Rich Girl Roundup: What Would We Do With An Inheritance?

Katie: Welcome back, Rich Girls and Boys, to the Rich Girl Roundup weekly discussion of The Money with Katie Show. I'm your host, Katie Gatti Tassin, and every Monday morning we will dig into an interesting money discussion. Here's a quick message from the sponsors of this segment before we get into it. 

This week's upcoming main episode is our updated “how to travel for free” breakdown. So it's like our travel rewards deep dive for 2023, featuring a former The Points Guy senior editor. So we basically brought in the big guns and said, how about we fact check our strategy here and see how it's evolved? So I'm excited. I know Henah's excited. Okay. Onto the roundup. Henah, how you doing?

Henah: Good. I was dealing with some health issues but I feel like those are getting resolved, so I feel like I have a new lease on life. How are you? You're going out of town next week?

Katie: Yeah, I am. No, I'm excited. I also didn't sleep very well last night. I drank like a lot of caffeine yesterday and I just could not fall asleep. And then today I was trying to write a blog post earlier, and I was just staring at the document, like I feel like none of the words that are coming out of my brain right now make any sense. So we'll see how this goes. Everyone bear with me.

Henah: It's like the Life-Size movie where Tyra Banks is the model. She's just clicking but nothing is showing up on screen.

Katie: Yeah, the smile plastered on your face. Okay. Do you wanna read this week's question?

Henah: Sure. It's from Nicole M, and their question is “What should I do with an inheritance?” And I've never had an inheritance or gotten one, at least not yet. But Katie, I think we could talk about the brass tacks of how inheritances work, 'cause I'm not really sure, but then we could talk about the fun parts of what you would do with it after. So I'm gonna kick it to you to start.

Katie: Okay, cool. Well yes, I also have never gotten an inheritance, but I do know that inheritances come with a few tax bennies. So first and foremost, there is this step up in cost basis, which is a fancy way of saying that normally when you sell an investment, you're gonna pay capital gains taxes on the amount above the price that you paid for it, like your cost basis. But if someone passes away and you inherit part or all of their estate, the cost basis rises to the value at the time of their death. So all that to say, it's unlikely that you would owe taxes on your inheritance for that reason, unless it's above and beyond, like somewhere in the ballpark of $13 million. Which in that case, you know, you probably don't even really need to be listening to this episode because you've got more money than you know what to do with. So it doesn't really matter what you do with it.

Henah: You have more money than God.

Katie: Exactly. I don't know the ins and outs of estate law. So I'm sure there are some nuances here that I have not covered, but that's generally the way it goes down. So my thought is this, and this might be a boring answer so I'm sorry, but I don't think this is really a question about what to do with an inheritance, specifically. I think it's more of a question about “How am I treating new and unexpected income in general?” Because an inheritance is really just another form of income, right? So I think for me personally, I just think about this like a financial operating system in your life. How are you routing the current incoming funds you have? There's probably some hierarchy of priorities that you have based on your situation, right? So whether that's paying down high-interest debt or funding a cash cushion or funding short-term savings or long-term investments. Even if you don't have a plan consciously in place, you're probably prioritizing in these ways without even realizing it. So I almost think about it like, okay, you're just putting a lot of money in the top of the system and it's funneling through. You kind of just treat it the same way you treat other income.

Henah: It's giving me Plinko vibes; you know that game? 

Katie: Yes! That's the game that I could not think of when I was thinking about this. Yes, exactly. Yeah. It's like you set up your thing and then you just…it doesn't matter where it's coming from; you're just treating it all the same way. Yeah. So that's kind of my thought.

Henah: I think that that's interesting because you also just talked, about in an episode, like treading lightly on unexpected income until it's actually in your pocket. And that's a huge thing for me. I don't know, you could run out of the funds that you're expecting to get, or your family could before it even gets to you. Or if you try to earmark money before you have it, I feel like it does kind of set you up for disappointment if things don't work out.

Katie: It's also funny, like I've definitely talked to people that have been like, “I'm not saving for retirement 'cause I'm gonna inherit money from my parents.” And I'm like, “That's a gamble, bro. You don't know what's gonna happen between now and then. 

