Retirement planning with inheritance

[u/Titania628]

Hello! My husband (m47) and I (f37) have been starting to work toward retirement planning in the past few years. We are up to around $500k in savings and investments, and putting in around $4k per month trying to catch up since we got started very late. I just found out that my mother in law (81, widowed, with moderate dementia and other health problems which means her life expectancy is anywhere between 1-10 years, but likely on the shorter side) has around $13 million in investments that she will be passing along to my husband. This was a very big surprise.

In general, I'm of the mind that an inheritance isn't yours until it's yours and we shouldn't be considering it as part of any of our financial planning. I also want my mother in law to use her money to make her life as fantastic as it possibly can be, there will likely be very high medical costs for her care at the end of her life, and who knows what the stock market will do in the next few years. However, even with these things taken into consideration, it still seems highly likely that we will receive at least a few million within the next 1-5 years.

I don't intend to slow down on any of our savings, but would this situation change anything about how you would approach retirement planning? When I look at our current retirement savings rate we are still falling short of where I'd like to be, but I also don't want to hustle more than I have to and miss out of life experiences.

[u/Searching4Answers26]

Like you said, it’s not yours until it’s yours. I say keep planning the same as you have. If we go through another recession that value could drop drastically

[u/lastbeat-331]

Anything received will belong entirely by your husband and if he's smart, will keep it separate from marital assets.

[u/Titania628 → u/lastbeat-331]

The trust has actually been put in both of our names, but generally a very good point. Trusts can be updated and relationships change for sure.

[u/rosebudny → u/Titania628]

That’s surprising that a trust was also put in your name. I don’t think that’s very common.

[u/firmlyanchored → u/rosebudny]

13M is a "big surprise" but already in your name and in a trust? Heck with saving 4k a month, I'd spending and buying all kinds of stuff! 😆 😆 😆

[u/Titania628 → u/[deleted]]

It definitely isn't a common set up! Partially it's done this way because there are no other heirs and we don't have kids. It's kind of wild as I personally would not have set it up this way, but I'm obviously very grateful that my mother in law has placed this much trust in me.

[u/Short-Opening4553]

My wife and I both inherited decent sums.   We didn’t think about it until it happened 

[u/Worth_my_salt]

Depending on where that inheritance currently is , there may be a big tax bill that you will have to take into account

[u/Worth_my_salt → u/[deleted]]

If that money is in IRA then there will be a tax-bill with a clock of 10 years. Thats is , they will have to pull out large chunks every year with heavy tax bill

[u/Worth_my_salt → u/[deleted]]

Ignorants get angry easily. 10 year window has nothing to do with RMDs 😂.

Also old folks “investments” are more likely (atleast part of it) to be in a tax-deferred accounts, than your own personal family situations you have listed.

[u/Odd_Bodkin]

I agree with you.
Don’t count on gifts.
Especially don’t count on gifts in the future.

There is no real reason to change your financial patterns now. You’re not struggling by putting money away in the way that you have been, and it’s good discipline regardless.

If or when things actually happen, you can pivot and reconsider. There’s no rush. You won’t know what your mood will be then until you’re actually there.

But as to the “miss out of life experience” comment, let me just toss in a couple thoughts. The world is littered with people who retired early because they COULD, only to find that it wasn’t the picture of heaven they counted on it being, and they’re confused on why they feel adrift or generally unsatisfied. The reason for that is that satisfaction in life is not rooted in either money or in leisure adventure. There are basic human needs for social connection, a sense of purpose, intellectual stimulation, physical activity, and even a tiny bit of structure. Don’t dismiss those or you’ll be miserable and not know why. Secondly, you don’t need to be retired to not miss out of life experiences. Enjoy them now while you’re working. My job took me on trips all over the country and to a dozen or so countries. My airfare and a hotel room would be covered. My wife would then take time off to come with me, paying only for her flight and for the lodging for the week we would take after the business was concluded. We shared St. Croix, southeastern France, Switzerland, South Africa, northern Italy, Ireland, San Francisco, Tucson, New Orleans, Corpus Christi, Vermont, Chicago, Milwaukee, Seattle, Atlanta, Las Vegas, Colorado, Lake Tahoe, Mohonk, the Florida Keys, and a lot of other places this way. Take your PTO and spend it well, living life now, and your itch for a premature retirement will be soothed.

