Help with mom's inheritance

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bcough0121
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Help with mom's inheritance

Post by bcough0121 »

Thank you all in advance for taking the time to read this.

My parents are entering into retirement age, and have next to no retirement funds outside of typical emergency savings account that would last maybe a couple of months. For her whole life, my mom has known she will receive an inheritance from her parents (my grandparents). My mom’s mom past away when my mother was little, and a sizeable trust was set up in her dad’s (my grandfather’s) name after her passing. My mom has known about this her whole life, and has been receiving updates from her dad (my grandfather) over the past 20 years or so on how the trust is growing. Until recently, she has had no idea when she will start receiving the money, where it is invested, what asset allocation, and truly has no investing background or experience at all. It is to the point where she has started talking to me (oldest and most financially sound child) about this money and money in general. I have shared with her how I invest, and the general basics of investing to give her at least a little knowledge of what she will be getting into here. I basically gave her an overview of Boglehead principles.

After a couple months of talking to her about this, she has asked me to become her “financial advisor” instead of hiring one once she receives this money. I don’t plan on doing anything crazy with her investments, but more plan on educating her and my dad, to help them choose an asset allocation of their choice, then invest that accordingly in a 3-fund portfolio.

In a recent video call with all of the parties involved (me, both of my parents, my grandpa who controls the assets, and his new wife of a few years), my grandfather let us know specifics of the money. It is invested 80/20 stocks to bonds, and it is a total of $3.5 million. This is a shocking amount more money than we thought it was going to be, and much more aggressively allocated than my mom is comfortable with. My grandfather wants to slowly start giving my mom money to get her used to controlling a large chunk of wealth but has not stated when he will start to do that. My grandpa is very old, and very unhealthy, and this makes my mom anxious about what happens, and what to do with the money after he dies. She has banked on this being her retirement her whole adult life, so has not saved a penny for retirement on her own. I have been a Boglehead in my investing life for the past 4 years (25 years old), but have never had a complicated situation like this. To put it short, I am completely comfortable advising my parents with their investments, but I am not comfortable with all of the trust transfers and things of that nature. The only information I know is that there are two separate trusts in my grandfather’s name. One is an estate tax sheltered trust, and a non exempt marital trust.

Can you guys help advise me on how to advise my parents? What other information do we need to know? What questions need to be asked? They are planning on hiring lawyer/tax attorney to help them make sure all of the transfers goes well, but I didn’t know if there was a better (more Boglehead) way to go about this. Like I said, I am comfortable with helping them invest their money, but I do not understand how the money is transferred in the trust for my mom to control. Thank you all!
NotWhoYouThink
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Re: Help with mom's inheritance

Post by NotWhoYouThink »

In order to understand what you can do or should do you need a copy of the trust documents. Does your mother have those documents?
The trust documents should say what should happen when your grandfather dies, and what rights he has to send money to your mother before that time. Does the money go to your mother in trust? If so, who is the trustee. Or does the money go to your mother outright/free of trust?

That is a lot of money for someone who has never saved. I hope you find a way to make it last. It's amazing how fast people can go through large amounts of money with nothing to show for it.
aristotelian
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Re: Help with mom's inheritance

Post by aristotelian »

You mention that there is a trust. You need to find out more about how the trust works and whether it will still be in effect upon his passing. The legal piece is probably going to be more complicated than investing the funds once they are in your mom's possession. Beyond that, there is not enough info here to offer any advice. It is not clear to me that the investment piece is actually that complicated, even if there are more zeroes than you are used to.
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FiveK
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Re: Help with mom's inheritance

Post by FiveK »

bcough0121 wrote: Tue Aug 25, 2020 2:11 pmThey are planning on hiring lawyer/tax attorney to help them make sure all of the transfers goes well....
Excellent plan.

Having competent legal advice on what the specific trust language provides should be the starting point.
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celia
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Re: Help with mom's inheritance

Post by celia »

bcough0121 wrote: Tue Aug 25, 2020 2:11 pm ... my grandpa who controls the assets, and his new wife of a few years...

... I am not comfortable with all of the trust transfers and things of that nature. The only information I know is that there are two separate trusts in my grandfather’s name. One is an estate tax sheltered trust, and a non exempt marital trust.

