Investing a Generation Skipping Inheritance

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ShenziNation

Investing a Generation Skipping Inheritance

Post by ShenziNation »

My parents each have gifted $12,500 to both my kids. So $25,000 to each grandchild. They will get another $25,000 in January 2017. Kids are 4 and 2.5 years old.

Both kids have UGMA/UTMA accounts at Vanguard, opened recently, with ~$3-4000 each in Total Stock and Total Bond Funds. This is all gift money over the years. Both kids also have fully-paid Florida Prepaid College Tuition plans for a 4-year in-state degree.

We don't want to lock the inheritance funds into 529 plans and limit use to education purposes only. It could be used for college housing and expenses, or not. It could be a long-term investment or they could use it to take a year off and travel.

I'm leaning to a 60/40 US stock and bond fund mix per the KISS principle and stay the course. I'd like to know what others are doing if in similar scenarios or if there are better alternatives.

Thank you!

(Updated.)
Last edited by ShenziNation on Thu Jul 07, 2016 10:54 am, edited 1 time in total.
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Investing a Generation Skipping Inheritance

Post by Gronnie »

What do you envision the kids using the money for?

If they have a very long time horizon, you may be able to invest it much more aggressively than 60/40.
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: Investing a Generation Skipping Inheritance

Post by Engineer250 »

I think you are on the right track. 60/40 is probably a good set it and forget it allocation. You could go more aggressive, but it might be smart then to make it a little more conservative again as they get older, so depends on whether you want to remember that in 10 years or not.

If grandparents keep gifting them this significant amount of money I don't think they have at all anything to worry about. Things to plan for: cars at age 16 (even if they had $1mil in their accounts I don't think you should get a 16 y/o a new car, but a good used one), living expenses for university even if their tuition is paid for, room and board may not be. Also what if one of them gets into Harvard and would rather go there? What if they want to get their master's? Study abroad? Encourage them to get jobs early. Once they are earning income that amount can be transferred over to a Roth IRA in their name, talk about a head start.

However, staying out of a 529 still makes a ton of sense in your case as like you said this way the money is accessible for any purpose. You may have to look into capital gains taxes for minors, I think there is a limit at which they will have to start paying taxes and you may start approaching that with these generous gifts. That said, two kids under the age of 4 with $50k in the bank each will do very well regardless of how they are taxed or how precise their portfolio allocation is.
Where the tides of fortune take us, no man can know.
itstoomuch
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Re: Investing a Generation Skipping Inheritance

Post by itstoomuch »

We did UGMA. MF/Indexes 60/40. Stocks as kicker. EE-4% minimum yield as a moderator. A 529 only last few years when they became into existence. Early 529 funds were held for as little as 3 days to 1 yr. Still have a small remainder of <$1000 (1985-2006) which I am contemplating an addition for tax purposes and gift to any grandchildren.

In our time, we needed an aggressive portfolio to reach target. Today we and Only can afford a moderate portfolio.

YMMV.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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