Completely new/oblivious to most of this... need advice

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mn328
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Joined: Tue Jan 24, 2017 6:59 pm

Completely new/oblivious to most of this... need advice

Post by mn328 »

Hello, so some background... I am 26 years old, married, with two kids. I am employed as a teacher so my income is not substantial at all (39K). I've also ignored all talks about setting up retirement accounts whenever my school district hosted them. Which probably wasn't the best idea I realize. However, my husband (and our family) is fortunate to have a trust fund set up. We receive scheduled distributions from this acct. which has put us both through college, paid every bill, pays our mortgage, etc. We have certainly lived comfortably, but honestly, with no regards for our future, especially our kids future.

More bad news, and I am not sure if other people in this situation can relate, but we have very little knowledge of how the money in the trust is invested or even how much it is making. Our taxes are prepared for us, we sign and send them off. I hate to sound like entitled, but I am just opening my eyes to this set up and realizing that we are not making it work the best to our advantage. We are not the only family member in this situation, and others have depleted their trusts, which is why I am starting to panic. We have been "advised" that we are still fine and can continue our disbursements.

Obviously this was all set up for my husband before he and I met. I wish that he would have been more involved in learning how all this works, but he wasn't. I also do not feel like I can call the financial advisers and start asking questions and giving my input. So here is what I want to do. We have an income of 6400 a month- this is his disbursements combined with my income. If we budget correctly (we have one car payment, one mortgage) we are left with at least 2K a month. We do have like a savings acct with 5k. We definitely have not budgeted wisely. My car is paid off but I desperately need a new one, our house has a few projects that would be nice to complete. We don't want to dip into the trust to pay for these extra things. Our children DO have college funds, and we are expecting another inheritance. What I would like to do is start taking money here and there and seeing if I can invest it so we have money for an emergency fund or large ticket items. We are basically living off an allowance and I would like to start building our own accts. so we have control over them. I am leaning towards investing in stocks and bonds, but not sure to start or what kind of acct.

I hope this wasn't too confusing. I am expecting a lot of replies telling me I shouldn't be so oblivious, but trust me, I know.
Artisan
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Re: Completely new/oblivious to most of this... need advice

Post by Artisan »

Welcome to the forum. I think it is good that you are taking charge and realize the situation you are in needs to change.

I would suggest you begin by reading the Bogleheads Wiki https://www.bogleheads.org/wiki/Main_Page

Read a few of the books listed there.

Then the both of you need to contact the person or firm administering the trust to find out:

The balance and terms of the trust, how it is invested and whether or not you can make changes to it.

When you have done all that, I suggest you return to the forum and make a post using this format:

viewtopic.php?f=1&t=6212
Topic Author
mn328
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Joined: Tue Jan 24, 2017 6:59 pm

Re: Completely new/oblivious to most of this... need advice

Post by mn328 »

That is great advice. I've been doing as much research as I can and have ordered the Bogleheads book and several others already.
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akblizzard
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Re: Completely new/oblivious to most of this... need advice

Post by akblizzard »

Agree with reading the Bogleheads book. And consider this budget tool. Google YNAB (You Need A Budget)...with the info you provided, it appears you would greatly benefit.
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JDCarpenter
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Re: Completely new/oblivious to most of this... need advice

Post by JDCarpenter »

In addition to artisan's great advice, you might want to read this pamphlet/booklet (and its reading assignments): https://www.etf.com/docs/IfYouCan.pdf

Targeted at folks just getting started from ground zero and is often recommended here. I've handed it out like candy to various and sundry 20-somethings, including my sons. :D

You are doing well to start investigating things at 26. Absolutely no need to kick yourself.
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aristotelian
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Re: Completely new/oblivious to most of this... need advice

Post by aristotelian »

You mention other family depleting their trusts. Do you know if your husband's is set up to provide lifetime minimum distributions, or will his run out at some point?
Topic Author
mn328
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Re: Completely new/oblivious to most of this... need advice

Post by mn328 »

They've run out of their trusts but have been receiving "encroachments" from future inheritances from the way I understand things. I believe he gets full control of his trust in 3-4 years. Him and I are both the beneficiaries. I know that it started with a balance of one million, 13 years ago. I "think" its down to 100,000. I'm just not sure how that money is invested. I can get a better idea when I look at our tax returns or contact the bank person. His family really takes a "hands off" approach. But I really don't like living on an allowance. We live in a very high cost of living area, and with kids in activities, it has been hard to set aside more in savings. I've started an account on MINT and it seems to be helping a lot with our day to day purchases.
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Sandtrap
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Re: Completely new/oblivious to most of this... need advice

Post by Sandtrap »

First: Contact the "trustee" for a copy of the "trust documents".
Second: (do this right away). . . you have no empowerment without knowing what the trust provisions are. There is only speculation without this.