Can you guys help advise me on how to advise my parents? What other information do we need to know? What questions need to be asked? They are planning on hiring lawyer/tax attorney to help them make sure all of the transfers goes well, but I didn’t know if there was a better (more Boglehead) way to go about this. Like I said, I am comfortable with helping them invest their money, but I do not understand how the money is transferred in the trust for my mom to control. Thank you all!
The marital trust likely benefits grandfather's new wife, so that will likely be unavailable for your mother.

The trustee of each trust will be responsible for carrying out the provisions stated in each trust and making transfers to the beneficiaries, so there is no need for her to get legal advice unless she is contesting something. Copies of the trusts do not have to be shared with anyone until grandfather dies. Between now and then, the assets could double or be spent. That is not within your/her control. There is nothing to advise your parents on until grandfather dies.
Last edited by celia on Tue Aug 25, 2020 3:03 pm, edited 1 time in total.
Gill
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Re: Help with mom's inheritance

Post by Gill »

celia wrote: Tue Aug 25, 2020 2:58 pm
The marital trust likely benefits grandfather's new wife, so that will likely be unavailable for your mother.
Celia, why do you say that? It appears to me the grandfather is the beneficiary of the marital trust, not that he created it for the benefit of his new wife.
Gill
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senex
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Re: Help with mom's inheritance

Post by senex »

Other than your mom "planning" on an inheritance (which is a dubious basis for long-term plans), the rest sounds pretty peachy.

Grandpa has lots of money, is growing it, and wants to pass it on. Mom is naive, but the best kind of naive (she knows it), and thus is recruiting a boglehead for help. Sounds like everyone is on good terms.

Once you learn the legal details, you can help Mom open a Vanguard account and invest 60/40 or whatever you+she decide.

If you have specific questions about the trust after getting the trust docs and/or talking to the attorney, post the details here. There are some very experienced attorneys who are very helpful on trust topics.
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celia
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Re: Help with mom's inheritance

Post by celia »

Gill wrote: Tue Aug 25, 2020 3:01 pm
celia wrote: Tue Aug 25, 2020 2:58 pm
The marital trust likely benefits grandfather's new wife, so that will likely be unavailable for your mother.
Celia, why do you say that? It appears to me the grandfather is the beneficiary of the marital trust, not that he created it for the benefit of his new wife.
Gill
I guess we are reading this differently and don't have enough information to know if the marital trust was created by grandfather and his past wife (your assumption) or between grandfather and his current wife (my assumption).
senex
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Re: Help with mom's inheritance

Post by senex »

celia wrote: Tue Aug 25, 2020 2:58 pm The trustee of each trust will be responsible for carrying out the provisions stated in each trust and making transfers to the beneficiaries, so there is no need for her to get legal advice unless she is contesting something. Copies of the trusts do not have to be shared with anyone until grandfather dies. Between now and then, the assets could double or be spent. That is not within your/her control. There is nothing to advise your parents on until grandfather dies.
Not sure I follow the above points.

1) Grandpa sounds cooperative. If so, is likely to provide docs, to accept advice from OP/Mom, to work with OP/Mom.
2) Grandpa may be trustee of one or both trusts. If so, he may have a great deal of control.
3) Whether trustee or not, Grandpa may be entitled to large distributions, which he intends to gift to Mom.
4) Could Mom be one of the primary beneficiaries of one or both of those kinds of trusts?
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JoeRetire
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Re: Help with mom's inheritance

Post by JoeRetire »

bcough0121 wrote: Tue Aug 25, 2020 2:11 pm After a couple months of talking to her about this, she has asked me to become her “financial advisor” instead of hiring one once she receives this money.
Are you qualified to fill this role? Or would you be better off helping her find a fee-only fiduciary financial planner? Remember - you break it, you own it.
She has banked on this being her retirement her whole adult life, so has not saved a penny for retirement on her own.
Ouch! What does grandpa's new wife say about this?
To put it short, I am completely comfortable advising my parents with their investments, but I am not comfortable with all of the trust transfers and things of that nature.
Time to get a professional or two involved, IMHO.
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egrets
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Re: Help with mom's inheritance

Post by egrets »

Get copies of the trust documents and have an attorney knowledgeable about this area review them to be sure some amount of the money does go to your Mom and not the new wife, and that the new wife does not become the trustee of the money destined towards your Mom when the father passes away.

