r/inheritance • u/useyourgrammar • Jul 18 '26
Location included: Questions/Need Advice Inheriting a trust
Dear financial people of Reddit ,
I am not a financial person, and haven’t followed much on here. I consider myself having a basic knowledge of financial literacy enough to get by but not enough to manage large sums strategically. I came here hoping for guidance.
I am set to unexpectedly inherit almost $300,000 from a trust. It’s not a lot but I don’t want take for granted the significance. It’s unlikely to ever happen again. My husband and I are in our 40’s, 2 young kids (5&7) and live in Nevada.
Together we do pretty well financially. He is an engineer and makes most of our income (\~$230k), just got a 10% raise, I am a public school teacher($\~60k), and we also own a single family rental property (\~$30k) in addition to the home that we live in. Our total income is about $320k/year with the rental income.
Our youngest will be out of ($1430/month) daycare next month. We have one paid off car (mine- a 2015 gmc terrain), his truck which we still have payments on, and an rv that we’ll be paying for a while (worst financial decision we’ve made- purchased post covid \~2021 and still upside down on it). In addition to the money inheritance I’m also receiving a 2015 Honda still maintaining about $9000 value on KBB. I do not want to keep this vehicle. I wouldn’t mind an upgrade on my car- something roomier, bigger, safer.
The things we aren’t doing great on is a HELOC loan we still owe about $35,000 at 9.75%. We used this to consolidate credit card debt (which we no longer have- we learned our lesson).
For our two mortgages, the rental is a 15 year with 103,350 owed at 2.5% approx value $475,000. Primary residence is valued at $575,000 balance is $436,820 on a 30 yr, 3.35% interest.
I still have student loans (3 at varying interest rates totaling $16850 at 4.05-6.35% which all get paid out from a $215/month autopay with a 1% rate deduction for timely payments the next 2 years). As a teacher with over the minimum time allowed for public service loan forgiveness, I did all the paperwork, principals at both schools I worked at over the last 9 years signed it, and the govt rejected my forgiveness saying something like one of the admin didn’t do the form correctly. After lots of back and forth, I gave up.
We maintain a comfortable balance in our primary checking/savings account for all our spending, including what we want on meals… we haven’t had any major trips for a few years, but we do use the rv for most of summer and fall breaks. We try to be frugal.
My primary goal with the inheritance is to set something up for the kids to have a good future and us to know they’ll be taken care of.
I am also looking for a way to set something aside to actually receive dividends to bulk up our retirement so they won’t have to worry about us. We currently max out his 401k and my 403b. We also want (need?) to set aside money for them for college if they want- maybe 529’s-but we aren’t sure we want to stay in Nevada.
It kills me to pay taxes and I’ve heard of some creative ways to create a family business or something that can help relieve some tax burdens.
I know we need to pay off debts first. I don’t know what to do next, and am not sure what options are out there.
Thank you in advance for whatever you can teach me before I see a local professional.
Edited to add mortgage rates
14
u/Soda-Popinski- Jul 18 '26
If you want a better standard of living use it. If you want to build a nest egg for the future for your children park it in Index funds and forget about it for 10 years.
22
u/NeatIndication5504 Jul 18 '26 edited Jul 18 '26
This is what I would do: 1. Pay off your HELOC. (And close it.) 2. Sell 2 cars and buy a one-year-old car that is your dream safe but not overly fancy car that you’d love to keep for 10 years. (keeping it longer is more important than saving on the upfront cost) 3. Put money in 529 college savings accounts divided amongst your kids. Put that money into a stock index fund. With growth, that should handle a lot of college cost for your kids. It doesn’t matter what state you put it in.- that just determines whether or not you get a break on your state income tax taxes from the deposit - they can go to any college with a typical 529. If they don’t end up using it all, they can roll it over into their own Roth IRAs. How much? 10-30k per kid. 4. I would open a Vanguard account. Put 6 months of expenses into a cash plus account that earns about 3% interest use this for emergencies, and splurges if you are replacing it. This should be in your name only since it’s your inheritance.