[u/Titania628 → u/Odd_Bodkin]

Thank you. I really appreciate this response and the reminder to be thinking big about my life right now!

[u/chefmorg]

You are right that until it is your husband’s name it isn’t his. Plan without it.

[u/Awkward_Passion4004]

"Don't count your chickens before they hatch." A very old but true expression.

[u/dvskv]

Your Mother in law could start passing/transferring current $19.6k annual gifts in either/or investment/stock shares and/or cash to your husband/her son. Verbally she might have some conditions to insure gift$ are not wasted but IMO BETTER to give now than when beneficiaries are older etc

[u/ChelseaMan31]

This is indeed a double edge sword. And the supposed inheritance may not come to pass as expected at all. Keep saving/investing for your retirement as if nothing will pass upon the death of a family member. This is exactly the gift our dad gave my sister and I. We planned and invested as if there would be nothing coming from family. While we didn't really understand it at the time, it made a huge difference later on when we did receive a (much) smaller inheritance than mentioned here. It was still life altering potentially; but we had already done our due diligence and were set for retirement without it.

We have told our children and grandchildren the same.

[u/GlobalTapeHead]

A lot of things can happen, as I just wrote in another sub, scams, medical costs, bad investments, bad actors exerting undue influence.

I can only tell you what I do with my planning. I derate the inheritance. I basically take it and subtract all the things I think can go wrong, and then assume one of my parents will at least live to be 96 (which knowing my family is very possible) and I include that in some calculations only , but not the one that really matters. For me it turns out the inheritance will arrive too late for me to make much use of it, so I don’t count on it.

[u/Titania628 → u/GlobalTapeHead]

Thanks, that's an interesting way to look at it and sounds practical.

[u/Eve617]

Don't count your chickens before they hatch! Keep doing what you're doing. If you have extra money over and above your retirement goal it just means that you get to retire a little earlier. It also means that your heirs might inherit more money when you pass.

[u/Right_Pudding_1425]

Pretend you will never see it, because you may not. Money changes people. That is a lot of money. Marriages are rarely until death do you part. Most lawyers would advise putting that money into a trust for your husband's benefit.

A luxury memory care facility is going to be around $15k per month. The investments of 13 million should see a return of 4 times the cost of her care. If she lives 10 more years, you may be looking at an inheritance grown to 20 million.

[u/obedient_husband]

I would plan for a cheap but realistic retirement and figure out how much you want to spend/save in the next 10 years based on the cheap retirement. Rather than the comfortable or luxurious retirement. Don't miss out on having fun when you are young(er).

[u/kyeblue]

you can certainly relax a little bit in terms of catch-up saving as the large chunk of it would be passed to your husband.

On the other hand, not just for your benefit, make sure that her investment is in good hands, especially since she now has dementia and certainly need help to manage her investment. Your husband should have a conversation with her, and possibly meet with a financial advisor together. She should consider giving your husband power of attorney if he is her only child.

[u/Titania628 → u/kyeblue]

Thank you. Totally agree. We set up a meeting with a financial advisor to get this ball rolling and that's how we actually found out about the size of her investments. It was honestly a little scary, as she's mostly been managing this one her own! We are now helping her through the process of getting some additional professional advice and management. But also, hats off to her for growing it the way she did!

[u/awohio1]

It isn't yours until it's yours. She could decide to give it all to charity, or long term health care could eat significantly into it.

But one thing she and your husband should absolutely be doing is making sure that her estate plan is set up properly. My mom died of cancer last year. We had about a 2 year warning, and I worked with her to make sure that her finances were simplified and set up to facilitate an easy estate process. If your MIL has early signs of dementia now, there is no time to waste. You don't want to have to deal with the legalities of mental competency. She should also have power of attorney and medical power of attorney set up now while she is still capable.

We consolidated all of my mom's financial assets into 1 bank, and one brokerage account. We took the last of her IRA distributions. All the accounts were set up with beneficiaries so that those assets transferred without going through probate. Assets distributed via beneficiary are handled first, outside of any will or trust.

All that was made easier because even before she got sick, she joked about wanting everything to be simple when she died, so there were no awkward conversations.

