2.5 million to invest for myself[35] and father[70]

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keenbrasss
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2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Wed Jul 17, 2019 7:10 pm

My primary concerns are whether to treat this like a single portfolio, how to distribute funds across two personal accounts and tax advantaged accounts, and how to do rebalancing. My end-goal would be to retire early on passive income.

First off, I'm a beginner with investing, stats:
myself:
  • only child
    35yr, married and spouse is homemaker with no assets. kids soon, but not yet
    no debt, renting
    170k cash in HYSA
    145k in 401k
    55k in roth IRA (myself and spouse)
    135k in roboadvisor
    210k income, maxing out 401k (employer matched not listed) and 2 roth IRAs(backdoor), still some leftover
so that's 200k tax advantaged, 305k available for market
dad:
  • 70yr, excellent health and his dad lived to 95
    no debt, owns home (350k)
    250k in mutual funds (taxable account)
    2.1 million in HYSA
    75k annual post-tax surplus from pensions
I'm bouncing back and forth between 3 fund portfolio and a version of all-weather such as: viewtopic.php?f=10&t=206028 (TIPS, commodity, gold, etc)

Considering Dalio's post from today as well, doesn't fill me with hope for bond + stocks alone: https://www.linkedin.com/pulse/paradigm ... ray-dalio/

Chances are high we'll be under the estate tax limit. My plan would be to keep separate vanguard accounts for the two of us, but in terms of fund distribution, should I treat it all like one portfolio? Put all the bonds and commodities into my tax advantaged accounts and most of the stocks in his account for cost-basis step up. While I realize I cannot exchange money for tax purposes, would it make sense for me to give my dad my 305k just to allow for managing all the post-tax investments in a single vanguard account?

My concerns about treating both our accounts as a single portfolio comes under rebalancing, where if I need to buy more that is on the bonds / gold side of my tax advantaged accounts, that he'd need to gift me the money.

Given his pension surplus would take care of a lot of the future-needed healthcare, I'm thinking there doesn't need to be a huge amount set aside in HYSA / CD ladders, but would definitely keep a section safe for that care.

I'm going conservative with all-weather fund with the expectation to switch to a stock-weighted portfolio if the market has a downturn. I realize this is timing the market, but given the CAPE ratio, inverted yield curve and global debt vs income, I'd really like to keep the funds available to buy cheap when / if it hits. If the recession indicators look better, then could take on more stocks, especially factoring in the cost basis step-up in the next 5-20 years.

I'm really on the fence with working another 15 years or trying to live on passive income starting now. On one hand, given his pension surplus is still feeding into the portfolio and I'm really frugal, there is already enough at 3% to live on. OTOH with a looming recession and possibly 10-30 years of reduced returns also scares me, especially given my earning potential. I enjoy my work but obviously would rather not given the choice :)

Thoughts?

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Watty
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Re: 2.5 million to invest for myself[35] and father[70]

Post by Watty » Wed Jul 17, 2019 8:26 pm

Even if your Dad wants to comingle the funds it would be good to keep the accounts separate since there is a very reasonable chance that he could live to be 95 and him living to be 105 is possible.

One advantage of that is if you do inherit his money someday you would then get it at a stepped up cost basis.


keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
2.1 million in HYSA


A huge problem with this is that if it is at one bank then he is far above the FDIC insurance limits.

I don't know a lot about it but Vanguard has a Tax Managed Balanced fund that is about 50/50 stocks and bonds that he might look at.

https://investor.vanguard.com/mutual-fu ... view/vtmfx

keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
First off, I'm a beginner with investing, ....

Thoughts?
You are talking about a lot of different things and are very likely to get in over your head. Vanguard will provide advisory services for a fee of 0.3% and you could use them for a few years to get your and your dads portfolios set up for the long term.

It would also be good to get a lawyer who specializes in elder care law to help get your Dads legal affairs in order. That would need to set up contingencies for all sorts of situations like your Dad getting married, you dying before you Dad, etc.

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David Jay
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Re: 2.5 million to invest for myself[35] and father[70]

Post by David Jay » Wed Jul 17, 2019 9:42 pm

First off you are “counting your chickens before they hatch”. Your Dad’s portfolio could go sideways in a lot of ways. Late 70s style inflation for 10 years could decimate it since he is holding it all in the bank. Long term nursing care. Lots of possibilities.

For your Dad, I would take a serious look at a TIPS ladder with a big chunk of his portfolio if he wants to stay out of the stock market. US Treasury bonds that are guaranteed to beat inflation.

You have a $500,000 portfolio so you are not in any position to live off of “passive income”. You are doing a good job with savings, so stay after it and you will be able to retire early without counting on your Dad’s money.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: 2.5 million to invest for myself[35] and father[70]

Post by MotoTrojan » Wed Jul 17, 2019 9:54 pm

I'd forget the all-weather and stick with a more traditional portfolio as your core holding. I also agree to be careful with co-mingling and get your dad into something more efficient than the HYSA. TIPS is a reasonable idea for some of the assets. If he is comfortable with it, it would also be good to hold an equity component. I'd keep this in his name so if you inherit it you'll get the stepped-up basis.

rascott
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Re: 2.5 million to invest for myself[35] and father[70]

Post by rascott » Wed Jul 17, 2019 10:07 pm

No offense, but this is bizarre.