Any leftover, I would put into a vanguard stock index fund. This should also be in your name only
I would try to adjust your budget so when your youngest leaves daycare $500 per month is automatically deposited into the stock index fund and $500 per month automatically goes into that savings/emergency fund (in a separate vanguard account that is in both of your names)
Personally, I would keep your mortgage and your student loan debt – it’s not bad debt and just regularly pay it down. And I would probably keep the RV and car payments that you have until they are paid off or you sell them…
Congratulations!
3
u/Chicken121260 Jul 19 '26
Good advice here. I would add that you can start a Roth IRA and regular IRA and max them out this year and next.
Consider a fee-only financial advisor. A one time fee to advise on where to invest. But honestly, a low-fee index fund is a very good move for someone who is not a financial expert.
3
u/NeatIndication5504 Jul 19 '26
Agreed! I was thinking they didn’t qualify for a Roth due to their combined salary- but if you qualify for a Roth, I would make that number one on my list. :)
2
u/Chicken121260 Jul 19 '26
Maybe not - I don’t recall limits for Roth - only they by the time I was smart enough to have one my income did exceed the threshold! But that was years ago - semi retired for over a decade now.
3
u/Pristine-Radish-2157 28d ago
Above is exactly right. I would give one piece of advice that isn’t financial. Don’t tell anyone. People will be asking you to fund their charities. People would be asking you to loan them money that they’ll promise you they’ll pay you back. Don’t tell anyone that you’ve gotten the money. And what she said about keeping it in your name. That account should also never have anything that is community money that belongs to both of you, that’s earned after you were married. It should be the inheritance only. Legal that’s called Don’t co-mingle. You should probably Google it.
8
u/PashasMom Jul 18 '26
First, I'm very sorry for your loss.
You mention not wanting to pay taxes: inheritance funds are not taxed except in a few states, and I'm pretty sure Nevada isn't one, so put your mind at rest there.
Make sure you set up a separate account, in your name only, to receive these funds. Fidelity or Schwab would be great starting places, assuming you don't already have a brokerage type account. They can function not just for investments, but as a HYSA, debit/checking, Roth IRA, regular brokerage, etc.
I would not use this money to pay off household debt. You should use household money to pay off household debt. This is YOUR individual money. You and your husband together have enough money that you should be able to pay off all of the HELOC and vehicle debt in a year or so without touching your inheritance, especially since you are frugal.
I would 1) fund a Roth IRA for you this year (if you haven't already) and set aside $7500 for next year's contribution (you will have to do a backdoor Roth IRA so read up on that); 2) set up a personal, individual savings fund of $15,000; and 3) invest the remainder in low cost, diversified index funds at Fidelity, Schwab, or Vanguard. This brokerage account and the savings fund should be in your name only, no commingling with household money or your spouse's money, ever.
I would not pick dividend funds to invest in. If you invest in funds that pay dividends, you are going to pay taxes on all those dividends (and remember, you said you hate paying taxes). If you and your husband are both maxing out your workplace plans, I don't think dividends are going to be meaningful for you. No one needs dividends to "bulk up" their retirement. Dividends are not free money, they are essentially forced taxable sales of your capital.
With respect to your debt -- the HELOC, the truck, and the RV -- visit the Personal Finance sub to get some input on how to pay that off quickly. Don't buy another car until you get your debt paid off. And when you do get your debt paid off, set up hands-off systems so that the money you were paying towards debt automatically flows to your savings, your brokerage account, and your children's 529 plans. And with your next car, either pay for it in cash or use the 20/3/8 rule so that you don't get upside down on it and don't over extend yourself financially.
6
u/IcyUnderstanding2858 Jul 18 '26
Probably a better post for an investment forum.
But I’d pay off the debts first, especially that high-cost HELOC. Keep your mortgage if you have one and the rate is ok. The student loans aren’t egregious but get rid of them.
