Inheritance Issues

[jwright]

I apologize in advance as this may be a long rambling post.  I am very blessed to have a complicated inheritance situation that I can't talk to many people about, and those that I can talk with can't relate.  So I'm writing this post to get this out here, and maybe find someone out there in the world wide web who has a similar experience.

I am 37, my husband is 38, no kids and no plans for them.  Both my parents are alive and well, and very healthy/active at age 67.  I have one sibling (34) who is married with an only child.  Small family network all the way around. 

My father is a hugely successful self-made man.  He's a poster child for bootstrapping.  Grew up poor on a farm, his father died when he was a child, worked his way through school.  He started his own business which made millions.  On top of the business he made some very, very smart investments early on in stocks as well as real estate.  Of course this was built over years of hard work, so growing up we never lived a luxurious lifestyle, although we never experienced hardships.  Only in the last 5-10 years have my parents upgraded to a newer/nicer home and started traveling more extravagantly.  They still live well below their means (although above their means would take a hell of a lot of commitment to spending).

In 2012, when we all though that major changes to estate tax was coming, we did some major financial planning.  I'm a CPA and was heavily involved in the process with our tax attorney.  As a result of our gifting strategies, my brother and I are 50/50 members of an LLC that owns a significant amount of real estate and a hefty investment portfolio.  At this point, my father is the non-member manager of this LLC.  My brother and I have zero votes.  We signed a 10 year management agreement in 2012, so we are half way done.  At the end of 10 years, the management agreement can be extended or another manager voted in (my brother and I vote on this).  Also, in the event of the death of my father, management would be 50/50 between my brother and myself (not my mother).  At this time, the only true distributions made out of the LLC are to pay the taxes (since neither of us make enough money to pay the taxes out of pocket).  The rest is reinvested.  Most years the distribution will include a small bonus it's been nothing, $1,500, and $7,500 the past couple of years.

The cash flow from the LLC is enough for both of us to retire today in a fancypants lifestyle (not to mention capital appreciation).  Without this investment, my husband and I have a networth of about $500,000 (a lot of which is our primary residence equity) and are doing just fine.  However we'd need to keep working until typical retirement age most likely; we don't live a mustachian lifestyle on the spending front.  I'm a CPA and worked the long hours in public accounting for 12 years.  I'm currently in private industry as a controller.  I don't love working and would love to be retired to spend time on hobbies and working out.  My husband is an attorney and would rather not be working as well, to state the obvious.

So on paper my networth is laughably high, but I don't have access to 90% of it.  I don't know how a vote will go for management of the LLC in 5 years.  Assuming we are all in good health, it would be difficult to ask my father to step away from control of the assets he earned.  He genuinely enjoys investing and seeking new opportunities in real estate and other non-traditional ventures.  He has mentioned in passing that he would be disappointed if I quit my job the day I was granted the inheritance.  But, I've been working my ass off for 15 years, it's not like I'm 23 and never held down a job.  (Sorry, that topic gets me fired up). 

Thanks for reading.  I'm not sure what I'm looking for here, maybe just some free therapy:
- How would you process this scenario? 
-  What are your thoughts on unearned wealth?
-  Would you allow this inheritance to effect your day to day life?  Your 5 year plan?  Your 10 year plan? 
- How would you feel if you were my spouse? 

[ixtap]

Personally, I hope our parents live as long as possible without having to hear about our deaths and plan our finances accordingly.

Future chickens can be put to many uses when they hatch: a new lifestyle at that time, philanthropic endeavors, etc.

[Fishindude]

You are young, if you are lucky, your dad will be around another 20 years, and you'll still only be 57 which is still a young retirement age.
He earned the $$ and it would be pretty darned rude and un-thoughtful to do anything with the money that he wasn't supportive of.   

Since you and your sibling have 5 years before you gain control of the LLC, I would start having some discussions with dad and talk about what options are available and would please everyone, but ultimately I think you should honor your dad's wishes and keep working and saving as if you will never see a dime of it.

[jwright]

The first three comments all give some sort of "ignore it" advice.  This is not a typical inheritance that I may hypothetically receive upon the death of my parents.

The thing is, I already have it.  If you look up the property tax records, it's me (and my brother).  I report the income on my tax return (not my father).  If someone sues the LLC, they are suing me (not my father).  It would be very, very difficult, if not impossible (I'd have to check the operating agreement), for this to ever be reversed.

In five years, regardless of the health of my father, I will have decisions to make regarding the direction of these assets.  Even our financial advisors says I need to take this into account in my planning. 

[Spork]

I obviously cannot tell you what to do.  But I can say I was in a similar (though not exactly the same) situation -- and I can tell you what I did.

In my case, I ignored my inheritance entirely.  DW and I lived somewhere between "mustacian" and "spendypants."  We lived way below our means.  Our savings rate varied between 30% and 80%.  But we were in no way living a low end lifestyle most of the time.*

I retired a little over 2 years ago.  I was 50 -- not "early" by mustacian standards, but "early" by the standards of my peers.  My retirement was based entirely on our savings/investments -- not on expected inheritance.  My retirement lifestyle plan was for modest but comfortable.

You mention that the money/property is already in your name.  This brings up a question:  How well are your parents set for the future.  (I.e, how much money did they retain?)  Have they planned for end of life expenses?  The reason why I ask is: Some amount of this money may need to be tagged for health related expenses: nursing homes, extended hospital stays, etc.

I know my dad's net worth was significantly drawn down paying for my mom's nursing home and a full time care giver.  He also had a 3 month hospital stay at the end of his life that was not 100% covered by Medicare. 


*We did do 3 years of "pretirement" where neither of us worked.  We did live a pretty absolute bare bones lifestyle during that time.

