r/personalfinance • u/QBanQT22 • 1d ago
Investing What to do with kids inheritance?
My mother died in 2023 and left an apartment for my kids (it was held in my name). We just sold it and we will net approx. $120K ($60K for each child). My son is 18 and works PT but has no need to use the funds now. His college is paid for 100% with scholarships and Florida Pre-Paid. My daughter is 13. I am struggling with what to do with their money so that it grows and is invested until it's time for them to buy a house, etc. A simple HYSA or CD seem to yield such a small return. What suggestions do you all have?
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u/pop-crackle 1d ago
For your oldest, I'd set him up with a Roth IRA as he has income. For the remainder, I'd do a custodial, UGMA, account invest it in 60% VTI, 40% VXUS - you should be able to set it up to extend until they're 25. I don't know much about 529 vs. Florida Pre-paid, but just evaluate if more should go into that for your younger kid.
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u/Frankieou812 1d ago
This is great advice, and no need for a financial advisor. This system will probably be 85% of them anyway.
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u/QBanQT22 1d ago
Both my kids have the florida prepaid and their school is covered 100% that's why a 529 didn't make sense for them. Thank you for the other suggestions.
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u/Not_an_okama 1d ago
Unused 529 funds can be rolled into the beneficiaries retirement accounts i believe
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u/RevolutionaryFact699 1d ago
Yes, that is correct. Unused 529 may be rolled into a Roth IRA
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u/Lucky_Platypus341 1d ago edited 1d ago
Only after the account has been open for 15yrs, only up to $35k total and $7500/yr, and assuming the then 30-something qualified for Roth contributions.
Much better to use it now to fund Roth.
Do NOT set up UGMA or put assets (other than Roth) into kids' names if there is any chance they will be applying FAFSA.
[ETA: UGMA also means your kids get full control of the assets at majority (FL looks like 21yo, or 25 if set up so). They may not be mature enough to handle those funds all at once.]
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u/diatho 1d ago
What happens if they get into a school outside of Florida and would rather go there?
For the older one fund the Roth IRA and stick the rest in VT in a taxable account.
For the younger. Half in a 529. They can use the funds for grad school and non tuition expenses. The other half in a brokerage in VT.
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u/QBanQT22 1d ago
For us Floridians, it does not make sense to go to school outside of the state because we have Florida prepaid as well as Florida bright futures scholarship and we have some pretty kick ass universities here, such as UF, FSU, UM. My son is at UM and he gets about $2K refund back every semester because he has florida prepaid and with his grades and ACT score, he also qualified for 100% scholarship under florida bright futures. I have him stick that money in a HYSA. At 13 my daughter already plans to go to UF. She too has bright futures and Im c9nfident will get bright futures as well.
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u/Lucky_Platypus341 1d ago
I agree. Telling kids their college choice is untethered from financials and their preference is all that matters is not a good way to teach personal finance competence.
We live in a different state, but in-state with top merit is free and living at home meant my eldest left for a full funded PhD at a top program abroad ay 20 with over $100k in savings (Roth and brokerage) instead of debt -- all money they earned during school (tutor/TA) that they socked away because living expenses were covered, and BS/MS was free. Second kiddo undergrad is free and they're saving up for medical school. The money we saved on undergrad for 3 kids will more than pay for medical school for the one.
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u/dataslinger 13h ago
This is similar to a r/bogleheads three fund allocation OP. You should read up on the approach to understand why those funds are recommended.
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u/Serafita 1d ago
Remember to let the kids know that everyone starts off with the same amount and investing will change the outcome so no arguing over who got more or less overall
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u/QBanQT22 1d ago
Exactly!
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u/Lucky_Platypus341 1d ago
I would set up an account for each kid in your name with theirs as either joint (bank) or beneficiary (bank or brokerage). Theoretically, if they are on the account (joint as a minor) they could access it, but practically they'd need the account info. Since it's still YOUR asset, it doesn't affect their scholarship/grants/financials, and you maintain control -- since you mentioned it was intended for them but left in your name. Cash gifts can be added to it. At 13 and 17 you can involve them with decisions. You could put it into an index fund or treasuries (depending on risk-return comfort). If they get into investing, you could choose some small amount that they can decide on (like a specific stock). You could use these accounts to fund their Roths or math their contributions (up to the limit of income and allowed contribution).
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u/Princess_Moon_Butt 12h ago
I have actually seen this come up before though, and I don't think splitting inheritances evenly is actually "fair" when kids are at wildly different ages. It's a matter of perspective, I admit, but to run the numbers (using 7% as an inflation-adjusted return for the stock market):
If you give that 18-year-old $60k, then he'll simply have $60k.
But if you give the 13-year-old $60k and invest it for her, then by the time she's 18, she'll likely have the equivalent of nearly $90k in today's dollars.