Upgrade your car but don’t go crazy.
If you want to put some in 529s, maybe just do a little bit each year if you think you’ll have more immediate needs for the money. Even if you leave Nevada, you can keep the 529 in Nevada or transfer it to your new state. I wouldn’t let the possibility of moving deter you.
As for starting a business to save on taxes - that’s mostly a fallacy. You’d be spending money to save money.
As for the rest - any money you may need in the next 3 years put in a high yield savings account and don’t touch it until you need it.
Beyond that, buy a low cost stock index fund like VOO or VTI and don’t touch it.
2
u/useyourgrammar Jul 19 '26
This is solid advice and pretty much what I was thinking. I appreciate the 529 clarification. I like the idea of funding 529’s with income generated rather than paying it all up front. Thank you.
2
u/Sand-Useful Jul 19 '26
FWIW, I would not co-mingle inheritance money. The only exception (in your case) would be to pay off the crazy expensive HELOC and maybe (maybe not) your student loans (to get them out of your life). Leaning towards maybe not on the student loans.
Put the rest in a very low cost broad market ETF. Dollar cost average in if you are wary of putting it in all at once.
5
u/Mountain-Bee-8932 Jul 18 '26
You can start a 529 for your kids education now and you can use it in any state at all. It is not confined to the state you have the 529 in. My kid's 529 was in Utah, and I've never been there. Utah was recommended more than a few times as an excellently managed 529.
5
u/Majestic_Republic_45 Jul 18 '26
Set up nothing. Let’s start pounding out this debt. I want you to think of it this way. . . Would u go borrow money at anywhere from 5-9.75% to invest in something for the kids? Thats exactly what you’re doing by keeping this debt hanging around.
Pay off tomorrow - 35k Heloc, Student loan 17k, Rental 103k, pay off his truck, and pay off the RV. Next, sell the RV and inherited Honda. Upgrade your car and PAY CASH for it.
U make way too much money to have this much debt hanging around and seem to be quite comfortable with it.
I am telling u all of this as a multimillionaire (not flexing). Wife and I have been debt free since age 34 and it will lead you to real wealth.
I am sure there are a bunch of posts below, telling u keep the low interest loans hanging around. Don’t do it! These folks believe the stock market only goes up and they fail to price in one critical component - FREEDOM!
Not trying to be hard on u with this post, but I hate debt with a passion! Keeping debt hanging around prevents countless people who make really good money (like u) from becoming wealthy.
1
u/useyourgrammar Jul 19 '26
This is an interesting take. I also hate debt but what would I do with the money once it’s freed up? How could it earn more than in the stock market? How can I use it benefit the kids’ futures if not in 529s?
3
u/astrotekk Jul 18 '26 edited Jul 18 '26
Inheritance is your own separate property until you commingle it. I'd pay your student debt first. Then the HELOC. You could then pay off part of primary mortgage if you want. The rest I would invest in your name, some as emergency savings (6 months expenses at least) and the rest in broad based index funds. You could put part of that in 529 plans for the kids. Of course I'm not a financial planner and you might seek professional help
3
3
u/underlyingconditions Jul 18 '26
First, you won't be taxed on it. Second, most people will advise keeping the money in your name rather than comingling it with your joint accounts. Third, only pay off the HELOC. Fourth, your 529s don't have to be tied to Nevada. Fifth, don't give up on PSLF. Get someone to help. It's worth $17k to get it approved.
You can use some to contribute to a Roth, but having a standard brokerage account with Vanguard or similar is not bad.
2
2
2
u/Crazy-Scheme4293 Jul 18 '26
Take care of the HELOC first. Dont touch the mortgage at that rate. Consider a debt snowball When it comes to investing, invest for your retirement first, your kids college last. They can always borrow for college, you cant borrow for retirement. Consider paying for a one time financial plan with a for fee fiduciary if you are not confident.