Some books that may be of interest to you: links below:

The Bogleheads' Guide to Investing
https://www.amazon.com/Bogleheads-Guide ... 118921283/

All About Asset Allocation
https://www.amazon.com/gp/product/0071700781/

How to Think About Money
https://www.amazon.com/gp/product/1523770813/

The Safe Investor: How to Make Your Money Grow in a Volatile Global Economy
https://www.amazon.com/Safe-Investor-Vo ... 137279109/

The Bogleheads' Guide to Retirement Planning
https://www.amazon.com/gp/product/0470919019/

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
https://www.amazon.com/gp/product/0071747052/

Rational Expectations: Asset Allocation for Investing Adults
https://www.amazon.com/gp/product/0988780321/

RE: wills/trusts/dynamics
Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others)
https://www.amazon.com/gp/product/0887307035/

Wills Trusts & Estates
https://www.amazon.com/gp/product/1454850051/
Wiki Bogleheads Wiki: Everything You Need to Know
kenner
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Re: Completely new/oblivious to most of this... need advice

Post by kenner »

mn328 wrote:They've run out of their trusts but have been receiving "encroachments" from future inheritances from the way I understand things.
This sounds like at least some of the res (corpus) of their trusts has been depleted. As in all cases, knowledge is power. But there seems to be a significant lack of knowledge about the specifics of this trust.

Full knowledge of the precise terms of the trust agreements may well have a bearing on how to best construct an investment portfolio that maximizes your family's future financial well-being.
cantos
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Re: Completely new/oblivious to most of this... need advice

Post by cantos »

mn328 wrote:They've run out of their trusts but have been receiving "encroachments" from future inheritances from the way I understand things. I believe he gets full control of his trust in 3-4 years. Him and I are both the beneficiaries. I know that it started with a balance of one million, 13 years ago. I "think" its down to 100,000. I'm just not sure how that money is invested. I can get a better idea when I look at our tax returns or contact the bank person. His family really takes a "hands off" approach. But I really don't like living on an allowance. We live in a very high cost of living area, and with kids in activities, it has been hard to set aside more in savings. I've started an account on MINT and it seems to be helping a lot with our day to day purchases.
Hi OP,

You've received a lot of advice and links here. Given how many books were mentioned above, and it being impossible to read all those books quickly, I second the advice to read https://www.etf.com/docs/IfYouCan.pdf, which takes about 15 minutes to read, and if you read nothing else, that'll do the trick.

Given your unique situation - trust fund, teacher, high cost of living area, little savings, little financial savvy, and thankfully eager to learn - I highly suggest you read the Millionaire Next Door https://www.amazon.ca/dp/B00CLT31D6/ref ... TF8&btkr=1. Among other things, you'll learn in the book that teachers tend to save extremely well, as a group -- so congratulations on becoming one. However, living in a high cost of living area on a low salary is not a good recipe for saving. You'll also learn that being a "trust fund baby" is called in the book "economic outpatient care" and such "lucky" people tend to have lower savings in their lifetime. I wouldn't be surprised if the trust fund money is the reason why you are in an HCOL that likely makes it harder for you to save, not just because of cost, but because you are trying to keep up with the Joneses, and the Joneses/your neighbours/your friends bring in higher income than your family. You'll also learn that even though it is important to have a good investment strategy, such as outlined in the Bogleheads book or in the IfYouCan doc, it is MORE important that you save well. The Millionare Next Door book changed my life, and I suspect it may change yours.

I'm not trying to blame you or make it sound like I'm jealous that you have are receiving monies from a trust fund. While many people would consider this fortunate and lucky, some Bogleheads -- including me -- would consider it a crutch which has enabled high spending habits, low saving habits, and low financial/personal investments acumen. Your posts seem to indicate to me that this has indeed been the case. So however much you have in your trust fund, and however it's managed, I'd say dont' fret too much about it. It's time to focus on what you can and should do in terms of spending and saving for the next 40 years.

All this is to say, at 26, you are in a terrific position and have come around to realize you can do better at the right time, way ahead of many other people. So congratulations on that -- I didn't come around til I was in my 30s, and thank my lucky stars I did.
chicagoan23
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Re: Completely new/oblivious to most of this... need advice

Post by chicagoan23 »

Look at copies of your tax returns. Know what your income actually is, and see if it has been changing over the past few years. If it has been going down, that may indicate a problem. If you think the trust fund has been 90% depleted and you are 26, it is unlikely to be able to support you for much longer. I would also talk with older family members about what other money might be available down the line. I don't think any advice is going to be very helpful if you don't have a complete understanding of your current financial position.
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf
Chadnudj
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Re: Completely new/oblivious to most of this... need advice

Post by Chadnudj »

I'll echo what cantos said above -- you're 26, which is still REMARKABLY early to start getting a handle on this. Plus, from the appearance of things, you don't have debt (other than your mortgage), which is also good.

A couple questions:
1. Does your spouse work? You mention your income, but nothing about your spouse's....it might make sense, if your spouse is not working, for them to start looking for a job before the trust money runs out.

2. Do you do Roth IRAs?

3. Can you get your tax returns? You mentioned that someone else does them/you sign them...but can't you get copies of them? This might give you some useful insight....

