Life and Money With Helaine

Inheritance Comes With Questions

Hi Helaine: I’m 25 years old and have around $50,000 in student loan debt from undergraduate and graduate school. My mother recently passed away, and I’m inheriting about half a million dollars in various forms of assets. There are liquid assets, some real estate and an annuity. Should I leverage part of this inheritance to pay off my student loan debt in full?

I’m tempted, but have three reasons I’m hesitant to do so. What if Congress passes retroactive student loan forgiveness legislation? Or would I be better off keeping my inheritance in its current form? What are the tax consequences of selling? Finally, my hope is that this inheritance sets me up for retirement. Let me know what you think! -- What to Do?

Dear What to Do: First, let me say I’m terribly sorry to hear about your mother’s passing. I’m sure this is a difficult time for you and your family, and I would urge you to be good to yourself and not rush into any decisions. But here is one thing you don’t need to worry about: The odds of Congress passing retroactive student loan relief are less than zero, sad to report. At the moment, the U.S. government can’t even bother to ensure that borrowers promised relief via the public service loan forgiveness program receive it.

So that begs the question of what to do next. I am all but certain you’ll be rejiggering this portfolio to reflect both your age and risk tolerance. I see no reason why you can’t take some of the funds and pay off the student loans early while you are at it. The question is how to do it. What kind of penalty will you pay if you sell the annuity? Are you planning to live in the real estate you inherited, or do you hope to rent it out? If the latter, are you up for being a landlord, or is the income you generate going to be more trouble than it’s worth?

Finally, you will need to pay capital gains taxes for any uptick in value of the investments you sell from the time your mom died to when the property or investment is no longer yours. I’d suggest sitting down with a certified financial planner, working out the numbers, and taking it from there.

(To ask Helaine a question, email her at askhelaine@gmail.com.)

(EDITORS: For editorial questions, please contact Sue Roush at sroush@amuniversal.com)

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