What To Do With An Inheritance Or Other Windfall with Daniel Wrenne and Hugh Baker

Join Daniel Wrenne and financial advisor Hugh Baker in this episode of Finance for Physicians as they delve into the intricacies of managing a significant inheritance, specifically tailored for early-career physicians.

Full Episode Transcript:

 Daniel Wrenne: What’s up guys. So we’re going to start doing a quick Q and a, um, I am joined with my buddy, Hugh Baker, Hugh, say hello. And so we’re going to be pulling a question from the Facebook group, and we’re going to talk through, you know, our thoughts on potential considerations and things you need to be thinking about, um, in regards to that, and hopefully provide some value for you.
But before we jump into it, Hugh, give us a little bit of a quick background on you.
Hugh Baker: Yeah. So I’m a financial advisor kind of waiting on the day where I can say, I’ve been doing this for a decade, not quite yet, about nine years now, but, um, like to nerd out about
Daniel Wrenne: finances.
Yeah. so we work together. We’re both financial advisor planners for physicians, by day and, get to kind of enjoy working with people. you know, more one on one and Hugh on top of that, actually lives with a physician, his wife.
Hugh Baker: That’s right. That’s right. And hey, I didn’t, didn’t hop on the bus, you know, late.
I was there from undergrad through med school, residency. I saw the whole thing.
Daniel Wrenne: All right, so, one of the questions that came up recently in the Facebook group, was this inheritance question. Like I just received an inheritance. so let’s say it’s a larger inheritance.
you know, let’s say it’s a million dollars. and maybe I’m a early career physician. what do I do with it? Do I buy stocks? Do I buy bonds? do I buy iBonds? What do I do with my million dollar inheritance I just received? Yeah,
Hugh Baker: I think the first step, is thinking about, now that you do have this windfall, what are some, maybe things that you feel like have been missing from your life?
Maybe some things you would like to add in, maybe that’s travel, people haven’t been able to do as much of that in the last couple of years, just now starting to do that more. think about, okay, what are some things that maybe I deeply identify with? maybe it’s some type of passion project or hobby that maybe you either no longer have the time to do, maybe didn’t have the money to do.
How can this money maybe free up time or provide that space to do that? And then maybe on the flip side, what are some things that are just super annoying to me that I hate doing? Uh, something we can throw money at? to just subtract that out of your life. I know for us, that’s like cleaning, things like that.
I would think about that first and then we start to think about okay, how much of this money do I need and when do I need it? do I need Maybe is this this type of thing I want to add into my life? Is that going to cost me an extra thousand dollars? Okay, that’s a good starting point. you know, do I have some type of desire to be financially independent at an earlier age?
And maybe I’m thinking about long term investing here. So what type of tax shelters do I have available to me? Maybe I’m already maxing that out. That also gives you an indication of how aggressive you can be with the investments. So I think starting with those types of values up front can kind of lead you into the direction of what you actually do with the money.
But if you’re an early career physician, you’ve got a long term time horizon. Now is an excellent time to receive a lump sum of money as the market is definitely down quite a bit as of the end of September
Daniel Wrenne: here. Yep. Yeah. I would say. number one, don’t spend it quickly, especially like be, think about some of the things we’re going to throw out first before you spend it, I guess.
Not that you should not spend it, but like be thinking about, you know, some of the things we’re going to throw out first, you know, before. So I think that’s great buying time. So like if I’m mowing my grass. And I don’t really like it. Most of you guys are super busy already. So it’s like hire somebody to mow your grass.
You just inherited a bunch of money. hire somebody, save the time, buy time. if you hate cleaning your house and you’re spending a lot of time on that, get somebody to clean your house to help. And then [00:04:00] that’s paying somebody else, which is helping them earn a living.
And then you’re saving the time. Like that’s a home run. That’s like way better investment than any. index fund you could buy. not that buying investments are bad, but like investing in your time can be oftentimes like the most valuable return on your dollar because you can’t, you know, time is worth more than dollars.