I'd also suggest learning about your school system's pension plan (if they have one) and retirement plans (particularly if the latter has any type of match). Keep out of debt, try to keep earning more money (maybe consider getting an advanced degree if that would increase your teacher pay? Or other certification? Or tutoring on the side? Or teaching summer school?), and read the resources everyone else shared and you'll be in great shape before you know it.
bigred77
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Re: Completely new/oblivious to most of this... need advice

Post by bigred77 »

All of the suggested readings you have been given are great and I suggest you read through them at your own pace. You can come and post and questions you have on bogleheads and receive clarification on just about any topic.

That being said, step 1 is to figure out what the heck is going on with your family's finances.

What is your households gross income?
What is the total balance of all of your debt? What are their interest rates? What are their repayment terms?
What is the total of your assets (excluding the trust)? House value, savings, retirement accounts, college savings in your childrens' names, etc?
How much are you spending every month?

Next, and do not be afraid to ask these questions, either you or your husband need to get detailed answers in writing:
What are the terms of the trust?
How much is the trust distributing to your family and with what frequency?
What is the balance of the trust assets?
Who is trustee?
How is it invested?
How and when can your family gain control over it?

Only then can you get a complete picture of your current finances. That is step 1, know where you stand today.

Your only 26. Don't be discouraged. Don't feel too overwhelmed. You have time on your side.
aristotelian
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Re: Completely new/oblivious to most of this... need advice

Post by aristotelian »

mn328 wrote:They've run out of their trusts but have been receiving "encroachments" from future inheritances from the way I understand things. I believe he gets full control of his trust in 3-4 years. Him and I are both the beneficiaries. I know that it started with a balance of one million, 13 years ago. I "think" its down to 100,000. I'm just not sure how that money is invested. I can get a better idea when I look at our tax returns or contact the bank person. His family really takes a "hands off" approach. But I really don't like living on an allowance. We live in a very high cost of living area, and with kids in activities, it has been hard to set aside more in savings. I've started an account on MINT and it seems to be helping a lot with our day to day purchases.
Yikes. Doing the math, if he has spent 90% of the inheritance over 13 years, there is not going to be much left when he gets control. Living on an "allowance" is fine if the money is guaranteed to be there in perpetuity, but it sounds like that is not the case. Whoever is distributing the trust is doing him a major disservice letting him fritter it away. If he does not have a job, the two of you need to sit down and come up with a long term plan. This sounds like a much bigger conversation than funding IRA's and picking mutual funds.
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Meg77
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Re: Completely new/oblivious to most of this... need advice

Post by Meg77 »

Welcome to the forum!

The first thing I would do is start putting together a plan to live only off your earned incomes. Husband needs to work if he doesn't already. The trust and/or future inheritances might fund your retirement or at least will offer a big head start toward retirement - but it is dangerous and unnecessary for you guys to be living off them. A million dollars is not enough to retire on, much less enough to fund a 20-something's spending for a lifetime. That's why these trusts are being depleted. Stop taking distributions - or better yet, start saving and reinvesting the distributions - and then your investments might actually start growing and stop shrinking.

This is easier said than done, I know. But I had a trust fund and so did my siblings and cousins so I do have some experience to base this on. Mine was never quite a million, but I think it peaked around $650K or so before I started taking distributions. I used it for college and spending money during college (plus a car and a study abroad program and some other misc items). But once I graduated from college, the unofficial plan my parents endorsed was that no more distributions would be made except for investments, such as the down payment on a home, or grad school (which I never went to). I think this is a healthy way to give kids a head start in life but not allow them to become entitled or to earn lower incomes than they otherwise could or would.

Second of all, to the extent that you can, you and your husband should BOTH request a financial statement on the trust fund from the trustee. This is not an unusual request at all. If you feel the need to explain yourself, you can say that you want to know what your trust investments are (total balance as well as what type of assets you already have) to assist you in creating your own financial/retirement plan. For example, if the trust is all in bonds then you don't need to add bonds to your 403b.

Good luck! Taking control will help you tremendously in both your marriage and for general peace of mind.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
mn328
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Re: Completely new/oblivious to most of this... need advice

Post by mn328 »

Thank you all for your great suggestions. I definitely have some clear action steps now to get more control of things.
FoolStreet
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Re: Completely new/oblivious to most of this... need advice

Post by FoolStreet »

mn328 wrote:Thank you all for your great suggestions. I definitely have some clear action steps now to get more control of things.
Warning! You have 100k left. You are withdrawing about $4k/mo (my guesstimate: 6k total income, maybe 2k is earned income the rest is 4K from the trust???)

Not counting taxes, you have about 2 years before you run out. I would worry a lot about how you will pay the bills in 2 years. Where can you cut your expenses? You will likely need to cut HARD. And you are at risk for using credit cards to maintain your standard of living.

Do you want to peg your standard of living on blowing through your inheritance(s)? Or do you want to set a sustainable lifestyle and save the inheritance for future generations?

You are lucky to have a 2nd inheritance coming, but 1st rule of inheritances is not to count on them, right?
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