Henah: Same. Yeah. Exactly. 

Katie: I hope it all works out, but it feels scary to plan on something that's decades away and kind of not put a backup, a contingency plan in place. 

Henah: Totally. I think we're two very Type A people. 

Katie: Where’s my plan X? Plan X is missing.

Henah: I need a plan Z. 1, 2, 3, 4, 5. I think it's exciting in the sense of, you're building the generational wealth, but I think you've also talked about, like there are lots of families that have received that kind of inheritance and then they friver it…friver?

Katie: Friver? Fritter?

Henah: Fritter it. They fritter it away within one or two generations, right? I'm talking like millions of dollars, but you kind of have to be careful not to just get the money and then be like, “I'm going on a shopping spree” just 'cause you have it. Maybe you shouldn't spend it all at once.

Katie: Immediately scaling up everything. Yeah, definitely. So, okay, let's play a hypothetical, then. Maybe not an inheritance, but let's say that you come into a large sum of money; maybe it is a lottery. What are you gonna do?

Henah: Okay, so I've actually thought about this a ton, because… 

Katie: Classic.

Henah: It's never happened to me, obviously, but my family has asked this question in a dinner setting. We were like, “Okay, what would you do if you won the lottery?” And everybody made fun of me, because my answer was too practical. My cousins were like, “I would buy a fully staffed yacht and sail around the world” and “I would go on a spaceship,” and I was like, “Okay, so first I would set aside some for my future, and then I would stash some away for my family and…” It was a very detailed plan. So I'll give you the TL;DR, which is if I had any high-interest debt, I would pay that off. I would set some aside to invest over the long term, because I work here and I've been taught, you know, that's what you gotta do. And obviously, depending on what's left, I wanna think about, what are the big ticket items that I'm probably gonna wanna account for in the future? So like my dream home or renovations. What if I want a vacation home? What if I want a car? Bulk purchases that I wanna save for. And then if I have any money left over after that, I probably treat myself to a bunch of vacations and experiences. I would love to support my family and friends, like gifting my parents a luxury vacation or helping friends who are going through a hard time if they need it. And then I'd probably become an angel investor and philanthropist…

Katie: That was my answer. You stole my answer.

Henah: I'm sorry. I mean, I did work in social…

Katie: No, I don't wanna be a philanthropist, I wanna be an angel investor.

Henah: Well, 'cause like I think there's angel investors who are focused on social enterprises. So I would wanna do a good cause. But I wanna be like the MacKenzie Scott of the lottery ticket winners.

Katie: So like hit me with some percentages, 'cause we just, you basically just named all of these very upstanding, wholesome things. I'm gonna hold your feet to the fire. How much are you investing for the future? I gave you $5 million. How much are you investing and how much are you putting toward all this other stuff?

Henah: Okay. $5 million was less than I was expecting for lottery winning. So…

Katie: Okay, 10 million.

Henah: Okay, I was thinking like $50 million, like something that was so…

Katie: Oh my god. 

Henah: That's why I said, it would be so high that you know, you don't ever really run out of money. Okay. $10 million. 

Katie: Even at that point, dude, you wouldn't even have to put money away. You could just buy your $20 million house, set everyone else up for life. 

Henah: Sure. 

Katie: You wouldn't even have to really have a plan.

Henah: I don't know. 'Cause then you have the, do you take it all in bulk or do you do the partial payments over 20 years? I don't know. But anyway, if it's only $10 million…not “only”—if anyone wants to gift me only $2 million, I'll take it. I'd probably set aside like $2m to $3 million for myself and my family. Probably like $2m or $3 million for the future. And then I'd probably give away like $2m to $3 million and then see what's left after that.

Katie: Okay. Okay. Got you. So you're going like 33% chunks, 20% to 30% chunks for each of these things.

Henah: I've never had to actually decide. So I guess for now, but what would you do?

