Inheritance dillema, need advice

[mommyof4]

I need some outside advice as how to utilize a moderate inheritance I have recieved last month. My husband and I are sitting on the fence regarding our options, and I thought that I should seek some objective, outside advice regarding the money.

Here's the scoop:
I inherited approximatly 140K from a relative. I do have to pay inheritance taxes on it, approximatly 18K goes to the state of Iowa.

I have already paid off all credit card debt and car loans with this money (approx. 20K worth of debt all gone. We are now only left with a mortgage payment and our own studen loan debt, along with regular monthly expences.

Here's our big picture:
Married, both employed.
Four children, one starting college next year, one the following year, and two more in middle school and elementary. In all, starting next year, we will have at least one child attending college for the next 15 years. BTW, we have no college savings as of now.

Scenario One:

Use the remainder of the inheritance money to pay off our mortgage of approx. 68K, 19 years left, and on a variable rate, right now paying in the neighborhood of 4%. This would free up about $550-$650/month, not figuring in taxes (we amoratize the taxes into the payment, not sure how to adjust for that). This would still leave money left over to put into savings, help pay for college, etc.

Scenario Two

This is where it gets sticky. Last year, my husband's mother passed away, and she owned approx 140 acres of farm land directly adjacent to our acerage. From her estate, we are inheriting 15-20 acres directly behind us, and other family members are either selling their portion of the estate or building their own houses on their portion of the land. There are other brothers and sisters who do not want to own their own portion of land, but want to sell it and cash out their portion. The "extra" land that is available is 35 acres, again, directly adjacent to our land, and would be available to us for approx 85-90K. I could use my inheritance to buy the land, and we would all together own approximatly 60 acres total. Most of this land in in the CRP land bank, and we could draw approximatly 5K per year before paying taxes. This would generate some passive income, minus taxes and any upkeep the CRP board would require of us (upkeep is minimal, occasional mowing, cutting down trees, etc). There is also some family pressure for us to buy this land ("mom and dad scrimped and saved for years to buy the land, we need to keep it in the family, etc.").

Right now, my husband and I are leaning toward paying off the mortgage and selling the land to cash out the other family members, but we are not totally decided.

If I'm missing another option that is obvious to someone else, please let me know- I'm open to suggestions.

Thank you,
Mary

[creditcardfree]

Another scenario is to simply keep your mortgage and invest the money for college and savings. Obviously, for one child you would need to hold some of the money in a money market or CD. There is still time to invest for the younger ones in a mutual fund to bring some growth.

Personally, I'm not a big fan of land investments so I would sell that portion for cash. Just me!

[mommyof4]

Creditcardfree, we have thought about this, too. I'm wondering if one of the other options would get us further with our college goals, as it would free up our cash flow on a monthly basis?

[creditcardfree]

The other options may get you further, I was just putting this idea out there. I guess to some degree it depends on how much you expect your monthly college costs to be. Are you planning on paying for all costs, will your children pitch in, ect? Maybe you could make a determination as to how much you are willing to pay towards college for each child. It would help from planning purposes. Once the money is exhausted, the child works, gets scholarships, ect. If later you can contribute more, than great!

[jIM_Ohio]

I need some outside advice as how to utilize a moderate inheritance I have recieved last month. My husband and I are sitting on the fence regarding our options, and I thought that I should seek some objective, outside advice regarding the money.

Here's the scoop:
I inherited approximatly 140K from a relative. I do have to pay inheritance taxes on it, approximatly 18K goes to the state of Iowa.

I have already paid off all credit card debt and car loans with this money (approx. 20K worth of debt all gone. We are now only left with a mortgage payment and our own studen loan debt, along with regular monthly expences.

Here's our big picture:
Married, both employed.
Four children, one starting college next year, one the following year, and two more in middle school and elementary. In all, starting next year, we will have at least one child attending college for the next 15 years. BTW, we have no college savings as of now.

Scenario One:

Use the remainder of the inheritance money to pay off our mortgage of approx. 68K, 19 years left, and on a variable rate, right now paying in the neighborhood of 4%. This would free up about $550-$650/month, not figuring in taxes (we amoratize the taxes into the payment, not sure how to adjust for that). This would still leave money left over to put into savings, help pay for college, etc.

