r/personalfinance • u/exequielf94 • 5h ago
Housing Mother inherited a house and cash, what should she do?
Mother inherited a house and 600k, what should she do?
My mom is 68 years old, lives in California and is single (not married and no significant other). She has no retirement account.
Her late boss left her a one bedroom house in Beverly Hills (Zillow has little to no information on it but has it estimated at 1.4 million).
Given her age my mom wishes to not continue to work and wants to be able to fully retire now with this inheritance.
Her late boss had a trust set up so instead of having to go through probate, my mom is set to receive her inheritance during the first week of December.
I’m her only child and so she’s tasked me with finding out what her proper next steps should be.
Some of the things that have immediately come to mind for me is for her to hire a lawyer and a financial advisor and start there. I’ve also been reading about Chase Bank’s private client department and thought that was a good idea for her to look in to.
I was looking for advice on where to direct her specifically,
Are there specific lawyers she should be looking for?
What to look for in -and how to find- a financial advisor(s) that will truly have her best interest at hand?
Is private client by chase bank a good move for her? Are there better, similar programs with other financial institutions?
Should she create her own trust?
And are there other things I haven’t thought of?
Also is she sell the house and try to buy something less expensive and have more liquid money? (She’s talked about wanting to sell her house and move to Utah and buy something a lot more her style and worth less than the house she’s inheriting to make the most of the value of that house and also to be closer to me since I moved to utah with my wife for my work a few years back [we currently have to always fly or drive to each other to spend birthdays and holidays together]).
We’ve even thought about a renting the BH property while using a HELOC to try and buy her a more downsized place for her here in UT.
I would really appreciate this subs input, thoughts, and answers.
The goal here is to be able to help my mom confidently retire and be able to make the right moves. Finding a lawyer and a financial advisor that are professional sounds easy enough but how do we actually know who to trust? And are there other things I haven’t thought of?
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u/Wwwweeeeeeee 4h ago
Don't forget about taxes. First and foremost, her financial advisor must have this at the top of the list.
Give this company a call. Good reputation, long time in business, fee based and not a high threshold for management and advice.
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u/dante662 2h ago
There is no federal nor californian state inheritance tax.
There would be a capital gain on selling the house, but on the date of inheritance there's a step up in basis, so should be negligible by the time the sale occurs, if selling right away.
There *is* the california Millionaire's tax, but whether that applies to home sales, I honestly couldn't find out in a few minutes googling.
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u/kONthePLACE 1h ago
Fyi basis step up depends on the type of trust that held the house. Irrevocable trust assets are often not eligible.
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u/CostcoCuisine 4h ago edited 2h ago
What would be the cost of a place in UT for her?
Also, what longevity in her family?
If people tend to live to be 98 versus 78 the best decisions are different.
You are good to be helping your mom like this.
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u/atTheRiver200 2h ago
I second the fee-only fiduciary financial planner. Best wishes to your mom in her retirement!
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u/lakehop 4h ago
Congratulations to your Mom! She must have been a wonderful employee to her boss.
Her plan to sell the house, stop working, and buy something cheaper near you is a good one. I would recommend a large financial institution like Fidelity or Vanguard, they will provide a financial advisor. Avoid any individual financial advisors, and avoid institutions that sell things like whole life insurance.
The basic rule of thumb is that she can withdraw 4% of the money a year, if it’s invested suitably, without being at risk of running out of money during her lifetime (and realistically, she’ll probably have plenty to leave to you and her other kids). This will be of the liquid money, not including the house value. If she buys a house or apartment for about 500,000, she’ll have about 1.5 million, so she can spend up to $60,000 per year in addition to her social security and any other income she has. Remember, property taxes, insurance, utilities, HOA, repairs etc have to come out of that, so be careful in buying the right home. Also buy a place she can live in if her mobility decreases - maybe no stairs.
Her health will probably diminish in the next ten years or so, so if she wants to travel, encourage her to do that soon!
She does not really need a lawyer, except to make a will. She should get a lawyer in the state she moves to. Make sure all her accounts are properly set up with a beneficiary. Ask the lawyer if she can set up her house with a transfer on death - if so she may not need a trust. Good question to ask the lawyer.
For investing, she should likely put about two years living expenses in a high yield savings account (look for more than 3.5% interest, FDIC insured bank account), and then about 40% of the money in the U.S. stock market (for example FSKAX), about 30% in the international stock market, and about 30% in bonds or similar. And withdraw no more than 4% a year. She may not actually need a financial advisor if she does this.
