Q: I believe we have planned fairly well for retirement. We might even be able to retire a couple of years before we turn 65 years old.
But I’m trying to anticipate how to plan for an eventual inheritance. I have not counted on that cash for retirement income but I also don’t want to be blindsided since some of our inheritance will be as real estate. Our guess is that eventually this might be an additional $500,000 coming from my family and my wife’s family.
Both families have wills. My wife and I are named as executors in both her parents’ and my parents’ wills. What inheritance taxes should we anticipate? How should a lump sum inheritance be invested to provide long term benefit during retirement years? All of our families live in Georgia.
A: First, don’t worry about inheritance taxes. Whatever cash or real estate you receive, the taxes (if any are due) will have already been paid. If you get $500,000 worth of real estate, it’ll be free and clear.
In terms of providing long-term benefit, that depends on how old you are and when you get the cash. You can keep the real estate you’ll inherit or sell it and buy other investment property. That’ll generate cash flow to supplement your retirement benefits.
Or, you can take the cash and invest it in stocks and mutual funds. Or, you might end up using it to help your children buy their own homes and start their lives.
You’re wise to start planning now for this inheritance, should you be lucky enough to get it. I’d sit down with a fee-only financial planner (one you can hire by the hour preferably) to go over all of your finances and see what, if any, holes you can plug with these funds.
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Oct. 16, 2006.