[Mmm_Donuts]

Yes, perhaps you do need to take it into account in your planning. I'm not an accountant or lawyer, I was answering your "what are your thoughts on unearned wealth" question. :)

What I got from your post is that you seem to want this money ASAP, or at least count it into your 5 or 10 year life plan, because you are not happy with your work. This is the emotional part of the equation that I would pay attention to and try to reconcile with whatever needs to be done from a legal or accounting standpoint.

I'll try to find the inheritance threads I mentioned above - I found them very helpful. It's good that you're thinking about what to do with the money in advance, but my thoughts are that I would live my own life as independently of it as possible. It's not in your control when you receive it, so best to not count on it in your 5-10 year plan.

ETA: here is one of the threads:

https://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-your-plans-for-your-stash-after-you're-dead/

[Goldielocks]

This is actually a nice position to be in, as you have indicated.

To summarize:   Your father executed a form of an estate freeze, to allow all future assets to build in your and your brother's name.   He still has control of the assets through management / voting shares, etc, and finds it highly rewarding to run and manage the trust, even if he does not pull much money out of it.   He does not want you to retire now and live off the inheritance, other than that, he is not trying to control your life decisions.


My opinion

When you look at your life, and what you want to do, you need to plan it without access to this money until you are age 60. 

That does not mean that you can't retire now, or semi-retire, based on your $500k assets, to hold you through until age 60.   This may mean working full time a few more years, or working part time at a "lifestyle" type of satisfying work and living within your means.   

Once you have a plan, and something you actively want to DO, and maybe have already started to do for a while, I would share this for your father.  You may find that he would be favorable about releasing money to pay off an existing mortgage (but not upgrade your lifestyle), to pay for more college / masters degree, or to make donations to a charity of your preference, or pay for family vacations.  All of these could reduce your expenses.

I would want to be clear with him, that you are counting on this money as your retirement after age 60, as you don't want it to disappear just as you need it in later years, and your own assets are depleted.

Do you think this could work?

[ixtap]

The first three comments all give some sort of "ignore it" advice.  This is not a typical inheritance that I may hypothetically receive upon the death of my parents.

The thing is, I already have it.  If you look up the property tax records, it's me (and my brother).  I report the income on my tax return (not my father).  If someone sues the LLC, they are suing me (not my father).  It would be very, very difficult, if not impossible (I'd have to check the operating agreement), for this to ever be reversed.

In five years, regardless of the health of my father, I will have decisions to make regarding the direction of these assets.  Even our financial advisors says I need to take this into account in my planning.

Then it isn't an inheritance.

Still, as someone else mentioned, I would still make sure I had this available in case my parents were to go through their reserves in a catastrophic situation.

[jwright]

Yes, perhaps you do need to take it into account in your planning. I'm not an accountant or lawyer, I was answering your "what are your thoughts on unearned wealth" question. :)

What I got from your post is that you seem to want this money ASAP, or at least count it into your 5 or 10 year life plan, because you are not happy with your work. This is the emotional part of the equation that I would pay attention to and try to reconcile with whatever needs to be done from a legal or accounting standpoint.

I'll try to find the inheritance threads I mentioned above - I found them very helpful. It's good that you're thinking about what to do with the money in advance, but my thoughts are that I would live my own life as independently of it as possible. It's not in your control when you receive it, so best to not count on it in your 5-10 year plan.

Thanks for the thoughtful responses.  While I would love to retire, I'm certainly not counting on the money ASAP.  Ideally, I would like to plan for a bridge into early retirement, in five years be able to access more funds until eventually using it live off.  AND use the knowledge that I can do so in my current planning and investments.  Still a difficult conversation to approach.

My parents still have many millions in their personal assets, and have excellent health insurance, HSA funds, and significant long term care insurance.  I prepare their tax return so much of this is verified.

[czr]

Even though 'on paper' it's yours, the relationship with your father/parents are probably more important and in your heart you know it is his. Talk to him about it and bring it and see what he says. Maybe, he will agree for you to use it. If he doesn't ignore the money until he formally hands it to you. Both you and your spouse should probably take a part-time job to balance out your lives but you made it sound like you are perfectly comfortable living your lifestyle which you have to keep up via the current jobs and incomes.

[affordablehousing]

I think it sounds really exciting to have this next chapter waiting in the wings, and it sounds to me like you understand the full gravity of it, as does your dad. If it were me, I would be pretty excited to think of this as my next career step, managing a new business, even if its a mix of active and passive investments. From having several friends in the same position, you can't ignore it, and I think the most successful realize their parents would be even more disappointed if they didn't try to do something personal and productive with the assets. Maybe you want to become an angel investor? stock trader? start an accounting consulting business? Another thought, it sounds like the money will clearly outlast you and your husband, and if you don't have kids, what's the point of it after that?

[Laura33]

Even though 'on paper' it's yours, the relationship with your father/parents are probably more important and in your heart you know it is his. Talk to him about it and bring it and see what he says. Maybe, he will agree for you to use it. If he doesn't ignore the money until he formally hands it to you. Both you and your spouse should probably take a part-time job to balance out your lives but you made it sound like you are perfectly comfortable living your lifestyle which you have to keep up via the current jobs and incomes.

This.  I don't understand all of the tax issues, but it sounds like:

1.  5 years ago, you and your dad set up this deal to manage his estate tax exposure.

2.  Neither you nor your dad envisioned this as "changing" anything substantively -- he continued to manage the assets as he had been doing, you guys haven't been drawing from the pool except to pay taxes and little bonuses, and everything has largely been going on as before.

3.  5 years down the road, you are realizing that you have all of these assets already in your name and so have the legal right in 5 years to vote your dad out and begin managing it yourselves and taking higher distributions.

4.  You know your dad does not want that to happen.

This is an emotional/relationship issue.  Clearly your dad saw this as a transfer "in name only," and not as a license for you to take the money and retire.  It sounds like you saw it that way as well at the time, but your thinking has changed (which, btw, tends to happen as you stare at sums with many zeros that have your name on them).