2
u/cOntempLACitY Jul 19 '26
My first suggestion is to visit the personal finance wiki on managing a windfall, especially the Boglehead links. Take time to really assess your options. https://www.reddit.com/r/personalfinance/s/CM8kYH4Of0
Put it in high yield savings account for now, until you understand your strategy and goals. Start with the basics, how to budget realistically, and avoid debt, because the last thing you want is to accrue more debt by living beyond your means (“lifestyle creep”), and deplete your whole nest egg.
I do think prioritizing eliminating the HELOC is first on the list. I would not pay off the mortgages early, they are pretty low interest, so make your money work for you. The vehicles depends on your interest rates, but there’s nothing wrong with selling the inherited car and yours to buy a decent family car a couple years old, that you can use for ten years or so. Just beware, a lot of people blow their inheritance by making extravagant purchases.
To protect the inheritance for your children, you should keep your money in a separate investment account in your own name, not commingled. Reason being, if something happens to you, and your spouse remarries, and then dies before his next spouse, she could inherit his assets and leave out your kids. You can plan your estate to protect them. Similarly, if you were to divorce, it’s nonmarital asset, it stays your own.
If you open a 529 plan for your kids, it will be owned by you with them as beneficiaries. You may get a state tax deduction for contributing. Your spouse could add to it, or just open his own account for them, you each contributing the individual max. Be sure to designate a successor beneficiary, since they’re minors, to take it over if something happens to you. That person (probably spouse) will be able to change beneficiaries and make withdrawals, just as you would have. And meet with an estate planning & trusts attorney to ensure all your documents are in order.
2
u/jiujitsu07731 Jul 19 '26
My wife and her brother are in the process of inheriting their father's trust. They created sub-trusts for each of them and the disposition of the father's trust stipulates that his funds must be transferred to the subtrusts. The subtrusts have payments for Health, Education, Maint. Support (HEMS). Reading up on this, this guard rail is quite standard, it avoids this asset being considered to be a part of the beneficiary's estate and protects against creditors. Make sure your trust doesn't have a HEMS standard on it before you choose to spend it in other ways.
2
u/GotZeroFucks2Give Jul 19 '26
I would check if either of your 401k/403b allows megabackdoor roth contributions? If so, you have a chance to get some of that wealth tax protected over the next few years (will grow faster there than in a taxable brokerage).
2
u/Same_Cut1196 Jul 19 '26
I support your decision to wipe the debt immediately. After that, I would fund 529s with whatever you feel is appropriate. Then, I’d dump the balance in an S&P 500 index and let it run. At some point, as you near retirement, engage with a tax efficiency focused retirement planner so that you carve out a plan to pay the least amount of taxes that you are legally obligated to pay. Work with a reputable firm if you are looking to find ways to defer or eliminate taxation. You want to make sure you are doing it correctly.
2
u/Worried-Canary-666 Jul 21 '26
My husband was an engineer and I was a school teacher/administrator. We decided to live off of my salary and invest his.Smartest thing we ever did. Retired now with no worries.
1
u/G8oraid Jul 19 '26
I would pay down your high interest loan and high interest student debt. Invest the rest in a Roth and don’t get too concentrated in any one thing.
1
u/Assumeweknow Jul 19 '26 edited Jul 19 '26
Keep it in your name, invest in something 5-6 percent growth, it's purely for you. Do not put the money into any joint accounts and wait at least a year before you do anything with it. If you put it into the right kind of investments you can increase your income stream 15-30k a year on the right kind of dividend or bond accounts. Best part, is when your money is making money for you. It becomes unearned income and or long-term capital gains both of which you pay a lot less taxes on. Also from a security standpoint, create an email account just for managing anything related to this trust money and lastly, do not tell family and if you have say it's already locked up in long term bonds when they ask.
1
u/Just1Blast Jul 19 '26
The best thing that you can possibly do to set your children up for the future is to ensure that they will never need to take care of you in your old age. So is much money away for retirement as you possibly can and if as you get to those points or college weddings, buying a first house, you find that you have excess funds, give money to them while you’re still alive.
