Maximizing the Impact of and Investing an Inheritance

The Challenge

A substantial inheritance, either anticipated or unexpected, can change your financial situation overnight. Along with the mixed emotions of receiving a windfall because of the passing of a loved one, there can be a variety of emotions associated with an inheritance including shock, relief, and anxiety.

One of our clients, a middle-aged working professional, inherited a substantial amount of wealth and knew that she wanted to maximize the beneficial impact to her, her family, and future generations. Morgan Rosel Wealth Management worked with our client and her estate planning attorney to devise a strategy that would allow her to invest the inheritance yet retain flexibility to distribute income and principal to beneficiaries in a tax-efficient manner.

Our Solution

We developed a strategy to invest the inheritance using a variety of diversified investing strategies including stocks, bonds, and real estate. Our first goal was to develop a financial plan and wealth management strategy designed to preserve and grow her net worth.

Once the inheritance investing strategy was in place, we moved on to the next goal of wanting to pass on her wealth to the next generation in a tax efficient way. We did this by structuring a scholarship program for all of the grandchildren. Our solution reduced our client’s estate tax liability and preserved the current gifting program we had already established with her outside of this scholarship.

The laws regarding how much you can give to a non-spouse each year are very strict. Instead of gifting money and incurring unnecessary tax, we recommended and facilitated setting up a scholarship program with a two-pronged approach. Using the money being returned by investing the inheritance, we set and provided a maximum dollar amount she would pay each year while a grandchild was in college. This payment would only be paid directly to the educational institution. In addition to the direct payments, we established 529 plans for each grandchild that would cover whatever expenses couldn’t be paid directly to the educational institution.

The Results

Our strategy of investing the inheritance and using a scholarship with additional 529 funds allowed our client to continue her normal gifting outside of the scholarship without incurring additional taxes. She was able to pay for her grandchildren’s education setting up the next generation for success and reduced her overall estate tax liability. Unfortunately, others who received part of the inheritance did not seek professional financial advice and lost much of the inheritance to bad investments, overspending, and generally poor planning.

Estate planning can feel incredibly overwhelming for clients who have a wide variety of assets and multi-generational wealth to consider. Morgan Rosel’s family office style approach to wealth management provided the helpful guidance and considerable expertise she needed to wisely invest her inheritance and strategically transfer it to future generations. The solution described in this case study, while complicated for the team at Morgan Rosel, succeeded in making the process of transferring wealth simple for our client.

We communicate with our client’s grandchildren and their parents directly to disperse scholarship fund money and discuss the structure for each school year. We have developed great relationships with our client and her family members, and we enjoy great pride knowing we are helping make higher education possible for 15 grandchildren, while still preserving enough wealth for our client to live comfortably.