So talk to your dad.  You already know that if you vote him out and retire on the money, he will be disappointed -- he's told you that to your face.  So talk to him about what he envisions.  And about what you envision -- not just "hey, dad, I'd like to retire on your money," but what you'd use that freedom to do, to put your talents and skills to good use.  Paint him a picture of how his assets would allow you to do things that are important and use the skills/values he taught you to help others or do something else that matters to both him and you.  Or maybe negotiate for another extension, but the next 10 years he delegates to you some of the management duties (e.g., for a small portion of the portfolio) so you can learn the ins and outs of managing those kinds of assets from him while he is still here -- and maybe you get paid a stipend for that so that you can go part-time to free up the time to do so.  Etc.

[Case]

I apologize in advance as this may be a long rambling post.  I am very blessed to have a complicated inheritance situation that I can't talk to many people about, and those that I can talk with can't relate.  So I'm writing this post to get this out here, and maybe find someone out there in the world wide web who has a similar experience.

I am 37, my husband is 38, no kids and no plans for them.  Both my parents are alive and well, and very healthy/active at age 67.  I have one sibling (34) who is married with an only child.  Small family network all the way around. 

My father is a hugely successful self-made man.  He's a poster child for bootstrapping.  Grew up poor on a farm, his father died when he was a child, worked his way through school.  He started his own business which made millions.  On top of the business he made some very, very smart investments early on in stocks as well as real estate.  Of course this was built over years of hard work, so growing up we never lived a luxurious lifestyle, although we never experienced hardships.  Only in the last 5-10 years have my parents upgraded to a newer/nicer home and started traveling more extravagantly.  They still live well below their means (although above their means would take a hell of a lot of commitment to spending).

In 2012, when we all though that major changes to estate tax was coming, we did some major financial planning.  I'm a CPA and was heavily involved in the process with our tax attorney.  As a result of our gifting strategies, my brother and I are 50/50 members of an LLC that owns a significant amount of real estate and a hefty investment portfolio.  At this point, my father is the non-member manager of this LLC.  My brother and I have zero votes.  We signed a 10 year management agreement in 2012, so we are half way done.  At the end of 10 years, the management agreement can be extended or another manager voted in (my brother and I vote on this).  Also, in the event of the death of my father, management would be 50/50 between my brother and myself (not my mother).  At this time, the only true distributions made out of the LLC are to pay the taxes (since neither of us make enough money to pay the taxes out of pocket).  The rest is reinvested.  Most years the distribution will include a small bonus it's been nothing, $1,500, and $7,500 the past couple of years.

The cash flow from the LLC is enough for both of us to retire today in a fancypants lifestyle (not to mention capital appreciation).  Without this investment, my husband and I have a networth of about $500,000 (a lot of which is our primary residence equity) and are doing just fine.  However we'd need to keep working until typical retirement age most likely; we don't live a mustachian lifestyle on the spending front.  I'm a CPA and worked the long hours in public accounting for 12 years.  I'm currently in private industry as a controller.  I don't love working and would love to be retired to spend time on hobbies and working out.  My husband is an attorney and would rather not be working as well, to state the obvious.

So on paper my networth is laughably high, but I don't have access to 90% of it.  I don't know how a vote will go for management of the LLC in 5 years.  Assuming we are all in good health, it would be difficult to ask my father to step away from control of the assets he earned.  He genuinely enjoys investing and seeking new opportunities in real estate and other non-traditional ventures.  He has mentioned in passing that he would be disappointed if I quit my job the day I was granted the inheritance.  But, I've been working my ass off for 15 years, it's not like I'm 23 and never held down a job.  (Sorry, that topic gets me fired up). 

Thanks for reading.  I'm not sure what I'm looking for here, maybe just some free therapy:
- How would you process this scenario? 
-  What are your thoughts on unearned wealth?
-  Would you allow this inheritance to effect your day to day life?  Your 5 year plan?  Your 10 year plan? 
- How would you feel if you were my spouse?

Apologize in advance if I have misinterpreted, but here is my response:

You've stated yourself that you've worked your ass off but due to a high-spending lifestyle you don't have adequate funds to allow you to retire, correct?
Therefore, your only option to retire soon is to convince your father to give you money (or drastically lower your spending), though this will disappoint your father whom will see you as having not earned your retirement (or something like that).  Therefore, it sounds like you have 'millennial syndrome' which is that you want what you haven't earned, and feel you have earned it when in fact you haven't.  Just because you have worked hard, it doesn't entitle you to anything when you haven't wisely saved those earnings.

I am in a only-slightly similar situation to yours.  There is some inheritance coming (though I don't think of the same magnitude as yours).  If it all comes through, then we could use it to retire.  But, there are no guarantees in life, and we both want to feel we earned our early retirement.  Therefore, we are saving our money as if the inheritance were not there.  As a result, we will feel we have earned our retirement and and will in fact be able to retire soon even if the inheritance doesn't happen.

If and when we inherit, we may live somewhat more extravagantly, and this amount will be 'unearned' on our part.  To some degree, whether you earned something or not is subjective.  It is up to you to figure out what makes you feel satisfied.  But, here is an angle to consider: if you come upon a windfall and haven't earned it or even our own retirement, consider using a portion of the windfall to do some good in the world.  Figure out what you believe in, and put some effort towards bettering the world with that.

I do want to emphasize that you should not ever count on an inheritance.  It can be difficult to anticipate how those things will go down.

[hops]

czr and Laura33 are spot-on.

Therefore, it sounds like you have 'millennial syndrome' which is that you want what you haven't earned, and feel you have earned it when in fact you haven't.

