Monument Resource Center
Our clients hire us because they recognize the value of our Team’s unique, straight-forward, unfiltered opinion and our tailored advice designed to answer their questions, not everyone else’s. Below, you’ll find some of the most important questions we have been asked over the years to help you better understand the role we play and the advice we give.
If you happen to become the beneficiary of a large wealth transfer, don’t be surprised when everyone around you suddenly becomes a financial advisor. You’ll likely start to receive plenty of advice about what to do with your money. But, who do you listen to? Who can you truly trust?
When deciding what to do with inheritance money, allow us to give you some free, no strings attached advice.
Trust the right people.
We’re not talking about the trust one has in their grandma unless of course, she’s a financial expert. This individual or company needs to have a broad range of expertise, from cash flow management to prioritization of goals and objectives, risk management, and of course, investing. Here are specific qualities they should possess:
- Someone who can help you effectively devise a long-term wealth plan. A fiduciary (we highly recommend a CERTIFIED FINANCIAL PLANNER™) can help you understand your newfound wealth in the context of your life and goals, while acting in your best interest.
- Someone who can help you develop an investment strategy that aligns with your wealth plan. We recommend working with a team of fiduciaries that has a Chartered Financial Analyst (CFA) on hand, who knows the in’s and out’s of the market and can carefully construct and manage your investment portfolio.
- Someone well-connected with other industry professionals. Managing a substantial amount of wealth requires more than just investment and planning prowess. A quality fiduciary can recognize your needs in other areas as well, connecting you with a Trust & Estate attorney and a CPA. By coordinating with other professionals, wealth managers help you gain a more holistic view of how your inheritance impacts your long-term financial success.
- Someone patient. Don’t hurry into any drastic spending decisions before talking to your wealth advisor. Money management is a game of discipline, patience, and time, so it’s never good to work with someone who will try to rush the process.
Avoid the overly excited.
If you’re on the receiving end of a financial windfall, beware of wealth advisors who pounce on the prospect of getting your funds in the door quickly and invested before understanding your big picture. Take your time to get an in-depth look at their philosophy and approach, interview them, and come prepared with your own questions to ask.
This isn’t always the most pleasant part of the process (you may have to challenge their viewpoints, as well as your own), but discovering where you’re most comfortable is a critical step for long-term success. In the end, you have to find the right financial advisor for you and part of that is finding one you trust.
Don’t stay with your family’s legacy advisor just because ‘that’s the way it’s always been done”. After all, it’s estimated that as many as 70 percent of wealthy families squander their financial resources by just the second generation, and choosing the wrong wealth advisor can play a significant role in this circumstance. Trust your gut and go with the partner that feels right for you.
Didn’t get cash?
Don’t you wish receiving your inheritance was as simple as getting a check in the mail? Actually, most beneficiaries will likely acquire a variety of less liquid assets— retirement accounts, antiques, real estate, and even collectibles. With each asset class, the best method for handling inheritance will differ, requiring recipients to take a slightly different approach to valuing, insuring, and managing their own estates.
If your inherited assets include antiques and heirlooms, you’ll want to get the collection professionally appraised (preferably by a reputable third party, not a pawn or buyer shop). This will help you make a more informed decision about whether or not you’d like to keep the items, and an appraisal is also a necessary first step in obtaining insurance for them.
Unfortunately, insuring antiques requires a bit of extra effort, as your standard property and casualty insurance policy will likely only cover up to a certain dollar value for specialty items (jewelry, silverware, stamp or coin collections, valuable papers, fine art, etc.). If you want the best coverage available, you’ll need to add these items as a specific rider to your homeowner’s policy.
As a beneficiary, receiving real estate may feel like both a blessing and a curse. Homes are an especially emotionally-charged asset to inherit (particularly if it’s the home you grew up in), and it can be hard to balance your sentimental attachment to the property with the financial aspects of managing it. Fortunately, compared to antiques and collectibles, real estate market data is plentiful, so you’ll at least have an easier time ascertaining the resale value of the home.
If you do decide to sell the property, you’ll benefit from a “step-up” in cost basis, meaning that you’ll only be taxed on any increase in value that occurs between your receipt of the home and the date of your sale. If you choose to hang onto the home, future capital gains can even be excluded from your tax burden altogether (provided you meet certain ownership and use conditions, including the use of the property as your main home for at least two out of the past five years).
