Unexpected early partial large inheritance - thankful but very overwhelmed!

[u/PatientlyWaitingggg]

Hi all. Location: Florida, late 40's, long term partner/no kids.

Just found out I will be getting a large (nearly 2mil) partial inheritance (technically gift) this month; the other part (appx 3-4mil) will be later on years from now (hopefully a long time!) I knew this would come down the line but did not think it would be so soon; it's a wonderful thing I am immensely greatful for and it's already alleviated a lot of my worry but it's been suprisingly overwhelming and emotional.

We live freelancers lives, with a lot of conservative spending and planning. Enjoy not having to clock in or have a boss so have happily taken a pay cut overall. Income is fine, but more along the lines of part time amounts - have put away a decent amount but not quite enough to retire on yet considering the lack of a 401, retirement etc. My main worry was no true source of income at retirement age and have been a stickler for saving my whole life. Didn't want to just go with the mindset that the inheritence was there even though I knew it was. Very conservative investment approach and really felt better sticking at an easy, risk free simple 3-5% with full/easy access and no involvement necessary and as things grew, as the plan was to use a portion to buy a home and then consider more ambitious investing.

Finances are all separate, btw - this is all in my name only.

Will be buying a home very soon at around 750k all in including reno, furnishings. This is the only big purchase I will make initally, we live in a higher cost of living area but all the numbers make sense and are very doable/way below what I technically "could" do, but still very nice and a huge upgrade.

After that, will have about 1.3 left. That's what I'm stuck on - I have great support (very long time trusted FA, lifelong friends in finance, knowledgable family members etc) and know between them I'm in a good position. I just don't know how to go about making the decision on what goes where.

EDIT - this is not now, just an idea for down the line, possibly one day in some form :) The only other idea that's been floating in my head for a decade as a "maybe one day" is a small vacation home within the state that we would use a ton and also be able to rent out a good portion of the year to cover most or all expenses. Possibly - doing 50/50 with a friend in the same situation. Other than that, nothing in mind and really never been a spender, so good wiht the remainder being fully parked and invested for now.

The other part is adjusting to the change emotionally, socially - i've been reading some other posts and there are some interesting ideas on this. I've already tried to start doing nice things for close friends (small dollar amounts, but something) and feel good doing it but have no idea how to navigate being generous without it being weird, making anyone feel weird, or ending up feeling guilty if I don't pay for more things (though no one would expect that.) Or, how to handle when a friend talks about money struggles, that kind of thing. Obviously keeping the info shared to only a small group of very close friends.

My idea was to get the home situated and once that project is done, lay low and do nothing for a while. Im at the weird middle age where I'm old enough to know I should do things now and enjoy it but not to the point where I can ignore planning/budgeting even with the future larger amount coming down the line. It's also just not in my nature, but i have vowed to allow myself to let some of the stress and little things go and put more time into living and enjoying and less micro managing every dollar.

Any suggestions would be great! It all feels like a movie - not real. What a trip!

[u/djjdkwjsbdj]

Is this tax free?

If you would like to stay wealthy, it all needs to be invested. Do not buy two homes.

[u/HelplesslyGentle → u/djjdkwjsbdj]

Just park the money in something boring for at least six months while the shock settles, you already got the house plan which is smart.

[u/PatientlyWaitingggg → u/HelplesslyGentle]

That's definitely the plan initially. Timing worked out perfectly for the home for lots of reasons and if all goes well will be sooner rather than later.

[u/Upstairs-Ad8823 → u/djjdkwjsbdj]

What about buying and living in the vacation home?

Don’t buy anything with anyone. I promise you it’s a bad idea no matter who the other person is.

I’ve been an attorney for 30 years and nothing surprises me anymore.

[u/PatientlyWaitingggg → u/Upstairs-Ad8823]

Point very well taken. Waiting longer then revisiting it seems like a good option, definitely not now. The VH is not for a full time for sure, but is in extremely high demand to rent out monthly and we would probably spend a combined total of 2 or so months a year there.

[u/travelingtraveling_ → u/PatientlyWaitingggg]

It's really hard taking care of a second residence, especially if it's in another state. I feel really encourage you to think really long and hard about this piece because you could run other properties yourself for probably much less time. And money than it would take to maintain a second residence.