'Millennial syndrome' seems like quite a stretch when this behavior is found even in the middle-aged and elderly (see: countless inheritance and wayward relative stories that abound on this forum). In my own family I'm currently witnessing it in aunts and uncles ranging in age from mid-forties to early sixties.

[Heroes821]

You've stated yourself that you've worked your ass off but due to a high-spending lifestyle you don't have adequate funds to allow you to retire, correct?
Therefore, your only option to retire soon is to convince your father to give you money (or drastically lower your spending), though this will disappoint your father whom will see you as having not earned your retirement (or something like that).  Therefore, it sounds like you have 'millennial syndrome' which is that you want what you haven't earned, and feel you have earned it when in fact you haven't.  Just because you have worked hard, it doesn't entitle you to anything when you haven't wisely saved those earnings.

I am in a only-slightly similar situation to yours.  There is some inheritance coming (though I don't think of the same magnitude as yours).  If it all comes through, then we could use it to retire.  But, there are no guarantees in life, and we both want to feel we earned our early retirement.  Therefore, we are saving our money as if the inheritance were not there.  As a result, we will feel we have earned our retirement and and will in fact be able to retire soon even if the inheritance doesn't happen.

If and when we inherit, we may live somewhat more extravagantly, and this amount will be 'unearned' on our part.  To some degree, whether you earned something or not is subjective.  It is up to you to figure out what makes you feel satisfied.  But, here is an angle to consider: if you come upon a windfall and haven't earned it or even our own retirement, consider using a portion of the windfall to do some good in the world.  Figure out what you believe in, and put some effort towards bettering the world with that.

I do want to emphasize that you should not ever count on an inheritance.  It can be difficult to anticipate how those things will go down.

This is close to what I was going to say.   If you don't want to disappoint your father by retiring when all these assets enter your control then you need to not just work your ass off, but SAVE your ass off.  Get your networth higher and stop being a spendy pants.  If you want FIRE go earn FIRE.  Your house has 500k+ in worth and you want to stop working... Sell it, buy a smaller house and invest the rest.  Get working on your passive income streams for retirement.  You "know" (anything can happen) that you have a significant income stream that will be available down the road to travel or whatever with your husband, so that really makes FIRE easier to achieve imo.

At least that's my facepunch.

[Case]

czr and Laura33 are spot-on.

Therefore, it sounds like you have 'millennial syndrome' which is that you want what you haven't earned, and feel you have earned it when in fact you haven't.

'Millennial syndrome' seems like quite a stretch when this behavior is found even in the middle-aged and elderly (see: countless inheritance and wayward relative stories that abound on this forum). In my own family I'm currently witnessing it in aunts and uncles ranging in age from mid-forties to early sixties.

You are correct.  I think I just used that term since in the modern world 'millennial' seems to be associated with that attitude... however the tendency to believe you deserve what you haven't earned is a timeless quality which probably equally spans the generations.

[YTProphet]

What if you made a proposal to your dad and brother that you went to work full time alongside your dad in managing the portfolio? Get more involved in the real estate side, maybe make some more acquisitions, and use the proceeds to pay you?

[NeonPegasus]

I am actually in a similar position. In fact, is your dad my father-in-law? Because he also grew up poor on a farm with no dad around, created a business that he sold for millions and made lots of savvy investments.

My FIL set up a family partnership for my husband and his two siblings. He has been putting as many assets as possible into that partnership and slowly transferred shares of the partnership to the three siblings until they retained full ownership of it. FIL has significant personal assets outside of the partnership so he doesn't need any of that money.

Right now, however, my FIL distributes all the profits to the siblings every year.

Your father could distribute all of the profits. If he did that, what would you do with it? Right now, DH and I take the distributions and invest them to grow our nest egg. If you want to live off of that money, how much would you want him to distribute? Would you want him to withhold a portion of it so it can grow (similar to the 4% rule)?

When I do my retirement planning, I have to consider that our distributions will never grow over time, which kinda stinks. But DH's sibling, who will be the one making the decisions about the investments in it after FIL passes, is not good at making those decisions so it's probably best that we get all of the money out of it that we can so we can put it into investments that we control.

So, that's a whole lot of no help.

I can tell you, though, that we have been working to create our own wealth outside of that partnership and that I project the partnership distributions will comprise no more than 1/4 of our retirement income in the future. That feels pretty good.

If you do not have much saved, you are surely missing out on lots of tax savings and with your background, you should be able to figure out which ones. So, my best recommendation is to focus on saving all of the taxes you can through tax advantaged retirement savings. Cut your spending until you can max those benefits. Build a portfolio outside of your dad's partnership. That will give you a good position where you can approach your dad as you will demonstrate that you haven't simply been waiting on that inheritance.

If/when you do approach him, I would be honest about your feeling about your work and what you want to do with the rest of your life (is there a higher purpose to which you could be working?). Maybe he hasn't considered what he expects you to do with it when you do inherit it? You don't have kids to pass money to (either his or yours) so continuing to work and amass wealth that you don't need seems rather pointless. Perhaps he would enjoy seeing you guys actually benefit from his work while he is alive, especially if you're not being frivolous with it.

[cats]

You've stated yourself that you've worked your ass off but due to a high-spending lifestyle you don't have adequate funds to allow you to retire, correct?
Therefore, your only option to retire soon is to convince your father to give you money (or drastically lower your spending), though this will disappoint your father whom will see you as having not earned your retirement (or something like that).  Therefore, it sounds like you have 'millennial syndrome' which is that you want what you haven't earned, and feel you have earned it when in fact you haven't.  Just because you have worked hard, it doesn't entitle you to anything when you haven't wisely saved those earnings.