In any case, you should also factor in the various costs that come with keeping up the home in the meantime such as maintenance, HOA fees, property taxes, and other unexpected expenses that can quickly add up.
Navigating the various rules and regulations around retirement accounts can be confusing enough. If you inherit retirement plan assets from your spouse, however, deciding whether to transfer it to your own IRA or an Inherited IRA account can get even more complicated, requiring careful consideration of the required minimum distributions (RMDs).
- If you decide to transfer the assets to an inherited IRA, the amount of your RMDs will be based on your age and then annually recalculated depending on the factors in the IRS Single Life Expectancy Table. A big plus of this option is that distributions from an Inherited IRA, no matter how long you live, aren’t subject to the 10% early withdrawal penalty.
- If you decide to transfer the assets into your own IRA, then the regular RMD rules for your IRA would apply. These guidelines require RMDs to begin once you reach age 72² and are based on your current age using the IRS Uniform Life Expectancy Table (PDF). Note: The table assumes that distributions would extend over two lives; yours + a beneficiary 10 years younger than you.
If the account you’re inheriting didn’t belong to your spouse, you’ll need to directly roll over the inherited assets to an Inherited IRA in your own name. As a non-spouse beneficiary, however, you’ll have the option to take RMDs over their lifetime. Keep in mind that it’s required for non-spouse beneficiaries to begin taking RMDs from the inherited assets starting in the year following the year of death of the original owner. This simply means that the first RMD must be taken from the newly established Inherited IRA by December 31 of that next year.
But what about taxes?
In the event of an unexpected inheritance, one of the biggest pressures you may feel is the idea of wrestling with a massive tax burden. Naturally, your largest concerns tend to revolve around settling the estate’s affairs as quickly as possible, while also preserving as much family wealth as you can. Most assets will be subject to capital gains taxes upon their sale, but beneficiaries can deploy a few different strategies for mitigating the amount they owe.
As we previously mentioned, inherited assets are frequently subject to a “step-up” basis, allowing recipients to raise their cost basis to the fair market value of the asset as of the date of death. Once sold, these assets would be subject to capital gains taxes on the value above the stepped-up cost basis.
Keep in mind, these rules are potentially subject to change, so it’s important to keep your finger on the pulse of the latest developments in income tax structures, particularly as it relates to inherited assets.
Our no B.S. advice.
We’ve covered a lot of ground, and by now you can probably see why it’s so important to have a qualified wealth advisor working on your side. To put a purpose to your inheritance, you’ll undoubtedly need personalized advice from an honest, transparent wealth advisor, as the most appropriate strategy depends heavily on how exactly you want to put these assets to work.
Perhaps a purpose was already communicated to you by your loved one, or maybe you have your own ideas on how the inheritance will best be used. Furthering your education? Traveling the world? Philanthropy? More time with family? No matter what you’re looking for or what kind of assets you’ve received, it’s important to come up with a personalized plan for managing your newfound wealth, and someday maybe even passing down your wealth according to your values and purpose. This isn’t an issue you want to rush into blindly. With some strategy and insight, you can help make this inheritance all the more meaningful to future generations.
Wanna make it last?
Like it or not, figuring out what to do with inheritance money is a duty you need to do well by. The last thing your loved ones would want to see is their estate squandered due to poor planning and mismanagement. If you have any intention of making this wealth last for multiple generations, you’ll need to take a proactive approach, mitigating your tax burden and planning for future beneficiaries in every way you can. In this sense, even with this new financial windfall, you should still live within your means, devising a holistic plan for your investing, spending, and saving that focuses on preserving your wealth for the long-term.
Although this may certainly feel like a tall order, a team like Monument Wealth Management is perfectly suited to help you with this challenge. Between a robust network of financial and estate planning professionals, and an unmatched quality of service through a highly-customized and in-depth approach we call Private Wealth Design, Monument can guide you through every stage of the inheritance process.
We thrive in complex environments, taking wealth planning challenges head-on with bold strategies and unique perspectives. Our Team’s unfiltered opinions and straightforward advice will help properly frame all risk, remove the hassle, and ultimately empower you to have more control over your time and options. If you’re ready to use your inheritance to begin building a foundation for future generations, reach out to the Monument team—where there’s a will, there’s a way. See what we did there?
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