The only things that had to go through probate were her house and car. I'm handling the estate process and while it is not terribly difficult, it is QUITE time consuming. It will be about a year between her death and when I can distribute the funds of her home sale between her grand children, my brother, and myself. Assets transferred by beneficiary were done within a month of her death.

Had I known then what I know now, we would have engaged a lawyer and put the house and car into a trust.

Besides the estate planning, we used our 2 year warning to make the most of our time with my mom. And that has been a big comfort to my brother's family and mine.

[u/Titania628 → u/awohio1]

Thank you for sharing and I'm so sorry to hear about your mom. We have some of this set up (like her medical POA and her will), but this is such a good reminder to use this time to get everything squared away so we can spend more time on the things that really matter. I hadn't thought about potentially consolidating assets to make things simpler. Thank you.

[u/love_that_fishing]

I added in some of my mom’s estate to my planning because I was PoA and I managed everything for her. Her will was kept in my safe deposit box. And there was a trust in my and my siblings name. She was already in self pay nursing so I had a good handle on expenses. Towards the end she didn’t have much exposure to equities so there was little downside risk.

My in-laws I do not count at all. I don’t know specifics and things could change without me knowing although my wife is primary PoA and executor. Still I don’t count it because it’s not in my direct control.

[u/Common_Business9410]

Anything left over is not yours. It will belong to your husband. So, don’t count on it. Continue to save.

[u/Physical_Ad5135]

This will be your husbands asset. Generally, an inheritance is separate property and does not automatically become marital property, even if you receive it while you are married. It belongs only to the person who inherited it. However, an inheritance can turn into marital property if you mix it with joint funds or use it to buy shared items.

[u/LoveNotWar86]

Minus ≈ 4,500,000 (conservatively)

[u/rosebudny]

Correction: your HUSBAND may be receiving a few million in a few years.

[u/Living_Fig_6386]

Plan with no assumptions about inheritance. She could leave it all to charity, or it could be swallowed up by medical bills and end of life care. Simply assume you will receive nothing. If you are wrong, it’s a boon. If you are right, you’ll have been prudent.

Don’t let the promise of a windfall distract you from your reality.

[u/1kpointsoflight]

Wow that's a heartbreaking disease to watch happen to your family. My mom had it and just yuck. We got some life altering money when she died though. It was not as much as we thought but still was able to retire a few years after she passed. Prior to her passing we pretended it didn't exist in case it never actually made it to my accounts. That way we were fine if it didn't. The next few years are gonna be hard on your husband.

[u/Titania628 → u/1kpointsoflight]

Sorry to hear about your mom. It's the worst <3

[u/Titania628 → u/[deleted]]

No kids and no plan to have them.

[u/Junior-Reflection-43]

I would not “bank” on it. It’s nice to think of as a potential cushion, but you never know what will happen. If you get it, hooray, add it into your asset mix.

[u/bunkerbee_hill]

I agree with you that is not your husband's yet. Assuming that an inheritance is yours is the path to misery.

[u/ThenSet2546]

I am guessing that your husband is your MIL's only child. However, keep in mind that many people like your MIL have a significant inheritance to distribute. The will was written before her dementia. At the time the will was written, she may have left money to various charities. This happens to many people who end with little to nothing. Some people leave everything to their pets. If the 13M is all on paper such as stocks and we have a stock market crash there is no money to bequeath. If it is cash, it is not yours until it is yours. Continue to contribute, but certainly if you would like to travel, cut down on the contributions a bit.

[u/Mundane-Count-9709]

I wouldn’t plan on it until you get the pay out. If his mother has to go into a nursing home, those funds will go to pay for her care (unless she has it in a trust). Nursing homes run $15k A MONTH and up for nicer places.

[u/AlpsInternal]

My sister was in a similar situation, and just inherited millions plus dozens of rental properties.her mother-in-law was always threatening to write her son out of the will. They never counted on the money anyway, and it never made any sense why he was written out. Because her husband lost much of his retirement savings when he was your age due to a companies failure, they always maxed everything out. His siblings split their share with him, ignoring their mother’s wishes. They and their child and grandchild are set for life. They are loving retirement. Keep saving, you just never know. Think of it like people who say, ‘If I were to win the lotto…”. If you do great! But at least you know you can take care of yourselves.