I am in a only-slightly similar situation to yours.  There is some inheritance coming (though I don't think of the same magnitude as yours).  If it all comes through, then we could use it to retire.  But, there are no guarantees in life, and we both want to feel we earned our early retirement.  Therefore, we are saving our money as if the inheritance were not there.  As a result, we will feel we have earned our retirement and and will in fact be able to retire soon even if the inheritance doesn't happen.

If and when we inherit, we may live somewhat more extravagantly, and this amount will be 'unearned' on our part.  To some degree, whether you earned something or not is subjective.  It is up to you to figure out what makes you feel satisfied.  But, here is an angle to consider: if you come upon a windfall and haven't earned it or even our own retirement, consider using a portion of the windfall to do some good in the world.  Figure out what you believe in, and put some effort towards bettering the world with that.

I do want to emphasize that you should not ever count on an inheritance.  It can be difficult to anticipate how those things will go down.

This is close to what I was going to say.   If you don't want to disappoint your father by retiring when all these assets enter your control then you need to not just work your ass off, but SAVE your ass off.  Get your networth higher and stop being a spendy pants.  If you want FIRE go earn FIRE.  Your house has 500k+ in worth and you want to stop working... Sell it, buy a smaller house and invest the rest.  Get working on your passive income streams for retirement.  You "know" (anything can happen) that you have a significant income stream that will be available down the road to travel or whatever with your husband, so that really makes FIRE easier to achieve imo.

At least that's my facepunch.

+1

It sounds like you are in a position to get yourself to an earlier retirement by reducing spending rather than counting on an inheritance.  I would focus on that first.

Alternatively, are there other careers out there that interest you, even if perhaps they don't pay as well?  If your current job is making you feel really unhappy but you don't desperately need the level of income it provides, this seems like a case where it might make sense to "do what you love" even if that means a smaller paycheck.  Or if you generally like your job, but the pace is burning you out, look into whether or not you can shift to a part-time or more flexible schedule.  It sounds like you don't really need to worry about saving for retirement, just covering your expenses...so get your expenses down and suddenly you have a lot more job options available to you.

Do you feel your dad's respect for your working is tied to the fact that you make a certain salary, or is his comment about hoping you don't retire the day you receive the inheritance tied more to respect for a general work ethic? 

I am around your age and I feel pretty strongly that if someone just handed me all the $$$ I needed to retire today, with no sacrifice or change in spending habits on my part, it would have the potential to be very bad for me in the long run.  You do appreciate things more if you have worked for them.

[jwright]

Even though 'on paper' it's yours, the relationship with your father/parents are probably more important and in your heart you know it is his. Talk to him about it and bring it and see what he says. Maybe, he will agree for you to use it. If he doesn't ignore the money until he formally hands it to you. Both you and your spouse should probably take a part-time job to balance out your lives but you made it sound like you are perfectly comfortable living your lifestyle which you have to keep up via the current jobs and incomes.

This.  I don't understand all of the tax issues, but it sounds like:

1.  5 years ago, you and your dad set up this deal to manage his estate tax exposure.

2.  Neither you nor your dad envisioned this as "changing" anything substantively -- he continued to manage the assets as he had been doing, you guys haven't been drawing from the pool except to pay taxes and little bonuses, and everything has largely been going on as before.

3.  5 years down the road, you are realizing that you have all of these assets already in your name and so have the legal right in 5 years to vote your dad out and begin managing it yourselves and taking higher distributions.

4.  You know your dad does not want that to happen.

This is an emotional/relationship issue.  Clearly your dad saw this as a transfer "in name only," and not as a license for you to take the money and retire.  It sounds like you saw it that way as well at the time, but your thinking has changed (which, btw, tends to happen as you stare at sums with many zeros that have your name on them).

Disagree with #4. 

He does not want me to retire the day after I have access to the money.

I don't know how he feels about turning over management; he has made comments about getting us more involved.  I am already somewhat involved just from doing the tax work for the business.  He has expressed interest in using it to start a different business.  I imagine at some point managing the portfolio will be the business.  I have already worked with him on a construction development project outside of the inherited partnership.  We already have a Family Foundation so the charitable giving is covered.  I know my father enjoys making new investments, and hopefully that is something we can continue to do together.  As these responsibilities for me increase, I'd like the hours I currently work to decrease.   During tax season it is already hard to keep up with my full time job and the family needs.  When the hours I work decrease, I would like to replenish income with draws from the LLC. 

As to the millenial entitlement comments.  I'm not sure what to say about that.  In my group of friends, I'm known as the frugal one who works too much.  I have gotten up and gone to work the 50 hour work week every day for the past 15 some odd years.  I spent 12 years in public accounting doing the 80 hour week tax seasons.  I don't calculate my personal net worth, but I can estimate it around $500 - $600k which does not include any family assets (except the lack of student loans for me, husband has some).   I meet with financial advisors who tell me to absolutely count on an eight figure net worth after the passing of my father.  I am the executor of this estate.  I am the tax advisor for the investments and the family. 

It would be irresponsible to not plan for this. 

[Goldielocks]

Okay,  you can withdraw 15,000 pounds per year, for 20 years, if you start iwth 600,000 pounds at a 7% average investment rate (allowing for no poor sequence of returns in the first 5 years).

How much do you need to make / live on, if you draw down your own assets for 15,000 pounds per year?  After 20 years, you draw from the inheritance as your retirement.

Can you work part time, or do something you would enjoy more (dog walking?) to make up the difference income you want? 

[Vertical Mode]

There’s a lot wrapped up in this. Posting with a few thoughts, but also as a bookmark because there is a chance that I may soon find myself in a similar situation (parents have done thorough estate planning, don’t know any of the details).

How would I process this scenario?
Thoughts on unearned wealth

I feel like these two questions need to be addressed as a unit. As others have noted, although these assets are technically yours, they have “strings attached” in that they are not a product of your own labor – even though these assets were clearly intended for you to have, you may never feel like you have full autonomy over them because of the relationship that is entwined with them.

