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Trust questions and advice (finance)
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Registered User regular
Registered User regular
My grandmother died several months ago. I've known for some time that i would be receiving a large sum of money from her trust once it went into effect/was organized properly. I received the first check this Christmas as planned; $50,000.
I'd like to know what kind of taxation to expect on this, as I was told it would count as income rather than a gift or straight inheritance. I plan to first put it into my Bank of America checking/savings account (how long should I expect to wait for a large check like this to clear?), then open a hi-yield ING direct account to store the next chunk and accumulate some interest. I don't plan on investing anything yet, but will buy property by the end of the year (currently doing as much research as possible on local real-estate).
I have several expert resources available to me as far as financial planning and investment go, but I thought I'd get as much input as possible from others who may have had experience with something like this (I've always received good advice & answers on this board) and who are in my age range (25). I don't plan on wasting my grandmother's life changing gift.
I'd like to know what kind of taxation to expect on this, as I was told it would count as income rather than a gift or straight inheritance. I plan to first put it into my Bank of America checking/savings account (how long should I expect to wait for a large check like this to clear?), then open a hi-yield ING direct account to store the next chunk and accumulate some interest. I don't plan on investing anything yet, but will buy property by the end of the year (currently doing as much research as possible on local real-estate).
I have several expert resources available to me as far as financial planning and investment go, but I thought I'd get as much input as possible from others who may have had experience with something like this (I've always received good advice & answers on this board) and who are in my age range (25). I don't plan on wasting my grandmother's life changing gift.
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Though, if you haven't maxed out your 401(k) or IRA contribution yet this year, that would be an excellent way to use this, as it would cost you around $0.70-$0.80 on the dollar.
Shogun Streams Vidya
How long should I plan on living some place to say "yea, buy buy buy"?
This, primarily.
The longer answer is "who knows?" Prices are still rather deflated, and a motivated seller is often willing to dip a little below value. What, exactly, value is is another question entirely.
If you can afford a good downpayment you immediately put yourself into a good situation allowing the home to be "flipped" (sold quickly) if necessary. This is, of course, not a solid plan in this market. That said, the biggest issue with homeownership and finance come when you're stuck without equity. Even an unaffordable mortgage payment can be remedied by selling a property, on the assumption that you have the equity to make it worthwhile.
The biggest answer to your question depends on the financing you set up. aside from an initial investment of 20-30% down, the fastest way to build equity is to purchase smaller than your budget, and make the difference (if you can afford a $1200 mortgage, look for $900) as payment to principle. In the parenthetical example, you'd toss an extra $300 per month into the equity, netting you $3600 off the balance each year.
This is due to the way that mortgage loans are amortized (how the payment is calculated). Assuming a 30 year mortgage, you generally pay a portion of both principle (payment to loan balance) and interest (payment to, well, interest) which totals your mortgage payment. During the first 10-ish years of a mortgage, the majority of payment will be to interest (usually around 75-80%). Which, in short, means that paying your mortgage and only your mortgage begins to seriously build wealth on a scale with increasing returns. The less time you have left, the bigger the payment to your actual principle balance.
So the "trick" is to make direct payments to your principle balance. While $4,000/year doesn't sound huge, that's $20k in the first five years. The other benefit? the lower your principle balance, the higher percentage of the payment (generally) goes to principle.
I'd quote somewhere around 5 years as the minimum residency in order to look at turning a profit by selling. This, of course, assumes a flat market. By most estimates and projections we'll eventually see more growth in the real estate sector. In addition, it simply gives you options. When you have a nice chunk of equity you can easily cash-out refi for repairs/improvements (which increase property value), sell for profit, rent for profit and continued equity, etc.
Wow, this is like... adult hood.
(I am a Trust Lawyer)
It's income. Depending on how the Trust is set up (its likely some sort of unit trust, though it could possibly be a hybrid discretionary trust of some form), you're receiving a distribution from the Trust, which counts as income and you are taxed accordingly (ie it forms part of your taxable income for that fiscal year).
The cheque should take 3 days to clear at most. $50K is a lot to an individual, but not to a bank.
If you feel comfortable with your bank, they might have something to offer but yes I would talk to a tax accountant before I talked to anyone else.
Trusts make your life interesting I have since learned.
If you do not need this to live, definitely invest some of this money. Hell other than buying a house/apartment, invest this money and forget it exists for 5 - 10 years.
I suggest you contact a financial management group. They typically won't take you on as a full client with less than 300k but they may be willing to offer a one time consultation with general advice. They'll see you as a potential long term account if they're smart, if they do right by you now they know you're likely to become a client when your money matures.
I do freelance design, illustration, and motion graphics. I'm going to spend a chunk of the money immediately in order to pay off a few outstanding bills and buy a few odds and ends, otherwise I will sit on the large majority of it until I find the right property. Investment will come a few months from now, when I'm more comfortable with the real estate market and it's inner workings (I live in west LA, and there's a lot of property to look at).
I'd like to get a full-time position somewhere, but it's a bit more difficult in my field. As for my bank, I don't plan to take them up on any services, I just wanted to process the check first, then I plan to move around the money to my Merrill Lynch/USAA/ING accounts.
I refuse to waste this money, as that would be a big middle finger to my grandmother and family in general.