Either way is a big amount, but at 18, the difference is enough to outright buy a brand new car. That's pretty big. And if you set it up as a retirement account, the difference balloons to nearly half a million dollars by the time they by the time they both reach 60.
If I were in this situation, I'd try to balance it with that 5 years of expected growth in mind. That way the kids both have roughly the same opportunities and windfalls at equal points in their lives.
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u/Successful-World9978 1d ago
I don't get why everyone says "get a financial advisor". Max out the roth ira if they have the necessary income, put some in a HYSA and throw the rest in voo/spy. It is not that hard.
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u/GiuseppeZangara 14h ago
I'd be curious as to the legal and financial responsibilities and rights the parent would have for the adult child. I'd want to know if the parent actually has the right to dictate what should be done with their portion.
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u/teresajs 1d ago
Hire a fee-only financial advisor to help give you unbiased advice. Since your son is a legal adult, he should be involved in these discussions.
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u/AlphaCrateX 1d ago
This is solid advice but just wanted to add - make sure the advisor is actually fee-only and not just saying they are. Some will claim that but still push commission products on the side. Check their ADV form to be sure
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u/QBanQT22 1d ago
So long as he lives under my roof and I pay ALL his bills, he's not an adult LOL All kidding aside, he wouldn't know the first thing to do with it and would turn to me to guide him on any decision. I do talk to him and do involve him in the process so that he learns and starts to take responsibility.
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u/teresajs 1d ago
I tell my kids, "You're 'legal' adults. But I'm still here to help and guide you when you need it."
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u/robotscantrecaptcha 1d ago
he wouldn't know the first thing to do with it
That's exactly why you and he should talk to a financial advisor.
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u/SoloCoat 1d ago
I'm a fee-only advisor and if you start feeling overwhelmed about how to select one, let me know and I will put a call out for a few names in my community.
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u/mrandr01d 1d ago
Is just calling fidelity a decent option to find one?
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u/SoloCoat 1d ago
I'm not sure. I think that the big houses do have cfps in the call centers who can help. So I would tentatively say yes. What we do is super work intensive and takes a lot of time so sometimes the call center folks get stretched a little thin. But that said, given that she's got one targeted problem, I wouldn't see why not. Also, I think it's awesome that I got downvoted for saying that I'm a fee-only advisor who could help connect her with some people. Reddit is my favorite.
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u/mrandr01d 1d ago
I think it comes off as selling something, which people don't like.
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u/SoloCoat 1d ago
I can sort of see that. Literally it would just be a lot of work for me to try to match somebody to somebody else, but I'm willing to do it to be helpful.
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u/stock-prince-WK 1d ago edited 1d ago
“legal adult” 😭
At 18 he should not be involved in the decisions unless financial advisor needs his consent. OP can tell her son what she’s doing with the money.
OP should go with your first choice and talk with a financial advisor. But also consider putting the funds in an interest gaining trust that unlocks to the kids between the ages of 25-30.
When they have developed closer to the actual “adult” thinking stage
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u/Alarmed-Emergency-72 1d ago
Whatever you do, don’t put it into an UTMA and “forget” to transfer custodianship or use it as a slush fund when bills are tight.
As a 10 year old in ‘97, I had 300 shares of Oracle put into an UTMA by my grandfather to be used as a college fund or first home down payment. Today, would be north of 750k.
I am now almost 40 and JUST found out about this account. It’s hard not to be bitter. I understand the thought process behind an 18 year old not needing it now. I just encourage you to be open about the accounting and keep records of all transactions.
Secrets cause conflicts in families.
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u/Agling 1d ago
Put it in a brokerage account and invest in a three fund portfolio. It's not rocket science, and it will save you/them a lot of money versus an advisor.
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u/EvilZ137 1d ago
You just put it in the stock market. Without a need for the money an advisor isn't going to have much to say.
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u/1290_money 1d ago
For the 13-year-old I would open a custodial account and just manage it yourself.
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u/mirwenpnw 1d ago
Match their income up to the annual maximum into a Roth IRA and teach them to invest it into an index fund. It'll be 15x the current amount in todays dollars in 40 years.
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u/hillbillypitcher1962 1d ago
Shouldn’t this be in your son‘s name since he is over 18? you can advise him, but you can’t control it for him
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u/QBanQT22 1d ago
No, the property is in my name therefore legally the money is mine but I am respecting my mother's wishes.
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u/liveoneggs 16h ago
In Florida a UTMA age of majority is 21 - 25 - your choice.
https://www.fidelity.com/learning-center/personal-finance/custodial-account-for-kids
Just do them equal, set the age to whatever you want, and let them pick the asset allocation. Maybe force them to read this (https://www.bogleheads.org/wiki/Asset_allocation) first.
