Where Does The Inheritance Go?

Claudine owns two homes. One was inherited. An aunt just passed away, and she inherited about $750,000 in addition to another $250,000 she has in accounts. What should she do with the $750,000?

QUESTION: Claudine in Los Angeles owns two homes. One was inherited. Claudine recently retired and has $51,000 to place into retirement savings. An aunt just passed away, and she inherited about $750,000 in addition to another $250,000 she has in accounts. What should she do with the $750,000?

ANSWER: Congratulations. You’ve done beautifully. You are multimillionaires. I’m very proud of you. What you guys are is typical millionaires, only you’re probably worth in excess of $5 million—not just $1 million, and you’re completely debt-free. Some of that, the last little bit, you inherited, but the first chunk or two you did by investing in real estate and by paying cash for things and not paying interest and being frugal. I don’t think you should have to pay inheritance tax on that money, and yet you will because people believe that you should be punished for the good job that you’ve done. That’s a side subject.

Let’s go back to where you were. You wanted to know what to do with $750,000. I think you can trust your instincts because they’ve done well for you. Let me tell you that what you have done with money investing-wise is what I find most wealthy people do with money. They are not fancy. Somehow we got the idea from television or something else that wealthy people had some kind of secret sauce or something. They don’t. They just have very simple things they invest in that they understand and like—what I call time-honored investments—nothing that’s risky and nothing that shoots way up or way down. You’re not going to get rich on it, but you’re not going to go broke on it. Those are the type things I invest in because that’s what I found wealthy people do.

That limits me to two things. I put money in real estate. I pay cash for real estate, so you could use some of this money to buy some real estate, and if you’ve noticed, real estate’s on sale right now. Buy whatever you want to own. What type of real estate do you want to deal with? Do you want just a residential property or some kind of commercial property? I buy several different kinds because I’ve had a love affair with real estate since I was a kid. My parents were in the business when I was growing up.

The second thing I invest in is a series of good growth stock mutual funds, and I spread my stock market investing across four types: growth, growth and income, aggressive growth, and international. I only buy mutual funds that have a long track record, kind of like buying real estate in old neighborhoods. With you guys being in your 60s, I might change that aggressive growth out and do a balanced, which would make this even more conservative. If you decided to split this money evenly between real estate and mutual funds, you’ll have a really good portfolio, but you’re buying mutual funds that have been open at least 10 years, preferably 20 or 30 years, that are trustworthy so you can see the rates of return over a long period of time. That’s what I do. I’ve got money in the stock market today, and I’ve got more money in real estate. But I love real estate.

You guys have done such a good job. That’s how it’s done. Twenty-eight years ago when they got married, he had $5,000 and she had $15,000. Now they own a $3 million home that’s paid for, another property on the coast that needs to be fixed up a little bit, $250,000 saved in cash, and then she inherited another $750,000. Those of you who think that people end up becoming wealthy because of inherited money, that’s actually not the truth. Only 10% of the people inherit their wealth. Ninety percent of America’s millionaires are just like Claudine. They’re people who live on less than they make, and when they stand back and watch the ridiculous moves of the Republicans and the Democrats and the President right now, they just shake their heads. That’s what people like Claudine think when they look at this.