Jane met her husband Paolo through her work as an administrator at UC Berkeley. Although the bulk of their investments came from an inheritance from her parents, Paolo takes care of family finances. They have been saving towards college and into their own UC retirement funds, own their home, and have a trusted tax preparer.
Context: Inherited Stocks and Recession Fears
Paolo and Jane have become increasingly anxious as many of Jane’s inherited stocks have increased in value and they read media reports about highly-priced stocks and the possibility of a recession. Their concerns include paying taxes from the sale of the stocks and financing their two teenage boys’ college expenses. They feel uncertain about how to proceed.
Opportunity: Is Now the Time to Sell Stock?
The couple agreed that they needed a third voice in their financial conversation, someone with expertise and objectivity, to help with the decision about diversifying their portfolio. Jane and Paolo have been financially responsible but are feeling out of their depth. The sticking point is whether to sell their stocks. Without making that decision, they cannot move forward with more cohesive planning.
The North Berkeley Approach: Education and Reassurance
Jane needed permission to be a good steward of her parents’ stocks – to know that there is a time to sell as much as there is a time to buy and that it was worthwhile to watch them more closely to determine when it would be as advantageous as possible to do so. Paolo was relieved to know they could be able to create some liquidity, particularly to help pay for college. In addition, Jane’s parents had helped them with a down payment on their first house when they were not long married and Paolo was a graduate student. Paolo hopes they will be able to do the same for their sons. Having more assets in flexible investments will make that possible.
The North Berkeley Solution: Diversification, tax planning, and research
During Paolo and Jane’s first year of work with us, they made the following changes:
- Diversified their overall portfolio, retaining only about 20% in inherited stocks in quality companies that it made sense to hang on to
- Carefully navigated tax issues to minimize the impact of asset sales
- Determined more precisely how much college was likely to cost
- Determined how realistic it was to help their boys buy houses in the Bay Area a decade from now
Results: Peace of Mind and Tax Savings
Having made the above changes, Jane and Paolo saw the following results:
- Increased flexibility with cash flow
- Reduced the anxiety of their future tax bill
- Clarified how they will pay for college
- Understand their retirement scenarios
Having a concrete plan saved money in the short term and resulted in peace of mind for both Paolo and Jane.
Lessons Learned: Inherited Assets Can Be Emotionally Charged
In this instance, contemplating the sale of assets was interrelated with other technical concerns: upcoming college costs, their desire to know what their cash flow situation will look like after they stop working, and minimizing taxes.
Beyond the technical, however, a significant challenge in this situation lay in Jane’s more emotional concerns. Although she was grateful to have inherited stocks, she felt tremendous pressure to do the “right thing” with the stocks. Paolo, although supportive and respectful of Jane’s feelings, had less of an emotional charge associated with the decision.
By addressing Jane’s desire to do the right thing with the assets she received from her parents, we helped her move forward with a planning process that benefited their entire family and gave her and Paolo a helpful path to move forward together.
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