so that, I think that’s a good point as well. Of course, we’re going to throw out like the geeky planner type stuff. Like investing is important. Um, I think within, when we start to talk about the investment side, you want to, this is where you lean on like your financial plan. Like, so. what’s most important to you?
Like where, what are your goals? Like, for example, if you want to retire by X year or if you want to be financially independent, or if you want to pay off debt or those sorts of things, like if you want to give more money, I think it’s important to focus on the longer term stuff. and the, harder to do stuff [00:05:00] first, like saving and giving money, you kind of have to do it first before you start to think about lifestyle and spending.
and so think about your goals. Like if you could put a bunch of money into, tax shelters, that’s the best by far, like you said, way to do it. And there’s a lot of good ways to do it through. If you guys work for like academic hospitals, there’s a lot of, Even if you’re in training, ways to kind of creatively shelter a bunch of money from taxes through like 401ks, 403bs, 457s, all that stuff.
So you definitely want to check. That’s a great opportunity to check out like all the benefits through work. We’ve had plenty of clients that in receive inheritances and. Not plenty, but a handful that have received inheritances in training, and that’s a fantastic opportunity to, you know, max out these really good tax shelters that most of the time residents are not even touching, and they provide really, really good tax benefits.
I think of several cases where I had Worked with people that were [00:06:00] basically like putting all their paycheck and training into these tax sheltered plans. So in other words, their take on pay was zero close to it, but it was because they had received, you know, an inheritance and were able to kind of reshuffle the money around.
So that’s a really, really good tax move to kind of shuffle around the dollars. So you always want to think about those first.
Hugh Baker: Yeah, I’ve actually got one of those situations right now. maxing out all those tax shelters were drawing down on, you know, non qualified assets that was inherited. so no way would this person be able to do that just on cash flow alone on a resident salary, but You know, we’re going to max out all those tax shelters.
So basically just moving money from a pot of money that the gain would be taxed over to one where, hey, maybe it’s never going to be taxed if you’re in training. So
Daniel Wrenne: I think the other thing that comes to mind, don’t act like the average lottery winner, right? Doesn’t the average lottery winner go bankrupt?
Hugh Baker: But hey, maybe carve out a small percentage and blow it throw a [00:07:00] party, you know, scratch that itch.
Daniel Wrenne: definitely spend some but you just don’t want to get carried away. Maybe buy a Tesla. I don’t know 60, 000 of the million shouldn’t be too bad and beyond that the other thing that comes to mind is you know, if I think of return on Like your dollar a lot of times with these kinds of things so time we’ve already talked about the other thing like the research says that the best return on your dollar is actually giving and so Thinking about if that’s important to you like giving it’s a fantastic opportunity to give when you receive a big inheritance and Even if it’s not important to you like it’s worthwhile.
I was surprised by this the research how impactful it is, you know, happiness wise for people to give. So there’s a pretty good case for like giving, um, even if you’re, you’re not giving, I think that’s a personal preference at the end of the day. I think the main thing though, is it, the nice thing about receiving an inheritance is it gives you all sorts of opportunities like this to kind of think through it.
and you know, it’s a little bit [00:08:00] like transitioning into practice, not exactly the same, but there are a lot of similar principles that happen where you have to be intentional. So intentionality is the number one thing. For sure.
Hugh Baker: So definitely got my wheels turning with the giving as well. So I’m like, Oh man, what if they got a, a brokerage account that’s got a lot of gain in it and we could move those shares over to the donor advised fund, save taxes.
Daniel Wrenne: It’s yeah, it’s easy for us to start geeking out. So we’re going to try to like, not. Get super technical and geek out, but,
Hugh Baker: that’s Daniel saying, calm down, buddy.
Daniel Wrenne: Well, I’m tempted myself, but I think that’s, that’s a lot of good stuff. And we’re trying to keep this short. We could also talk about this for two hours.
So we’re trying to do what I say, like five minutes. Right. So I think we’re about at time. Good talk to you as always. Thanks for coming on. And, uh, we’ll try to do these, uh, weekly. I think it’d be good kind of quick snippet. Yeah, I
Hugh Baker: agree.