Scenario Two

This is where it gets sticky. Last year, my husband's mother passed away, and she owned approx 140 acres of farm land directly adjacent to our acerage. From her estate, we are inheriting 15-20 acres directly behind us, and other family members are either selling their portion of the estate or building their own houses on their portion of the land. There are other brothers and sisters who do not want to own their own portion of land, but want to sell it and cash out their portion. The "extra" land that is available is 35 acres, again, directly adjacent to our land, and would be available to us for approx 85-90K. I could use my inheritance to buy the land, and we would all together own approximatly 60 acres total. Most of this land in in the CRP land bank, and we could draw approximatly 5K per year before paying taxes. This would generate some passive income, minus taxes and any upkeep the CRP board would require of us (upkeep is minimal, occasional mowing, cutting down trees, etc). There is also some family pressure for us to buy this land ("mom and dad scrimped and saved for years to buy the land, we need to keep it in the family, etc.").

Right now, my husband and I are leaning toward paying off the mortgage and selling the land to cash out the other family members, but we are not totally decided.

If I'm missing another option that is obvious to someone else, please let me know- I'm open to suggestions.

Thank you,
Mary

If I had to choose between the two choices you gave, paying off mortgage is the better route. Part of that is I do not know what a CRP board is, but even if I understood that better, I would still probably opt for #1.


I would like to put more option on the table. I do not know you, and from your one post I know you have 4 kids entering college age. I do not know what your current savings or spending or income patterns look like.


Would you be willing to state
a) gross income each month and year
b) total expenses per month/ expenses per year
c) current savings (bank accounts, retirement accounts, college funds)
d) any debt you have (outline mortgage and interest rate terms, along with other debts too)

Those numbers at an overview level help me see how you live financially.


Here are things I am looking for:
1) I always advocate having mortgage paid off before funding kids college education. If you want reasons for this, respond to this post and I will elaborate. Bottom line is make sure your financial situation is stable before providing kids with additional family monies.

2) Do you have any emergency fund or savings?

3) Do you have any plans to retire?

4) $500/mo is $6000 per year. Could you outline what you might do with money if paid off mortgage?


If you did not have substantial retirement funds saved, my advice would be to do the following
1) take a family vacation with a portion of the money. Use the income to take kids to Europe or to disney world in a once in a lifetme type vacation. Guessing this would cost $10-50k, probably a good way to remember the person which left you the money.
2) Put the balance of the inheritance in an investment marked for retirement. Possibly pay off some of the mortgage, but at 4%, that is not what I would do, unless you give me more information (the variable rate scares me some, but that can be fixed with a refinance or balloon payoff later).

[Beppington]

I know Dave Ramsey also likes people to pay off their mortgages. He says, "Wealthy people don't borrow money, they loan it", or something close to that.

I'm not sure I agree that everybody's goal should be a paid-off mortgage ASAP, but your entire financial picture would help dictate that.

It seems to me like $140K, & your current situation with so many variables/ options, warrants a visit to a paid financial advisor (somebody selling nothing but his/ her expert financial advice). Just the right move(s) now could be really good for you. I visited one a few years ago, & for $1,000 they reviewed my entire financial life, including my personal goals, desires, plans, etc., analyzed everything, then told me their thoughts & suggestions. At least you'd have an expert's opinion.

You need to know the level of risk you can handle, so you can better know how much of your entire portfolio could consist of real estate. A financial advisor can do all this.

[graceful]

$140K goes fast.

Sounds like it is a net of $128K after taxes. About $20K has already been used to pay off CC and auto loans, so approx. $105-108K left.

Without knowing more, I would put the bulk into a CD and keep $20K liquid. Personally, while I wouldn't pay off the mortgage in full, I would apply at least an extra $1000 a month to it to pay it off asap.

Good luck.

[creditcardfree]

Just another thought: it's okay to wait. You don't have to do anything with this money right away. Just park it in a CD...just remember to keep your cash under the FDIC limits at each bank ( I think it is $250K right now).