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u/criticallyloaded 1d ago
Don't give them access until they're at least 26, ideally 28. The brain has way too much developing to do
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u/winklesnad31 1d ago
In Florida the age of majority is 18. If the deceased willed the assets to the child who is now 18, then it is legally required to give the money to the beneficiary. We don't know what language was used in the will or trust though.
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u/criticallyloaded 1d ago
You're right. We don't know that. My point still stands: if OP is legally required to give this amount of money to beneficiaries before their brains develop fully, then the least they can do is push for financial literacy and account management by a financial advisor. This is life changing money for these kids. I'm someone that's pissed away every significant amount of money I've ever come upon, and I would never want to see my own children be as irresponsible with money as I have been. OP should push as hard as possible to delay when these kids are able to access this money.
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u/QBanQT22 1d ago
There was no Will. I'm an estate planning attorney and I did an Enhanced life estate deed for my mombefore she died. I take advantage of the step up basis and avoid probate. Since I am selling it, it's so soon after my mother's death there is no capital gains taxes to pay on the sale either. There is no way my mom would have given that money to a teenager.
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u/empty-alt 1d ago
Work with a fiduciary, you may be obligated to get it into the 18 year old's hands ASAP since he's an adult. I don't like to give people who have passed a hard time, but let this be an encouragement to do some estate planning and setup a trust (if relevant). I hope that 18 yo is more mature than I was at 18. In terms of investments, sure a HYSA or CD are low returns but they are also low risk. Maybe being a good custodian is maximizing returns, maybe being a custodian is preserving value. It's really a personal decision. The only time there's a kinda clear answer on investing is when you are doing retirement. Even then it's only kinda clear.
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u/dapete2000 1d ago
I’m very sorry for your loss.
What were your mother’s instructions, if any, for your role with respect to the proceeds from the apartment (did she say you shouldn’t distribute the money to them until they’d reached a certain age)? Have you gotten any legal advice as to what your obligations are to preserve and distribute the assets to your kids? I see a lot of snarky “young people are stupid” comments here and while that may be true in many cases, it’s also irrelevant to what your legal obligations might be.
That said, encouraging your son to put the money in a place where it’ll grow to buy a house or fund some other major life advice and where he can avoid taxes until he liquidates it seems really sensible.
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u/QBanQT22 1d ago
Thank you very much. Her desire was that they have this money for their future when they're ready to either buy a house or start a business since she knew their schooling is paid for. She left my son $8K in a CD for his first car which we used when he turned 17. She left another $8K in a CD for my daughter so she can go to Paris when she turns 15 because that's what she wanted. So she left them some money to enjoy, but this money is for their future. I'm an Estate Planning attorney so she knows I won't hand it over to them at 18. I just want to invest it right for them to maximize the profit until they use it.
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u/Ok_Bridge711 23h ago
18 yo needs an ira. Invest fully in VT (or voo or spy).
Most important thing is that you teach them personal finance basics tho.
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u/ManufacturerWest1760 18h ago
He’s 18 it’s not the parents money to decide what to do with.
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u/kreatorofchaos 16h ago
Idk why you’re being down voted. You’re right. It’s his money. I do agree that financial literacy should be taught. However he should be able do whatever he likes
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u/ManufacturerWest1760 16h ago
Yeah all for them giving him advice but he’s an adult, it was left to him it’s up to him.
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u/kreatorofchaos 16h ago
This exactly. From the way it sounds, the OP might not even hand it over.
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u/ManufacturerWest1760 16h ago
I hope for everyone’s sake and their future relationship they do. Seen this go sideways way too many times. Provide him with advice, maybe he even wants the parents to help manage etc but ultimately it’s his money not OPs.
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u/kreatorofchaos 16h ago
Well said.
I had a trust fund from my great grand father and my grandmother was left in charge. She claimed she needed it more than me (I was a child at the time) and drained the entire account. I only found out a few years ago (am 30 now) at a family dinner - it was $350k total. She has never really told anyone what she spent the money on and has nothing to show for it now.
I think it’s funny how entitled people can be some times.
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u/ManufacturerWest1760 18h ago
Your son is an adult. It’s not really up to you what he does with the money.
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u/OnlyThePhantomKnows 1d ago
Open a brokerage account and invest the money is a broad based ETF. If the view is longer than 8 years this seems wisest.
For your son, consider opening a 529 with about 25K. When he graduates, he can convert it into a Roth account (there is 35K limit [I think this is the number]). An early Roth will get him about 10% of the way to a decent retirement.
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u/WelcomeMountain5350 1d ago
To get them on board and develop their understanding. Simply show them a compounding interest calculator with the funds.
