You know that phrase, What Would You Do With a Million Dollars? Well...

[Anonymous]

...we just inherited about a million dollars. We feel lucky but wish it were under different circumstances obviously. We have an estate lawyer, real estate lawyer (there are also 2 properties aside from what is in the accounts), and a financial adviser. We haven't spoken to the financial adviser yet, I'm just thinking ahead of myself here and would love to know what you would do in our situation.

I have been SAH for the past 2.5 years. I'm 30, DH is 34. We own a townhouse in PA that is worth less than 150k, and we rent it out for about $200 more than the mortgage and other costs amount up to. We rent a big nice house from my father (he has several properties), for dirt cheap ($1000/mo). DH makes about $60k. We live in Annapolis, he works in Baltimore. DH has some money in retirement, but I'm not sure how much. I'd say 30-40k.I have a very limited amount because I was a teacher for only a few years. Things have been tight financially for us, even given the help from my dad with our house. Not much in savings.

DH says that the income from the interest on the investments and other accounts was about 30k a year. That will give us some immediate relief. DHs thought was to keep most of the investments right where they are since his dad worked so hard to set them up. I'm not sure what the adviser will say. I'm not even sure if you can do that, just switch the name over. Plus our needs might be different then an older single man, right?

I know a million dollars isn't what it used to be, but it is a lot to us. We talked about buying a house, but I think we should wait until our kids are in school and I'm back at work so we have the extra income. Our rent right now is so cheap and we are comfortable here. Make sense?

I also brought up the idea of a college fund, but DH said it wasn't necessary in our situation. Why is that? I didn't really get it.

Anything else we should think/talk about before meeting with the adviser?

[Anonymous]

My sympathies for your loss. I inherited about a million dollars a couple of years ago too. In answer to your question, many assets like annuities cannot be transferred to a non-spouse. You will need to evaluate each investment to investigate whether it is feasible and in your best financial interest to keep it in-kind. Here's what I did:
Paid off student loan
Started a large college fund for each of my kids (you can invest about 120k every 5 years per kid- I like to say that nana paid for college!)
Retirement- you should both max out ROTH/ year. We already did that at the time so no change on that front.
Taxes- don't forget about the state taxes. You are lucky this year with no federal estate tax limt- I ended up paying about $150 k in taxes
Investments- I feel like for now, we are doing well but one day I hope the money can help us to retire earlier and more comfortably than we could have otherwise.

My advice- keep the numbers to yourself- tell your friends that DH's dad left you $ but never say how much. Enjoy the security and comfort that extra money provides but don't let it go to your head. Save it for emergencies and for periodic splurges. Don't change your lifestyle dramatically. If you let the money grow, one day it will change your life (no need to work/ save etc. ) but not today.

[Anonymous]

I would definitely think about moving some of the money into IRAs for each of you as well as 529s - if the money is not protected, you'll have to pay taxes on your income each year.

Personally, if I inherited 1M I would use the bulk of it to pay off our mortgage because I like the idea of having the security of owing a house outright. And I would also put a good amount of money in my son's 529 because I had a great college education and would like to see him have one too. But those are my values/needs. I would suggest that you both sit down (alone) and make a list of what financial needs/values are important to you and what financial goals are important to you. Then compare your lists, and from those develop a list of family financial values and goals which can be your guide as you decide what to do with the money. I think the book Smart Couples Finish Rich goes through this exercise.

[Anonymous]

I have never been in that situation but when I day dream about winning/inheriting a million dollars I always thought I'd

1.) pay off all student loans and dept - car loan, credit cards, etc.
2.) pay off the mortgage on our house in WI so we can rent it out without worrying about covering the mortgage, or sell it at a huge loss - wouldn't matter as much because of the newly acquired $$$
3.) set up college savings for each kid
4.) invest some
5.) buy a house because we are currently living with ILs

In your situation, I would probably continue renting because your rent is so cheap

[Anonymous]

Were you really a teacher? Wow!