Your Mom, let's say, is 60 years old. Even if she lives to 100, starting off with $3.5 million she could leave it in CDs and be fine.
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celia
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Re: Help with mom's inheritance

Post by celia »

senex wrote: Tue Aug 25, 2020 3:20 pm
celia wrote: Tue Aug 25, 2020 2:58 pm The trustee of each trust will be responsible for carrying out the provisions stated in each trust and making transfers to the beneficiaries, so there is no need for her to get legal advice unless she is contesting something. Copies of the trusts do not have to be shared with anyone until grandfather dies. Between now and then, the assets could double or be spent. That is not within your/her control. There is nothing to advise your parents on until grandfather dies.
Not sure I follow the above points.

1) Grandpa sounds cooperative. If so, is likely to provide docs, to accept advice from OP/Mom, to work with OP/Mom.
2) Grandpa may be trustee of one or both trusts. If so, he may have a great deal of control.
3) Whether trustee or not, Grandpa may be entitled to large distributions, which he intends to gift to Mom.
4) Could Mom be one of the primary beneficiaries of one or both of those kinds of trusts?
I'm not sure what you are questioning. Grandpa can share anything he wants (with or without a trust) and listen to input from the mother and OP. But this doesn't make the mother or OP entitled to anything at the moment. He has already shared a lot that should make the OP relieved that the mother will be taken care of.
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Kenkat
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Re: Help with mom's inheritance

Post by Kenkat »

egrets wrote: Tue Aug 25, 2020 3:26 pm Get copies of the trust documents and have an attorney knowledgeable about this area review them to be sure some amount of the money does go to your Mom and not the new wife, and that the new wife does not become the trustee of the money destined towards your Mom when the father passes away.

Your Mom, let's say, is 60 years old. Even if she lives to 100, starting off with $3.5 million she could leave it in CDs and be fine.
+1

If not copies of the trust, it would at least be helpful to know the trustee, successor trustees and beneficiaries of each trust. The trustee could be your grandfather, in which case the successor trustee is important as they will take over the execution of the trust if grandfather passes away. The trustee is basically responsible for managing the trust and distributing money to the beneficiaries according to the provisions of the trust.
tiburblium
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Re: Help with mom's inheritance

Post by tiburblium »

Wouldn't grandfather's new wife receive the assets when he passes and could she modify the martial trust?

I'm not a lawyer so I have no idea, just an honest question
NotWhoYouThink
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Re: Help with mom's inheritance

Post by NotWhoYouThink »

tiburblium wrote: Tue Aug 25, 2020 6:39 pm Wouldn't grandfather's new wife receive the assets when he passes and could she modify the martial trust?

I'm not a lawyer so I have no idea, just an honest question
Nobody knows without reading the trusts.

But probably since the trusts originated with Grandma's estate, OP's mom is the beneficiary when Grandpa dies. But what's to stop Grandpa from emptying the trusts before he dies and giving all the money to his new wife? Or investing all the money with the next Bernie Madoff? I still don't know, I haven't seen the trusts.
Last edited by NotWhoYouThink on Tue Aug 25, 2020 9:28 pm, edited 1 time in total.
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FiveK
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Re: Help with mom's inheritance

Post by FiveK »

NotWhoYouThink wrote: Tue Aug 25, 2020 6:51 pmOr investing all the money with the next Bernie Sanders?
Might be better than Bernie Madoff, but maybe not.... ;)
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cowdogman
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Re: Help with mom's inheritance

Post by cowdogman »

Be her financial advisor, but I would suggest that part of your advice is that the money should be managed by Vanguard advisory services. This will give you the support you need to help manage the money effectively and will help prevent any second guessing from your siblings and your parents.
NotWhoYouThink
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Re: Help with mom's inheritance

Post by NotWhoYouThink »

FiveK wrote: Tue Aug 25, 2020 6:55 pm
NotWhoYouThink wrote: Tue Aug 25, 2020 6:51 pmOr investing all the money with the next Bernie Sanders?
Might be better than Bernie Madoff, but maybe not.... ;)
Freudian? Anyway, I have corrected it. No more typing with the news on.
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bcough0121
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Re: Help with mom's inheritance

Post by bcough0121 »

UPDATE:

My grandfather is still alive, but has now given my mother more transparency into the investments that have now been transferred to my mother for her to look at, buy, sell, do whatever she pleases. She has full control, but he is still on the account. This new ownership makes her anxious, and is not ready to quit working or take any distributions from the accounts. She's never owned anything outside of a checking/savings account before this, so getting $3.5 million plopped in her lap is crazy.