Katie: So I feel like the things that you listed, I would do a lot of the same, but I think my priority is the opposite. So I think first I would wanna, 'cause one thing that I'm really interested in is investing in private companies and angel investing in riskier ventures. Not venture capital, not that model, but I have friends that have started companies or I know people that are starting companies and I just think it'd be so cool to invest tens of thousands of dollars, hundreds of thousands of dollars, in what they're doing, because obviously that in itself is kind of like a lottery ticket. It could really pay off. And worst case scenario, you're supporting a friend, but I don't feel like I'm in a position yet where I could do that. I can't be willy-nilly investing thousands and thousands of dollars in things that are still a little bit risky. But I think that that would be the situation wherein I would. 

There'd probably be some changes in how I run this business and how often we produce things. If suddenly money was no object, I definitely think that we'd probably produce things a little bit less, or we would take bigger risks with the types of things we were doing. Because we wouldn't really need sponsors. You know what I mean? So I think that that would be kind of interesting. I think that I would wanna take on more projects that are unlikely to earn money, which is not really my current approach, but right now I'm like, okay, what is the highest-leverage use of my time? Where if money's no object, you can totally work on whatever you want to.

Henah: Tell me more about that. Like what's an example?

Katie: Like I wanna write a book, right? But if I'm gonna spend the hours writing a book, well, it probably needs to be a book that's gonna sell to a big publisher, versus, “Oh, I'm really interested in this one obscure thing and we're gonna self-fund a documentary about it.” Well, that wouldn't make any sense in our current business environment or the position we're in now. But I just think working on things that you're just interested in as opposed to things that have to make business sense would be really cool.

Henah: Yeah. You get that kind of flexibility that you don't have to worry about. If it bombs then that's okay.

Katie: Totally. And that's the thing, is it enables you to take business risks, so I guess that's the theme of my answer. And then last year I took my friends on a vacation and it was really, really fun, and I think I would wanna do that, but a lot more often, and pay for everything for everybody. I think that would just be so cool. And then I also, my last thing, you mentioned a vacation home. I actually think I'm gonna, even if I won the lottery, I would continue renting…

Henah: Wow.

Katie: Because I just love the flexibility that renting gives you and that you can rent really cool places in different cities, and I think that I would probably just wanna have different leases in different cities where it's like, “Oh, my apartment in New York, my apartment in Copenhagen.” Oh, we’re gonna go here. 

Henah: Okay, T-Swift.

Katie: Yeah, right, exactly. Except she buys them all because she's a billionaire. But so that would be, I think, my approach.

Henah: Off-brand T-Swift.

Katie: Kroger brand Taylor Swift. 

Henah: Kroger Brand…

Katie: Which can we, just for a second, the fact that my advice was like, “I don't know, put it into long-term savings,” then I'm like, “Well, first I'd get my apartment in Copenhagen...” Do as I say, not as I do.

Henah: “If you have God money, you don't really have to care about all of that kind of stuff.”

Katie: Yeah. 

Henah: But I think I would probably buy a vacation home in Tuscany, Italy, or something. Something that is so out in the middle of nowhere, no one can bother me. That was the other thing with winning the lottery is like, I don't think I would tell anybody. I mean, I'm sure it would kind of become obvious at a certain point, but there's no way…

Katie: People are like, why does Henah have a G-Wagon now?

Henah: Why do I have a PJ taking me to Vegas for the weekend? No, but I've just seen too many horror stories of people coming out of the woodwork once you win something. And so there's absolutely no way that I would tell more than…you know, I actually got into a fight with my best friend about this, because she told me if she won, she wouldn't tell me. And I was like, “You would've been one of the only people I called. You wouldn't even tell me?” So we got into…

Katie: This is one of my favorite things, is when you make up a hypothetical that hurts your own feelings. Like if you get into a real fight about a hypothetical situation.

Henah: I know. But you and I have done that too, so it's fine. Anyway, inheritance are not, lottery or not, I feel like you have a lot of options. But you gotta, I think there's a balance between spending frivolously, frittering it away, and…

Katie: Yeah, you made up a new word, “frivering.” The conclusion today is, don't friver your inheritance away. 

Henah: Friver.

Katie: And that's all for this week's Rich Girl Roundup. We will see you on Wednesday to chat about travel rewards.

Henah: I'm so excited. See you then.