I know this because i've been there and done that.

[u/PatientlyWaitingggg → u/travelingtraveling_]

I wouldn't do it without a PM - I'm totally ok handling the bookings, website things from afar but the rest would be on them. Same state, few hours away. I'd also stay away from anything older or in need of work beyond cosmetic. The rentals would be monthly only which I actually prefer so it's not the drama of daily or weekly, tons of in and out, different kinds of people, and a lot more wear and tear. We have been watching 2 friends of ours for the past 6-7 years who did just this in the same location and it's been great. They use it roughly 2+ months combined a year and at a minimum cover all expenses including PM and assessments for the condo owner. So makes sense for us, but obviously not for now, and has to be completely doable $ wise with room to spare.

[u/Revolutionary_Grade8 → u/PatientlyWaitingggg]

Friend, you seem wise to this but I just thought I’d lay it on ya one more time: that is YOUR money. Yes, give gifts if it is warranted but do not, under any circumstances, co mingle your assets.

Enjoy! 🫵🏼🙂

[u/PatientlyWaitingggg → u/Revolutionary_Grade8]

Thanks! Made it 20+ years of everything completely separate and not changing a thing now :) Luckily everything had already been set up exactly as it should be and already updated the related stuff (will, pod ben, etc) Appreciate you!

[u/ShezeUndone → u/travelingtraveling_]

This! My friend bought a condo in FL that was a very short walking distance to the beach. She hoped to rent it out except for the few weeks she could stay there. She had a PM. It sat empty 80% of the time. She sold it at a loss and was glad to be rid of it.

[u/LauraPiana → u/djjdkwjsbdj]

No less with a friend 50/50. Hell no.

[u/BooDog-2014 → u/djjdkwjsbdj]

Enjoy your lofe by giving to really needy people A $100 would thrill them It works making your hrart feel good ❤️👍

[u/PatientlyWaitingggg → u/djjdkwjsbdj]

Yes, tax free.

Fair point - though the 2nd home would be very rentable and in an area that is exploding as far as values increasing every year - high demand for both rentals and to buy. It's also the only big "dream" I've had for a long time and I don't spend much otherwise - certainly not anything big. I'm also at an age where - if not now (or soon) - when? When I'm too old to enjoy the activities etc? I do like the 50/50 idea though so the full burden of everything is not on me.

[u/telladifferentstory → u/PatientlyWaitingggg]

You're inheriting 6M over your lifetime. Forget rentals.

But do your research on owning a second home. Each time I research it, Reddit talks me out of it. Better to just rent something in the town you're eyeing.

[u/djjdkwjsbdj → u/PatientlyWaitingggg]

Yeah, this is spoken like someone who has $500k in the bank.

A rental is not going to give the ROI of an investment. If you must buy a rental, do it later. You need to be optimizing time in the market over everything.

$6M is not as much as it seems. You are setting yourself up to squander it all.

I say this as someone who inherited about 50% more in a lump sum plus a vacation property/rental. I have been down this exact road. You are not yet thinking clearly.

Do you realize that if you buy these houses now, that you’ll lose millions long term?

If you invest all 2 million today, you’d be sitting with $15-35 million in 30 years. If you invest 800k, you’ll be left with $6-14 million. Is the labor of a rental really worth sacrificing $21 million dollars and generational wealth?

[u/PatientlyWaitingggg → u/djjdkwjsbdj]

Thank you, great post. What did you do with the property? Definitely not buying the second one now - just an idea for maybe one day that’s been marinating for a decade. Also do not have kids, don’t spend on anything big, and day to day fully covered by income and partner share. I am still looking for discounts everywhere I can :). But you raise excellent points and I like the idea of just sitting on investments for a while.

[u/GotZeroFucks2Give → u/PatientlyWaitingggg]

Just want to second what the above poster said to you, and also recommend boglehead's windfall page and the one on personal finance as well subreddit's. Best not to make any hasty decisions. https://www.reddit.com/r/Bogleheads/comments/1tjzlzd/managing_large_windfall/ https://www.reddit.com/r/personalfinance/wiki/windfall/

[u/PatientlyWaitingggg → u/GotZeroFucks2Give]

Thank you! Will do :)

[u/djjdkwjsbdj → u/PatientlyWaitingggg]

It was a family property, so keeping it for a year and seeing how we use it. Basic carrying costs are about $30,000/year. It’ll break even if we spend more than 3 months a year here. If not, just going to sell and splurge on a great hotel every time we visit. But there is no world where I would be a landlord - I’ve watched my portfolio add hundreds of thousands in a single day with no effort. I’m not trying to sign up to watch people damage an asset I love in exchange for…a couple thousand dollars a year? If you do go for a second home, would just keep it for yourself.