I am talking to her this week to teach her about the basics of investing like asset allocation, index funds, individual stock, expense ratios, etc to make her feel more comfortable and knowledgable on the whole subject. Truthfully, I think she needs someone to just hold her hand through this process. The brokerage where all of the funds are is Fidelity, and I am not familiar with it since I have used Vanguard all my life. I have listened to some of your advice on my original post and I'm going to recommend that she take a look at Fidelity's advisory services to get to the asset allocation that she feels more comfortable with (more on that below). Does anyone have any thoughts or reviews on Fidelity's services that could be helpful to a situation like this?

The asset allocation currently is 90/10 stock to bonds, with the largest holding in Apple (at a $16 cost basis I might add). There doesn't seem to be any rhyme or reason to how this was originally invested because there is a mix of different index funds as well as a hefty amount of individual stock. As someone who has only held 100% VTSAX my entire life and have never sold a share in any account, this is new territory to me. Is it better to consolidate all of these individual stocks into a couple of index funds? What are the tax implications on doing that? I know this is Bogleheads but I just thought I'd throw the question out there to get some conversation on the topic.

Also, just to reiterate, we are looking to do the Fidelity advisor and want some feedback on that. I know I sound like someone who is isn't fully ready/experienced to advise over $3.5 million. I have swallowed my pride there. I know how to invest like a Boglehead, but I don't fully understand any selling and the tax implications of consolidating a portfolio down to a 3 fund.

Here are the questions one more time more easily readable:
- Does anyone have any thoughts or reviews on Fidelity's advisory services that could be helpful to a situation like this?
- Is it better to consolidate all of these individual stocks into a couple of index funds? What are the tax implications on doing that?

Thank you all for your help.
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FelixTheCat
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Re: Help with mom's inheritance

Post by FelixTheCat »

bcough0121 wrote: Tue Aug 25, 2020 2:11 pm My mom’s mom past away when my mother was little, and a sizeable trust was set up in her dad’s (my grandfather’s) name after her passing.
To me, this is the issue. There is a step up in cost basis when your grand father passes away. Before his passing, does Mom have to pay the capital gains from highly appreciated assets?
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FiveK
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Re: Help with mom's inheritance

Post by FiveK »

bcough0121 wrote: Mon Nov 09, 2020 3:08 pm - Is it better to consolidate all of these individual stocks into a couple of index funds? What are the tax implications on doing that?
Much depends on what exactly your grandfather has done. E.g., has he gifted all this to your mother, or set up a Transfer on Death to her, or...?

If he has gifted them to her, the Apple shares retain a $16 basis for her. If she were to inherit them when he dies, the basis would be the fair market value on his date of death (unless there are some contradicting conditions in the trust).
NotWhoYouThink
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Re: Help with mom's inheritance

Post by NotWhoYouThink »

bcough0121 wrote: Mon Nov 09, 2020 3:08 pm UPDATE:

My grandfather is still alive, but has now given my mother more transparency into the investments that have now been transferred to my mother for her to look at, buy, sell, do whatever she pleases. She has full control, but he is still on the account. This new ownership makes her anxious, and is not ready to quit working or take any distributions from the accounts. She's never owned anything outside of a checking/savings account before this, so getting $3.5 million plopped in her lap is crazy.



Same comment as before. You need a copy of the trust documents, and your mom needs to take them to an attorney who understands them.
If the accounts belong to the trust, they haven't been transferred to your mother. There could be large tax consequences of getting this wrong, you really need those documents.
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Re: Help with mom's inheritance

Post by Wanderingwheelz »

tiburblium wrote: Tue Aug 25, 2020 6:39 pm Wouldn't grandfather's new wife receive the assets when he passes and could she modify the martial trust?

