFP who will review your stuff and you pay an hourly fee.

ETA We're likely going to be in the same boat when MIL passes this year if she hasn't disowned DH (yeah she's threatened but I don't think she's got the mental capacity to actually change or amend her Trust). In her taxable account she has stocks she inherited from her father 20 years ago. She hasn't sold them "because they were his and he was smart". It's not a good reason to keep a stock.  I guess these generational changes can really force a re-evaluation. That's a good thing!

Yes, I’ve been wondering about whether you still get the step up in cost basis with a trust.  My dad was actively managing and capable of doing so up until maybe 3-4 years ago, and he chose advisors to manage both his and his parents’ stock assets.  Worst case would probably be just leaving them in charge for a while (Dad was fairly savvy and interested so I would trust his choice at least for the short term).  Complication:  they’re in another state from us, farmland in 3rd state, and we still have our rental property in CA.  I really hope it doesn’t mean filing a 4th state return   That’d be an automatic trigger to move to an in state advisor.

I have the names of some recommended advisors buried in my email somewhere...honestly not convinced that whoever Fidelity or similar would assign would have that much training themselves, beyond your standard well-informed amateur.  Ugh.  Let me get past this round of crises at home and maybe I’ll have the bandwidth to figure out how I want to set it up.
Thanks for the response!

It will depend on the kind of Trust and that's pretty easy to find out from the Trustee. Your dad's trust is probably a revokable trust and that likely will have a step up value. Your grandparents trust may be a different kettle of fish, DH's grandmother's trust was a irrevokable by pass trust which were common in the 70s. In theory, DFIL was supposed to live on the earnings and DH was the remainderman. When DFIL passed those assets were then dispersed to DH...at the 1970ish basis.

[lurkyloo]

Thanks Bonny!  I think my grandparents’ trusts were written as revocable but I thought revocable trusts automatically converted to irrevocable on death of the primary?  They died 25+ years ago...Grandpa was a CPA and I remember my dad commenting at the time that their trusts were set up a specific way to bypass the child and go straight to the grandkids, I believe to minimize taxes.  I know he definitely made some major moves with them...the trusts hold my brother’s mortgage and Dad used one of them to purchase the condo in FL (he couldn’t buy it personally bc his wife wouldn’t sign off on it).
Tl;dr is, I need to talk to a CPA or other informed advisor.  Still gonna wait till I’m done hiding from my plague-ridden husband and kid. 

[Bonny]

Feb 3, 2023 13:28:14 GMT -5 lurkyloo said:

Thanks Bonny!  I think my grandparents’ trusts were written as revocable but I thought revocable trusts automatically converted to irrevocable on death of the primary?  They died 25+ years ago...Grandpa was a CPA and I remember my dad commenting at the time that their trusts were set up a specific way to bypass the child and go straight to the grandkids, I believe to minimize taxes.  I know he definitely made some major moves with them...the trusts hold my brother’s mortgage and Dad used one of them to purchase the condo in FL (he couldn’t buy it personally bc his wife wouldn’t sign off on it).
Tl;dr is, I need to talk to a CPA or other informed advisor.  Still gonna wait till I’m done hiding from my plague-ridden husband and kid. 

Yeah, it sounds like a by-pass Trust similar to DH's. They were common years ago because of the low threshold for estate taxes. Here's a fun chart:


en.wikipedia.org/wiki/Estate_tax_in_the_United_States#:~:text=The%20modern%20estate%20tax%20was,estate%20tax%20returned%20in%202011.

You'll definitely want to talk to a CPA once the plague passes.