Like with leaving a job, I think it is best in your situation to be moving toward something, to have a plan or pursuit that excites you if your aim is to FIRE. It sounds like your father would be disappointed if you took the money and then rested on your (unearned?) laurels, but this feeling may be driven in part by whatever his own idea of retirement is. Does he imagine that “retiring” means you’re going to sit around on a beach all day with a neverending supply of umbrella drinks? And is that your plan? If you can demonstrate that retirement means moving toward something specific/positive, being active in the community, building something tangible, charitable contribution, etc. then it may ease his fears that you are underemploying assets he worked so hard to build. It’s not that you’re going to “not work”, so much as you will be doing a different kind of work, and be unchained from needing to earn a paycheck while pursuing things that are fulfilling to you.

From what you’ve written here, I sense that there is also a pride factor in his incredible industriousness and business success – both his own pride, which continues to drive him forward to seek new opportunities, and your pride in him (which appears to manifest as a fear of disappointing him). More than numbers on any spreadsheet, consider what this bounty may mean to both of you in terms of symbolic value. In discussing future plans for the money he has left you, this angle may be helpful in framing these assets not as an albatross, but as the resource they were meant to be.

My preliminary thoughts, should it come to pass that I receive any inheritance (nothing is guaranteed, but hopefully I’ll be FIRE’d by then, anyway), would be on legacy building. Both of my parents grew up flirting with both sides of the poverty line, which it sounds like your father can relate to – I know they’re too damn humble to say it, but I know it would bring them great joy to see me build off of what they started. I have no idea what that even means at this point, but I hope to have a long time left before I have to figure that out. All we can do is treasure every day that our folks are here.

How would I feel if I were your spouse?

Not married, not sure I can really put myself in a spouse’s shoes. Are we questioning whether the spouse might be peeved about having a pile of assets sitting around that would enable FIRE, that remain untouched because [thoughts/feelings]?

[cats]

I don't know how he feels about turning over management; he has made comments about getting us more involved.  I am already somewhat involved just from doing the tax work for the business.  He has expressed interest in using it to start a different business.  I imagine at some point managing the portfolio will be the business.  I have already worked with him on a construction development project outside of the inherited partnership.  We already have a Family Foundation so the charitable giving is covered.  I know my father enjoys making new investments, and hopefully that is something we can continue to do together.  As these responsibilities for me increase, I'd like the hours I currently work to decrease.   During tax season it is already hard to keep up with my full time job and the family needs. When the hours I work decrease, I would like to replenish income with draws from the LLC. 

I think the bolded above is the sort of thing you need to discuss with your dad, and is very different from just saying you want more $$ so you can retire. Point out that you are putting significant time into managing the family portfolio/business, and that you need to either start getting paid for it, because you can't keep up with it AND a full-time job.  If your father or brother doesn't think you should get paid for the work you do for the family, I would say it's time to drop that work and tell them they need to hire an outside manager.

Do you track the time you spend managing the family finances?  I would use that as a starting point for figuring out what a reasonable draw might be.

[Case]

Even though 'on paper' it's yours, the relationship with your father/parents are probably more important and in your heart you know it is his. Talk to him about it and bring it and see what he says. Maybe, he will agree for you to use it. If he doesn't ignore the money until he formally hands it to you. Both you and your spouse should probably take a part-time job to balance out your lives but you made it sound like you are perfectly comfortable living your lifestyle which you have to keep up via the current jobs and incomes.

This.  I don't understand all of the tax issues, but it sounds like:

1.  5 years ago, you and your dad set up this deal to manage his estate tax exposure.

2.  Neither you nor your dad envisioned this as "changing" anything substantively -- he continued to manage the assets as he had been doing, you guys haven't been drawing from the pool except to pay taxes and little bonuses, and everything has largely been going on as before.

3.  5 years down the road, you are realizing that you have all of these assets already in your name and so have the legal right in 5 years to vote your dad out and begin managing it yourselves and taking higher distributions.

4.  You know your dad does not want that to happen.

This is an emotional/relationship issue.  Clearly your dad saw this as a transfer "in name only," and not as a license for you to take the money and retire.  It sounds like you saw it that way as well at the time, but your thinking has changed (which, btw, tends to happen as you stare at sums with many zeros that have your name on them).

Disagree with #4. 

He does not want me to retire the day after I have access to the money.

I don't know how he feels about turning over management; he has made comments about getting us more involved.  I am already somewhat involved just from doing the tax work for the business.  He has expressed interest in using it to start a different business.  I imagine at some point managing the portfolio will be the business.  I have already worked with him on a construction development project outside of the inherited partnership.  We already have a Family Foundation so the charitable giving is covered.  I know my father enjoys making new investments, and hopefully that is something we can continue to do together.  As these responsibilities for me increase, I'd like the hours I currently work to decrease.   During tax season it is already hard to keep up with my full time job and the family needs.  When the hours I work decrease, I would like to replenish income with draws from the LLC. 

As to the millenial entitlement comments.  I'm not sure what to say about that.  In my group of friends, I'm known as the frugal one who works too much.  I have gotten up and gone to work the 50 hour work week every day for the past 15 some odd years.  I spent 12 years in public accounting doing the 80 hour week tax seasons.  I don't calculate my personal net worth, but I can estimate it around $500 - $600k which does not include any family assets (except the lack of student loans for me, husband has some).   I meet with financial advisors who tell me to absolutely count on an eight figure net worth after the passing of my father.  I am the executor of this estate.  I am the tax advisor for the investments and the family. 

It would be irresponsible to not plan for this.