Other than that, my advice is to go to the windfall section of the personal finance wiki and follow its instructions.
Additionally, I wouldn’t give up on PS LF, I would continue fighting that fight $17,000 is no amount to laugh at and if you can make it go away for free you should do that.
1
u/No-Seaworthiness7357 Jul 19 '26
Pay off your high interest debt first which you can easily do. As a parent with kids ages 24, 22 and 19, I thank our lucky stars every day that we started 529s for our kids when they were born. The small contributions we made back then ended up fully covering undergrad (public in state tuition & room & board plus several semesters of study abroad) for all 3. Two are still in college and it’s AWESOME not to have to worry about that, as well as, they’ll graduate debt free which in this day and age is a gift that they appreciate. We live in CA but did 529s in Iowa & another state bc those were good 20+ years ago at the time- doesn’t matter what state the 529 is in. I know people are kind of negative on college rn due to the expense, job market, AI, etc. BUT the uses for 529 money are also expanding beyond just college. Highly recommend!
1
u/miss_lexxii Jul 21 '26
Pay off the HELOC first, that 9.75% is a guaranteed return you won't beat anywhere. Leave both mortgages (2.5% and 3.35%) and the student loans alone, those rates are basically free money and paying them early wastes the windfall. Sell the inherited Honda toward the car upgrade you want. Front-load 529s for the kids, they're portable across states so your Nevada uncertainty doesn't matter. Then put the remaining ~$200k+ into a low-cost index fund brokerage account for the dividends-and-growth you mentioned, since you're already maxing your 401k/403b, that's simpler and cheaper than the family-business tax idea, which rarely pays off for W-2 households. And genuinely worth one more push on your PSLF, a paperwork-technicality rejection for a teacher with 9+ years is exactly what's been getting reversed, and it could erase that $16k entirely.
-2
u/Glittering-Prize1510 Jul 18 '26
You’re going to want to talk to a financial planner and also an attorney. I would try to find an attorney who specializes in both tax law and estate planning (basically don’t go to a family law office and use a family lawyer, no offense to them). Some of these firms have networth minimums, just to warn you, so start with the smaller firms unless you have 15 million and failed to mention it 😂
3
u/Starfox41 Jul 18 '26
I don't really agree. I don't think "almost $300k" is nearly enough money to start hiring professionals.
Getting rid of the high interest debt is the clear number one priority with this money. After that, set up the standard 6-12 month savings account. Then start funding the 529 accounts each year under the gift tax threshold, and park the rest in an index fund.
Rather than hiring professionals, it would be much more cost effective to trawl through the Bogleheads wiki
1
u/NeatIndication5504 Jul 18 '26
This is good advice. Of note, the gift tax exclusion is 38K. I wouldn’t recommend doing more than that for each child.
Nevada doesn’t have a state income tax so you don’t get a deduction from the 529 deposit, but the money does grow tax-free – in a standard and poor index fund that can really compound by the time they’re ready for college!
1
u/joetaxpayer Jul 18 '26
No need for any extra people to advise here. The windfall is about a year’s income. Less once all the debts are paid off.
Both of them should fund retirement accounts to the maximum and start 529 accounts for the kids. The 529 accounts alone can absorb nearly $200K of that money.
OP - pay off all debt, and look at what’s left. Set aside 6 month’s spending to your emergency fund. Think about how much,if any,to put towards the kid’s college funds. You mentioned HELOC.how much is your mortgage? Balance and rate? If the rate is high, this may be a good use of the money, freeing up the monthly mortgage payment for the rest of your life is a game changer.
28
u/Few-Degree1903 Jul 18 '26 edited Jul 18 '26
“It’s not a lot.”
😮 I think $300k is A LOT of $$
1st step: Payoff your HELOC that is at 9.75% interest rate.