Quandary over inheritance

Personal Finance

June 26, 2007|By Eileen AMbrose | Eileen AMbrose,Sun Columnist

Courtney and her siblings came into a "decent inheritance" following their mother's recent death. They're now trying to decide what to do with the money.

Writing from Owings Mills, Courtney says: "We're all in different stages of our lives, and we're trying to determine the best way to use the inheritance, especially since it's a part of our mother's legacy. We're all considering spending it on meaningful items, saving it, using it to pay off debt, investing it or a combination of these. But what's the smartest approach?"

There's no reason to rush. You can take time to think about what your mother would want you to do with the money.

Some ideas to mull over:

Consider a donor-advised fund, sort of a private foundation for the little guy. You donate to the investment fund and get a charitable tax deduction upfront. You can never take the money back. But you can suggest to the fund which charities get donations and the amount. So if your mother was a dog lover or a bibliophile, you can recommend donations to the Humane Society or library.

The money is invested, so the pot can grow over time and allow you to make gifts for many years. In fact, you can designate your successor, so it's possible that your inheritance can continue for generations. That can be quite the legacy.

Lots of places offer donor-advised funds, including universities, investment companies and community foundations. Each has its own rules and fees. For instance, you'll need at least $10,000 to open a donor-advised fund at T. Rowe Price Associates in Baltimore and $5,000 for a fund at the Calvert Foundation in Bethesda.

Maybe you don't want to give away your inheritance, yet still want to support worthy ventures. Try socially responsible investing.

You can invest in one of 200 socially responsible mutual funds. Each sets its own criteria on the type of companies it invests in. A fund may avoid tobacco, gun and gambling companies while buying shares of those that are environmentally friendly and have a good record for labor and community relations. Social responsible funds also use shareholder advocacy to change a company's objectionable policies.

(The Calvert Foundation's donor-advised funds are invested in socially responsible funds from the Calvert Group investment company. "It's like a double-whammy" to have a positive impact, says Paul Hilton of the Calvert Group.)

Look for socially responsible funds at www.socialinvest.org.

Todd Larsen, a spokesman for the Social Investment Forum, says Courtney and her siblings might want to park some of their money in a community investment institution where it can help people in lower-income neighborhoods.

Basically, you deposit money in a community development bank or credit union. As with other financial institutions, the money will be FDIC-insured and you'll earn a competitive interest rate, Larsen says.

The difference is the bank or credit union will use your money to rebuild neighborhoods or make loans to low-income consumers. Get more information at www.communityinvest.org.

Steve Schueth is an investment adviser in Colorado who works with socially conscious investors. He raises a concern about the debt Courtney mentions, which is a combination of student loans and credit cards. High-interest credit-card debt, Schueth says, should be paid off first thing.

Financially, Schueth is right. But paying off a Visa bill doesn't sound much like a legacy to me. And it would definitely seem like a wasted opportunity if a year or so from now the credit-card balance is back.

However, if credit-card debt is wiped out now and a vow is made - and kept - never to get in hock with plastic again, that would be a worthy memorial.

Questions? Comments? Write personal.finance@baltsun.com

MORE AMBROSE Find Eileen Ambrose's column archive at baltimoresun.com/ambrose

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