[Anonymous]

OP,

Does your husband know you posted all this information about the inheritance and your personal circumstances online? If not, don't tell him!

[Anonymous]

I inherited about a tenth of that amount in stocks & bonds - no cash - a few years ago. It was transferred from my relative's brokerage account to a brokerage account at the same firm in my name. My husband and I already had a broker so I transferred everything from that account to our joint brokerage account. You're right that the investment needs of an older single person will differ from a young family, so consider selling some of the low interest bonds to other opportunities that have more risk but potentially more gain over the long haul. Discuss this with your financial advisor or other professional. Other than that we have just let it sit. But if it were a million, we would have paid off our one remaining student loan and our second mortgage and dumped the current cost of college into 529s for our kids. As for a house, I would really consider buying now if I were you since rates are so low, there is a large inventory of homes to buy and it is a buyer's market in many areas where you are.

[Anonymous]

some thoughts:

* If you have loans or credit card debt, it makes sense to pay them off (other than a mortgage, which may or may not make sense)

* Our portfolio manager told us it was generally safe to take about 3% of the value in dividends every year ($30k for $1m) without hurting principle. I would feel safer at 2%. But the portfolio needs to be structured such that there are dividends to take.

* college funds (529) are pretty specific to the child and purpose and don't give you much flexibility. At this point you essentially have the ability to pay for your kids' college educations. You don't have to save separately. There might be tax reasons it doesn't make sense, but I'm not all that familiar with them.

* you state that "we inherited money". Was the money given to both of you? If it is currently in both of your names, you might consider splitting it into two accounts. That way if one of you gets loony and empties the account on fancy cars, half of it is still there (it happens). And, should things go sour in your marriage (which I hope it won't), you aren't left high and dry. You can probably still have the portfolio managed as if it were a single portfolio, just split in two. Four members of my family have a gig like this.

* I wouldn't rush to buy a house right now, unless you are otherwise feeling ready. Since you are renting from your father, the money is essentially staying in the family.

* when you do decide to buy a house, I'd think about using some of the inheritance for your downpayment, which will allow you to buy a nicer house than you could otherwise afford, but only count on salary for the mortgage payments.

* Assuming that you won't be touching the principle for many years and want this to grow for college savings and retirement, you'll want to structure it for growth, which means slightly higher risk than one structured for stability. The investments don't need to be restructured over night, but should be done. Just remember that selling stocks will generally have capital gains and tax implications.

* Don't try to track the value on a daily basis or you'll drive yourself nuts. Live life as if it weren't there and with a little luck you'll be able to retire earlier than you thought.

[Anonymous]

I would invest it all in one way or another - college funds for the kids, IRAs for the two of you, plunk a comfortable amount in a money market fund for emergency use/future house purchase, invest some either with Vanguard or a financial advisor. Definitely don't spend it on anything like a car or vacation - it's a lot of money, but only in the sense that it will move you that much closer to being able to retire comfortably - not in the sense that you don't have to worry about money ever again.

[Anonymous]

I would invest in retirement and some in college savings. Consider if you don't need all for college savings though- you want to put enough in there, but don't put so much that it won't get used.

Otherwise, I think I would try to pretend I didn't get it...

[Anonymous]

Congratulations, you're getting good advice. When we inherited a much smaller amount (but big for us), we gave 10% to charity, 40% to the kids' 529 plans and general investments for the remaining 50%.

Good luck but condolences for your loss.

[Anonymous]

In response to past posters:
IRAs- there are yearly limits- on individual IRAs, 5k per person (SEPS have higher limits). You will not be able to throw a huge chunk into retirement at once.
College funds- 529s allow the funds to grow TAX FREE. You would be a fool not to utilize them. Even if your children do not draw down all the funds for college/ grad school/ professional training/ culinary or art school, the remainder can be transferred to your grandchildren. You can also utilize the funds for taking college courses/ or for career change.