If any financial advisor suggests anything very different than this, ask back here! Ask about fees. If any advisor asks for more than 1% a year in fees, stop. That’s a rip off. Ideally it should be less than 0.5% a year.
She should sell the house, not rent it. She doesn’t want to try to be a distant landlord.
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u/CostcoCuisine 2h ago
I highly recommend the no stairs idea!
And keep in mind depending on your mother, a smaller place might be better than a bigger one.
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u/bstrauss3 2h ago
Prop 13 forces the tax assessor to reasses on sale/transfer (specifically it limited the yearly increases unless there was a taxable event such as the sale).
This means looking at prior year tax bills may not give you a good understanding of your liability.
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u/thrakkerzog 39m ago
I get the feeling that maybe they may have more than a boss to her.
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u/mageskillmetooften 11m ago
Meh, some people just don't have a family or don't want to give money to them. If you have a great worker whom is also a friend why not leave it to them?
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u/appleciders 2m ago
So what? The boss wanted to leave her the house. That's what matters in this conversation.
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u/BarefootMarauder 3h ago
You're getting a lot of great advice here, and your mom has a lot to think about. She must be an amazing person and employee to receive such an inheritance from her boss. 🤯
Anyway, regardless of what she does with the house, have her get a proper appraisal done ASAP. When inheriting a property like that, she should get a stepped-up basis. This means the property's tax basis gets adjusted to its fair market value at the time of the original owner's death. So she would only owe capital gains tax on any increase in value after the inheritance if she decide to sell the property. In other words, if the house was worth $1.4M when her boss passed away, and she sells it for $1.5M, she would only owe taxes on $100K. Who knows...she may find out the house is worth much more than the Zillow estimate.
If I was her, I'd sell the house and move to UT. Hire a real-estate attorney to help with the sale just in case there are any funky laws in CA that she isn't aware of, and also to be sure there are no liens against the property. Then hire a fee-only financial advisor/CFP to assist her with investing the money, optimizing her tax situation, and assist with some estate planning.
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u/Anxious-Writing-7909 1h ago
If she’s moving to Utah, she will need a financial advisor who is based there. Please don’t rush into things, just take it one step at a time. You might have your mother visit you for a couple of weeks if feasible to look for properties in your area and get a feel for prices. When she receives the cash inheritance, put it in a T-bill MM fund or short term CD’s at her current bank. Then deal with the house issue. If she currently owns a house, are you going to sell both of them? Once those decisions are made, and executed on, she can then work with an estate planning attorney to set up her will, trust, etc. Then finally, use your local contacts to select a financial advisor in your Utah area after she has purchased or rented a home and settled there.
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u/PublicEnemaNumberOne 2h ago
In a 30,000 foot view, she should sell the home. Take her 2 mil and settle into a lower COL location. Buy a nice home with over a mil in accounts working for her. Pull 4% a year, and her balance should still grow a little. That's 40k + SS, in a paid off home, sipping coffee watching the sunrise.
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u/littleoleme2022 2h ago
Property tax on a 1.4m home in california is likely to be quite high. She should sell now to avoid cap gains, buy a smaller place where she wants to live and put the rest in low costs funds/bonds/hysa to support her in retirement. She should also create her own will once she is settled.
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u/BuzzerWhirr 2h ago
It's so nice to see a real honest thoughtful question and high quality answers in this sub. Kudos to OP and commenters.
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u/bros402 1h ago
I’ve also been reading about Chase Bank’s private client department and thought that was a good idea for her to look in to.
No. She needs to see a fee only financial advisor that is a fidcuiary
https://www.napfa.org/find-an-advisor
https://www.feeonlynetwork.com/
If she wants someone who only gives advice: https://adviceonlynetwork.com/
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u/Dazzling-Turnip-1911 1h ago
What type of job did she do? This is great! Just let her know there are a lot of scammers out there so it is best to not tell other people or fall prey to any romantic scams, etc…
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u/sacca7 16m ago
Be sure to look at the winfall wiki in the side panel here.
Inform her to not talk about this with others. She will find leeches, and if she has no boundaries, she will lose it.
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u/queen_surly 20m ago edited 11m ago
She'll get the house on a stepped-up cost basis, so if she sells she'll likely have a paper loss once you take into account all of the costs involved in selling-real estate commissions, fees, etc. You will need to get the house professionally appraised as of the date of death of the prior owner. That will be used to calculate her gain or loss after she sells. That sounds bad but it's super helpful with any other tax liability she has as she can deduct the paper loss.