I'm not a lawyer so I have no idea, just an honest question
That was my thought, too.

There’s a wife standing between your grandpa and your mom.
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Gill
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Re: Help with mom's inheritance

Post by Gill »

FelixTheCat wrote: Mon Nov 09, 2020 3:23 pm To me, this is the issue. There is a step up in cost basis when your grand father passes away. Before his passing, does Mom have to pay the capital gains from highly appreciated assets?
Do we know this? What makes you conclude there is a new basis?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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FelixTheCat
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Re: Help with mom's inheritance

Post by FelixTheCat »

Gill wrote: Mon Nov 09, 2020 3:58 pm
FelixTheCat wrote: Mon Nov 09, 2020 3:23 pm To me, this is the issue. There is a step up in cost basis when your grand father passes away. Before his passing, does Mom have to pay the capital gains from highly appreciated assets?
Do we know this? What makes you conclude there is a new basis?
Gill
In California, there is a step up in cost basis when you receive an inheritance. In the OPs scenario, grand father (trustee) set up the trust and has not passed away. To me, this appears the grandfather simply added his daughter to the account. Over the years there is probably a lot of capital gains. Who is going to pay those taxes when assets are sold to consolidate the funds?

What makes you think the cost basis will not change when grand father passes away? Are your state laws different?
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Gill
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Re: Help with mom's inheritance

Post by Gill »

FelixTheCat wrote: Mon Nov 09, 2020 4:28 pm What makes you think the cost basis will not change when grand father passes away? Are your state laws different?
Basis is not a matter of state law. It is provided for in the Internal Revenue Code. For an asset to acquire a new basis it must be included in an estate. I don't believe we have any indication the assets will be included in grandfather's estate at his death.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Freetime76
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Re: Help with mom's inheritance

Post by Freetime76 »

FYI, Your mom may wish to read the Bogleheads windfall wiki https://www.bogleheads.org/wiki/Managing_a_windfall

Please just be careful as you get into the nuts and bolts of this. It does sound peachy at present, so keep it that way by avoiding the copious amounts of stupid that often crop up around these events (can come from others, not necessarily mom).

Go slow.
Pay attention to taxes, and go over previous accounting with the trust or a good accountant. ETA: to learn...
Suggest telling your mom to not share the amounts she’s receiving with friends.
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Re: Help with mom's inheritance

Post by Carl53 »

FiveK wrote: Mon Nov 09, 2020 3:26 pm
bcough0121 wrote: Mon Nov 09, 2020 3:08 pm - Is it better to consolidate all of these individual stocks into a couple of index funds? What are the tax implications on doing that?
Much depends on what exactly your grandfather has done. E.g., has he gifted all this to your mother, or set up a Transfer on Death to her, or...?

If he has gifted them to her, the Apple shares retain a $16 basis for her. If she were to inherit them when he dies, the basis would be the fair market value on his date of death (unless there are some contradicting conditions in the trust).

If I had no retirement funds set aside, Apple shares with a $16 basis would be wonderful. (They'd be great no matter what) Cash out enough each year to have no capital gains.
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Re: Help with mom's inheritance

Post by HMSVictory »

I will take the other side of this and tell you to not act as your parents financial advisor.

While you are a well meaning and wise young man to seek advice on this forum there are a significant amount of risks for you involved in this. She is going to need detailed legal advice and I would add an advisor to this as well. My own mother uses Vanguard PAS and is very happy with them. Trust me the 0.30% fee is worth it especially in your situation. In March of this year the market was down 37% - I was thrilled since it presented a huge buying opportunity (my mother was terrified) she was on the phone with V PAS daily and they talked her off the ledge. This is just one area an advisor shines in.

I am much older than you and have done reasonably well in life and referred both of my parents to third party advisors. It changes the nature of the relationship when you are now their "money" guy. In good times you will be a genius - and when things turn...... Now with that being said you can certainly be a part of the process - help her vet the advisors or review the plans but the implementation should be done by a third party. YMMV.

PS - obviously your Grand Father is wise managing $3.5M and I like his 80/20 AA - it worked!
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