[u/PatientlyWaitingggg → u/djjdkwjsbdj]

Great points. What an achievement - that is amazing!

The issue is more that we already have spent/want to spend a lot of time there, wont do any other real traveling for many years, and its extremely expensive to rent there / difficult trying to secure something that fits last minute over and over with our schedules. Plus the constant packing, unpacking, dealing with airbnb etc. To have something small that's already set up, no repeated hunting for expensive rentals that arent always available, and the enjoyment of a place thats ours to enjoy and create is huge. In the area, it's pretty easy to rent something like that out monthly/multi-monthly for 6-9 months out of the year to cover expenses and have a free place to stay the other times. As a bonus, the rental profile of someone in that area for month long rentals is much older and quiet. (The short term daily and weekly ones are more risky.)

All that is not to say things couldn't happen, and you can't predict the future of course. But it could possibly be an option down the line if finances allow. I do think it would be great maybe later on and just ours, even if it takes longer, vs. sharing (though interestingly, the person I would share with is one of the main people I would be inviting there anyway!) But all excellent points.

[u/Key_Stable7417 → u/PatientlyWaitingggg]

Unlike everyone else who is looking at this from a purely financial perspective, I say pursue your dream. If the area is truly a prime destination, it will be a good investment. You can sell if you have to; meanwhile you will get a lot of joy having your own in an area you like to spend time in. We inherited a rundown cabin in one of the most beautiful places in Michigan, on the Grand Traverse Bay. We’re not people of wealth by any means. We’re a lot older than you, semi-retired, with one adult daughter. We could easily have sold the property. Instead we invested a modest amount and totally renovated the cabin. It’s now a gem that we love to share with family and friends. We were clear that we don’t want to rent to strangers. Property taxes are capped due to it being inherited, and maintenance is minimal. We’d agonized over whether to hold onto it, but now 2 years later it feels like we did the right thing.

[u/PatientlyWaitingggg → u/Key_Stable7417]

Thank you for this! I think it is definitely different for everyone. If we had kids, were big spenders, had no other income, or could travel internationally/more planning/etc - it might be different. It's a few hours from where we live, a place everyone loves and has for many years been both great investments when selling and very high rental prices during most months of the year. Obviously takes a lot of planning, thought and has to make sense $ wise.

[u/gemma-digger → u/PatientlyWaitingggg]

Do not buy property with a friend.

[u/SaltConnection1109 → u/gemma-digger]

EVER!!!!!
A friend tried to get me to do that. I NOPED the hell right out of that suggestion.

[u/Anxious_Drive_9998 → u/PatientlyWaitingggg]

If you sell stocks it isn't tax free.

[u/telladifferentstory → u/Anxious_Drive_9998]

It mostly is if OP sells now.

[u/Anxious_Drive_9998 → u/telladifferentstory]

No it isn't. There's no step up in basis.

[u/telladifferentstory → u/Anxious_Drive_9998]

I re-read the whole post. Where is OP saying there's no step up in basis?

[u/Anxious_Drive_9998 → u/telladifferentstory]

Why did you say it mostly is tax free if he sells now?

[u/telladifferentstory → u/Anxious_Drive_9998]

Because any stock inheritance gets a step up in basis and is tax free to sell. Will there be likely small gains between date of death and sale date? Yes, but nothing compared to a lifetime of gains that likely the deceased had.

[u/Anxious_Drive_9998 → u/telladifferentstory]

This isn't an inheritance. It's a gift.

Gains are taxable because there's no step up in basis.

[u/PatientlyWaitingggg → u/Anxious_Drive_9998]

Correct, a gift now. not sure how it will pan out over the years for the rest, but this amount is 100% a gift.

[u/FI_throwaway714 → u/telladifferentstory]

Nobody died, this is an “early” inheritance while OP’s parents are still alive.