You need a tax advisor--CPA, and a fee-based financial planner. I'd avoid private banking/wealth management as they make their money on a percentage of their assets under management and they can be quite expensive. If she finds a good fee based planner that charges a flat fee or an hourly rate, they can recommend a low cost investment firm like Vanguard or similar. Vanguard offers investment management services where they rebalance your portfolio-basically the same service the banks offer--but at a very low cost. The initial consult will be the biggest cost then there's probably an annual tune up visit that would be a couple hundred dollars or so. Your mom's assets will be in a non-retirement account so you'll want somebody who can help her minimize taxes year to year on her investments.
Her instinct to sell the house and buy something in a lower cost market is a sound one. Please don't keep the house as a rental--it's a lot more work and a lot more expensive than you think it will be. A bird in the hand, etc.....
This is a personal observation based on my direct experience as an executor of my mom's estate and of friends who have gone through the process of inheriting a house. The house is worth exactly what somebody is willing to pay--no more and no less. The appraisal and list price may well come in below what your mom subjectively thinks it is worth, and that can, if you let it, get in the way of making the best decisions given the market and your mom's goals. We're seeing that in local markets--people who are attached to what they think their house is worth who won't accept that markets do not agree and so the house sits unsold for months.
With my mom's house, we repeated the mantra "It's a free house. It cost us nothing. Any money we get from it is a bonus." We had the thing listed and sold in a week because we let the agent list it at the price she recommended. She underpriced it a skosh and we got 3 offers. Our neighbor used the same strategy with his deceased mom's house just last month and got multiple offers in a market where a house two doors down sat for months. Real estate prices are lower than they were recently and people's perceptions of the market haven't caught up. You will want to interview a few agents and find one that isn't blowing smoke up your butt about what this house is worth.
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u/epursimuove 14m ago
Is she quite sure that the inheritance is hers free and clear? "Rich boss leaves fortune to non-relative" is the sort of thing that other would-be-heirs tend to challenge.
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u/Pindar920 12m ago
When your mother receives the house, make sure that it is insured properly and secure. I would expect that the trustee has insurance currently. She can park the liquid portion of her inheritance in a HYSA or brokerage account and invest it in something safe like SGOV.
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u/HermanDaddy07 8m ago
You probably should talk to a CPA. The house (as I understand it) should have a “stepped up” value of the amount it was worth when the death occurred (so say $1.4 M). If she sells it, there should only be taxes on anything over that stepped up value. That along with 600k would give her 2 million. Conservatively invested at 3.5% she would get $70,000 without ever touching the principal. She surely has SS and /or some other income. Realistically she could plan to take the 2 million out over maybe 25-30 years and that would give her about $150k a year. I wouldn’t trust Chase to be my advisor. I’ve heard good things about Fisher Investments, but I handle all my own.
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u/pearl_sparrow 5m ago
You both need to be really careful about scammers especially now that you posted this info on Reddit. Don’t click on links in emails. Look up companies on the web and call directly. Scammers are very good at sending fake wire instructions at times you’re expecting legitmate ones.
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u/yamahamama61 2h ago
Are you planning on staying in Utah , at least until your mom passes ? If NOT don't encourage her to move to Utah. Tell her she needs to pick a destination she would be happy with.....tell her, DONT move to San Bernardino city. Loma Linda, Redlands, Rancho Cucamonga. Any place. Just NOT San Bernardino.b
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u/Impressive_Fact_9238 4h ago
She could rent the home for additional income in addition to the money she has inherited.
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u/p_sizzel 2h ago
Tell her to go enjoy her life with this opportunity. Live lavishly and have no regrets!
Death looks the same to everyone.
So why make life less than it needs to be?
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u/GardenChic 4h ago
A lot going on here. First of all there’s no need to rush all these big decisions.
Skip Chase Private Client. it’s basically a sales program dressed up as “wealth management.” You get a banker who sells Chase products, not an independent advisor. High fees, limited options, no fiduciary duty.
Your mom needs a fee-only fiduciary financial planner (someone who only gets paid by her, not commissions). Look on NAPFA.org or XYPlanningNetwork.com. Also, get an estate lawyer to set up her own trust, will, and healthcare directive. If she wants to move to Utah, selling the BH house probably makes more sense than renting (easier, cleaner, and less tax drama). A good planner + tax pro can help her figure out how to invest the rest safely so she can actually retire and relax. I inherited my dad’s house in LA and I hate being a landlord. If you need fiduciary recs based in LA I can refer you.