To the millennial question: Don't know what to say other than it seems to be a statement of what reality is. 
Just because you have worked hard for 15 years, it does not mean you have earned sufficient money to retire on your own efforts.  You might be frugal compared to your friends, but by your own admission you are not especially frugal (or not frugal enough to afford your retirement based on your own efforts at your current age).  It's a statement of reality: you + husband have not saved enough to retire and your current spending rate.  The millennial part comes in whenever you imply that you have earned your retirement by working hard for 15 years, whereas most others would say you have earned it when you earned the money yourself (e.g. misplaced entitlement).  I'm guessing your father either feels the same way, but alternatively might feel that people should work for most of their lives (like he did).  This is of course highly subjective and every individual gets to decide what makes them feel accomplished. 

The concept of earning it is separate from whether or not you will end up actually having enough money to retire soon, which it sounds like you definitely will.  Regardless, the reason this topic came up is you mentioned your father not wanting you to use the inheritance to go on easy-street, but meanwhile stated that you have worked hard for 15 years. Also, this is the 'ask-a-mustachian' forum, where people get together to discuss how to be supremely frugal and earn their FIRE.

[LadyStache in Baja]

It's not that anyone is saying you're lazy. You're hardworking! It sounds like you want to FIRE soonish, and you know your dad doesn't want you to FIRE when you receive the inheritance, so people are suggesting how to fire without it.

You want to plan for it.

So FIRE nowish, using your current stash. You don't have to worry about it lasting forever, because you'll be getting a 7-figure stash in the future.

But also, if you're working less hours, you may find your spending goes down because you're not as stressed.

Sounds like you really resent working as hard as you do. You should stop doing that! You are absolutely financially able to stop working so hard.

[Case]

I don't know how he feels about turning over management; he has made comments about getting us more involved.  I am already somewhat involved just from doing the tax work for the business.  He has expressed interest in using it to start a different business.  I imagine at some point managing the portfolio will be the business.  I have already worked with him on a construction development project outside of the inherited partnership.  We already have a Family Foundation so the charitable giving is covered.  I know my father enjoys making new investments, and hopefully that is something we can continue to do together.  As these responsibilities for me increase, I'd like the hours I currently work to decrease.   During tax season it is already hard to keep up with my full time job and the family needs. When the hours I work decrease, I would like to replenish income with draws from the LLC. 

I think the bolded above is the sort of thing you need to discuss with your dad, and is very different from just saying you want more $$ so you can retire. Point out that you are putting significant time into managing the family portfolio/business, and that you need to either start getting paid for it, because you can't keep up with it AND a full-time job.  If your father or brother doesn't think you should get paid for the work you do for the family, I would say it's time to drop that work and tell them they need to hire an outside manager.

Do you track the time you spend managing the family finances?  I would use that as a starting point for figuring out what a reasonable draw might be.

this is a good point

[affordablehousing]

jwright, interesting that this thread generated so many different opinions. It sounds like the idea of retiring on an inheritance threatens the rigor of self-determination that underpins the FIRE mentality here. You mentioned in your opening that you were looking for free therapy. I might suggest that you get some PAID therapy, as it can be very helpful for untangling these sorts of situations, especially as the mantle of family expectation falls on your shoulders. Like a lot of discussions here, I don't really get the point. You're already on a path to retire, your job is a grind, you don't have kids or anything to suck up your money, and the company you do today own is worth more money than you'll ever need. You could continue to work a job you hate to appease the MMM forum goers, retire and piss people off, or determine something you'd really enjoy working toward. That is the goal of a successful therapeutic engagement. Don't let these forumers troll you. Figure out what you want, and do it. And 12 years grinding in accounting is more work than a lot of MMMer's do.

[Jrr85]

- How would you process this scenario?  My first principle would be that whatever the legal status, the agreement is that the assets are still your dad's and he is managing them.  That wouldn't stop me from approaching him about distributing enough to downshift work. I would respect his wishes regardless.  If he says no distributions until he's passed, I'd at least suggest that you are entitled to distributions at a time he considers a "reasonable" retirement age, so that you can at least take it into account for retirement planning.  If he's adamant about no distributions until his death, I'd probably just put it out of mind and forget it's there, as it might be a long time before you have access to it, maybe even after retirement age.   The only caveat to this is the discussion on liability below.   
-  What are your thoughts on unearned wealth? I like Buffet's approach.  Leave your kids enough that they can do anything but not so much that they can do nothing.  Like your dad, I would be disappointed if my child didn't work at all.  But I'm hoping I'm successful enough that they can do whatever work they want.  I would not be disappointed if my child dropped out of work for a few years to travel and/or focus on kids. 
-  Would you allow this inheritance to effect your day to day life?  Your 5 year plan?  Your 10 year plan?  Unless he says no distributions until he dies, I would include it.  The only hesitation is not knowing how risky he is being with it.  I would really try to get involved with the management for two reasons.
 One, to ensure that at least a couple of million for each of you and your brother is invested conservatively and not put at risk by other investments.  If he is putting money into risky ventures, you could lose everything.  Two, to ensure that nothing is being done that could make you personally liable.  The LLC needs to be properly insured.  If the LLC were to be involved in say, shipping hazardous materials, and only carrying GCL and not appropriate pollution liability coverage, and there was an incident, it's possible the corporate veil could be pierced and you could be personally bankrupted.  If he's involved in anything other than owning stocks and residential real estate and commercial property that is used for stuff like office buildings, I would really push to make at least some of the assets bankruptcy remote.  Distribute enough to put into a spendthrift trust or buy an annuity or something that the laws of your home state will protect from creditors.     
- How would you feel if you were my spouse?  I would defer to you except for demanding protection from the liability issues regardless of your position.

[TravelStache]

Please make sure the attorney who created this transaction is well versed in the latest developments of Family LPs and LLCs with respect to Sections 2036 and 2038 estate inclusion.  I don't have all the facts and don't want to second guess someone else's work, but the fact that your father "gifted" his interest to you and your brother, but retains control of entity (whether through a retained interest or a management contract), suggests that the assets will be included in his estate. 