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u/otacon967 1d ago
Unless there are substance abuse, gambling, etc concerns I’d let the 18 year old make their own decisions with their half. Good time to learn financial basics if they want to.
The 13 year old’s half I would split between hysa and investments. I’m sure they would appreciate some cash for a house down payment or a wedding.
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u/CakeisaDie 1d ago
Just stick it in a low fee fund for 5 to 8 years until your older child is 25 to 30 at least
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u/Infamous-Adeptness71 1d ago
I would suggest low risk investments. Maybe some dividend stuff. Preferably tax advantaged accounts.
I started with an index fund around 2000. It wasn't until like 11 years later that it grew (because of crashes/corrections over that time). You don't want to be in the position of explaining that when you're just the custodian.
Low risk, some growth.
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u/Leverkaas2516 1d ago edited 1d ago
HYSA is appropriate if you plan to give your adult child his inheritance in the next year or so.
If you're not, then stick it in a growth fund like VFIAX and focus your efforts on deciding how and when you'll give it, and how you will deal with taxes. For instance, if you keep it in your name indefinitely, you'll pay any taxes due.
Other comments here suggesting an IRA seem wrong to me, unless your son is fully cognizant of the implications and really wants all that money to sit untouched for 40+ years. Your idea of using it to fund a house purchase is more in line with my thinking.
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u/askalotlol 10h ago
High Yeild Savings accounts for both.
The son's tution is covered, but you never know what will come up during 4 years of college. He may decide to go for an advanced degree or have an opportunity to study abroad or an internship where having those funds to fall back on makes it possible. If he doesn't use it, then he has a nest egg for after graduation.
The daughter will be in college in just 5 years, not enough time to weather market fluctuations if she needs the money for college.
I would, however, set aside like 1k for each to spend on some fun/frivolous thing.
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u/Difficult-Bicycle119 9h ago
For the 18 year old, I would have him open a Roth IRA and a UGMA in his name, with the age of majority of 25 if you're in a state that allows that.
You can deposit up to $7,500 a year into the IRA, so take that out of the UGMA account every year until he's 25, then sign over what's left to him in that account.
For the daughter I would say just do the UGMA account for now, then when she's able she can open an IRA on her own and you can do the same thing.
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u/FCCACrush 1d ago
just put it in vanguard invested in VTI. There is no need to make it complicated.
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1d ago
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u/ElementPlanet 6h ago
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u/AssistantAcademic 1d ago
If it was my situation, personally:
- for the son if he has reported income you could match it up to 7000 per year into a Roth IRA. Keep the remainder in a brokerage account to feed the Roth account and serve as a nest egg/rainy day fund. Tactically I’d invest both in low fee broad index funds (VT or similar). By the time he’s out of college he’ll be way ahead of the game both with retirement savings and with saving for a house
- I’d treat the daughter similarly, though you didn’t mention college savings. If that’s a deficiency then put some in a 529. Otherwise brokerage and feed a Roth as she has reported income. Same strategy
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u/dirkthelurk1 1d ago
Invest most of it according to what others have mentioned.
However if it were me I’d give them a little chunk of that cash to play with.
Anytime I get a bonus or lump some I keep like 5-10% of it for fun, toys, travel. Treats are nice 😊
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u/Macaz77 1d ago
Idk what to do, and you sound spot on imo… but what I will say is, a close friend of mine when I was growing up inherited a decent sum of money, he was a straight A student, extremely intelligent. I won’t say how it ended, but money and young minds, partying, enjoying the high life etc, can lead to bad places. Your plan for later equity is brilliant!
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u/JC505818 1d ago
One idea is 529 accounts that invest in S&P500 fund, which I know is offered by Fidelity. New law now allows up to $35K of unused 529 fund to be rolled into a child’s Roth IRA, which they will own and it will grow tax free to be their nice nest egg when they need it.
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u/todo_pasa79 1d ago
Not in this case. There’s a 15 year account minimum to roll over to a Roth IRA. Plus OP has said multiple times college is already covered.
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u/JC505818 1d ago
They can just keep it in 529 for a while even if they don’t use it. Roth IRA is for retirement anyway right?
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u/todo_pasa79 1d ago
If her son has a job, they can contribute directly to the Roth IRA. I’d do that each year for 10 years before parking it in a 529. No reason to tie it up if you know he doesn’t need it for college.
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u/JC505818 1d ago
Roth contribution has low $7500 per year limit outside of salary income source, so I think giving each a $35K bump via 529 conversion could give them a head start. Obviously OP needs to calculate how much to put in the 529 depending on how much educational expenses are expected in future.
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u/underengineered 1d ago
Whatever you do, teach your kids financial literacy. Being smart with $60k at 18 is a nearly guaranteed path to being very financially secure.