[Case]

jwright, interesting that this thread generated so many different opinions. It sounds like the idea of retiring on an inheritance threatens the rigor of self-determination that underpins the FIRE mentality here. You mentioned in your opening that you were looking for free therapy. I might suggest that you get some PAID therapy, as it can be very helpful for untangling these sorts of situations, especially as the mantle of family expectation falls on your shoulders. Like a lot of discussions here, I don't really get the point. You're already on a path to retire, your job is a grind, you don't have kids or anything to suck up your money, and the company you do today own is worth more money than you'll ever need. You could continue to work a job you hate to appease the MMM forum goers, retire and piss people off, or determine something you'd really enjoy working toward. That is the goal of a successful therapeutic engagement. Don't let these forumers troll you. Figure out what you want, and do it. And 12 years grinding in accounting is more work than a lot of MMMer's do.

Hopefully I"m not coming across as too much of a dick.  I have no reason to doubt the OP has worked hard, and there are definitely others our in the world who have inherited larger amounts and worked far far less.  Whether something is deserved or not becomes quite subjective, and I'm not here to hastle on tiny details. 

The point I take issue with is more statements related to the whether enough money was earned on her own part to afford retirement, and how this connects to whether or not it was earned (of her own merit).  This is more straight-forward.

[koshtra]

Whew.
Can you get OUT of this deal?
I would hate, hate, hate to be in this sort of financial relationship with anyone, let alone family. Your dad sounds like a great guy, but I would try to disentangle the question of being in this living-trust or whatever-the-hell-it-is from the early retirement question, and just try to get the hell out of the trust. It's skewing your whole life plan. I fully understand why your dad set things up this way, and it makes terrific financial sense, but I think it's psychologically really bad. You need to be your own person and run your own house. You've worked hard, you've got good skills, you can do whatever the hell you want. And you SHOULD do whatever the hell you want.

If you disappoint him, or if you screw up getting your inheritance, well, too bad. He'll get over it and so will you. You have a life to live here.

[jwright]

How would I feel if I were your spouse?

Not married, not sure I can really put myself in a spouse’s shoes. Are we questioning whether the spouse might be peeved about having a pile of assets sitting around that would enable FIRE, that remain untouched because [thoughts/feelings]?
[/quote]

The opposite, spouse feels unworthy.  To the extent as to whether the assets are "mine" is up for debate, they are certainly not his.  The operating agreement spells out that he is not the recipient of my interest even at my death, etc.  He feels like he is not bringing a lot to the table as far as providing for us.  Which is funny because he currently earns a higher salary than I do.  And I have made it clear that my enjoyment of him as a person is more than enough "provision".  Just a lot of feelings tied up in all this.

[jwright]

Please make sure the attorney who created this transaction is well versed in the latest developments of Family LPs and LLCs with respect to Sections 2036 and 2038 estate inclusion.  I don't have all the facts and don't want to second guess someone else's work, but the fact that your father "gifted" his interest to you and your brother, but retains control of entity (whether through a retained interest or a management contract), suggests that the assets will be included in his estate.

Thanks, I am familiar with those provisions.  I did not go back into detail of the ins and outs of the partnership agreement or management agreement, but I feel confident that our structure will hold up.  The estate planning document is hundreds of pages in addition to the other various documents, and I not laid out all the details.

[Dancin'Dog]

Good thread & questions.  I'm in a similar situation, but farther up the calendar.  It has been frustrating over the years. 

As far as your jobs are concerned, it would be better if you could get dad to allow you to transition into managing the family business full time, instead of as a second underpaying job.

In my case I wasn't able to do that until my father's health forced him into it.  He had a sudden onset of macular degeneration (partial blindness) and required a caregiver.  He's an alcoholic ass, and I was the only son available (both mentally & physically).  I've been his full-time caregiver for almost 1.5 years now...  Fortunately for me his health has declined in a number of ways, and he's now in a nursing home.  This week I was finally able to get a Dr's letter stating he's unable to handle his affairs & I have become the successor Trustee.  It's been a long journey, and isn't over, but I'm finally in a secure position. 

Family wealth can be a blessing, but can also be a curse. 

Hopefully your situation will be easier than mine has been.  Of course, it's all about the choices we make.  But I couldn't turn my back on taking care of my old blind dad, and somebody had to manage the finances.   

Good luck,

[secondcor521]

Two thoughts:

1.  I would be concerned about the 50/50 ownership arrangement between your brother and you, and the possibility of a stalemate on any topic related to the LLC that you and he disagree about.  An obvious potential example is who manages the LLC assets in five years, but there could be many others.  Hopefully the extensive agreement articulates what happens in the case of a tie or stalemate.  If not, I would sit down with your brother ASAP and discuss this and come to an agreement in principle about how to handle such a situation.  Before it happens.  And put it into a contract or other suitable legally binding arrangement.

2.  It's unclear to whom the assets in the LLC belong.  This should be clarified immediately if not sooner.  If they are your father's, then those here saying to ignore the assets until they are yours are IMHO correct.  If they are yours, then you should do with the assets what you and your spouse decide, even if your Dad disagrees.  If it's some wishy-washy in the middle, like it sounds like, like your Dad thinks it's "really" his but legally yours due to estate tax planning, then I would recommend that you go to your Dad and brother and find a way legally to undo the present arrangement so that the money is "really" and legally controlled and owned by the same person.

I'm like to inherit a smaller but still large by most standards amount when my Dad passes away.  But it is very clear that that money is his until that point and he can do with it what he wants.  There is another portion that is in a trust, which is under the control of the trust agreement.  Point is, everyone (I have two sisters, and there are also 9 grandchildren around) knows whose money is whose.  And that helps all of us get along just fine.