I think Dad should invest his money that's appropriate for him, you should keep doing whatever it is you do for $200k/yr.

Is there something missing here?

retire2022
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Re: 2.5 million to invest for myself[35] and father[70]

Post by retire2022 » Wed Jul 17, 2019 10:12 pm

rascott wrote:
Wed Jul 17, 2019 10:07 pm
No offense, but this is bizarre.

I think Dad should invest his money that's appropriate for him, you should keep doing whatever it is you do for $200k/yr.

Is there something missing here?
Rasscott you are assuming OP is American, I don’t think so, some cultures parent money and childs money are the one and the same.

rascott
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Re: 2.5 million to invest for myself[35] and father[70]

Post by rascott » Wed Jul 17, 2019 10:22 pm

retire2022 wrote:
Wed Jul 17, 2019 10:12 pm
rascott wrote:
Wed Jul 17, 2019 10:07 pm
No offense, but this is bizarre.

I think Dad should invest his money that's appropriate for him, you should keep doing whatever it is you do for $200k/yr.

Is there something missing here?
Rasscott you are assuming OP is American, I don’t think so, some cultures parent money and childs money are the one and the same.
Good point...

chessknt
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Re: 2.5 million to invest for myself[35] and father[70]

Post by chessknt » Wed Jul 17, 2019 10:41 pm

retire2022 wrote:
Wed Jul 17, 2019 10:12 pm
rascott wrote:
Wed Jul 17, 2019 10:07 pm
No offense, but this is bizarre.

I think Dad should invest his money that's appropriate for him, you should keep doing whatever it is you do for $200k/yr.

Is there something missing here?
Rasscott you are assuming OP is American, I don’t think so, some cultures parent money and childs money are the one and the same.
Well whatever he is, he is living in America and there are major disadvantages to entangling his assets with his dad, the biggest of which is healthcare costs consuming both of their nest eggs.

Topic Author
keenbrasss
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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 2:48 am

I apologize if I didn't give enough details, though I resent the judgment that my family dynamics don't line up with some perceived "norm". Suffice to say, I have PoA, he has no desire to manage funds and has asked me to do it, and we both consider this family money. As long as his needs are taken care of, I have full discretion with the funds. If it makes things easier, pretend all the assets are mine and I'm taking care of a dependent father. Prefer not to go into further details unless it's relevant to investing, thanks
David Jay wrote:
Wed Jul 17, 2019 9:42 pm
First off you are “counting your chickens before they hatch”. Your Dad’s portfolio could go sideways in a lot of ways. Late 70s style inflation for 10 years could decimate it since he is holding it all in the bank. Long term nursing care. Lots of possibilities.

For your Dad, I would take a serious look at a TIPS ladder with a big chunk of his portfolio if he wants to stay out of the stock market. US Treasury bonds that are guaranteed to beat inflation.

You have a $500,000 portfolio so you are not in any position to live off of “passive income”. You are doing a good job with savings, so stay after it and you will be able to retire early without counting on your Dad’s money.
Correct, the intention is to move all the funds from the bank into a diversified portfolio. He doesn't care about being in the stock market. While we do have to keep some funds low-risk for long term nursing care, it seems that a large chunk can be invested. While I mentioned he has 70k annual surplus, that also includes ~80k spending which would drastically change in a nursing care situation. While I know health care is expensive and I'm looking into better estimates, given his health it looks like portfolio would have time to grow past what will likely be required. If both myself and spouse are not working, then we can also provide care.

He has already agreed that since his pension surplus covers our living expenses, we could live off that and still have a surplus to invest each year without touching either of our portfolios at all. Now granted if things go south sooner than expected, it could eat up more, enough to not have leftovers to live via passive income, but I'd have time to reenter the workforce. I also would likely get shorter term contracting gigs as necessary, easy in my industry. If it is 15-20 years, then the portfolio should have time to grow enough to cover both his health care costs and still have enough left over to generate a passive income, no?
MotoTrojan wrote:
Wed Jul 17, 2019 9:54 pm
I'd forget the all-weather and stick with a more traditional portfolio as your core holding. I also agree to be careful with co-mingling and get your dad into something more efficient than the HYSA. TIPS is a reasonable idea for some of the assets. If he is comfortable with it, it would also be good to hold an equity component. I'd keep this in his name so if you inherit it you'll get the stepped-up basis.
Thank you for the investing advice. Why a more traditional profile? It seems like with the current conditions, isn't all-weather a bit lower risk, in the case we'd have to dip into it for healthcare? Yes, the plan is to move the bulk of it from HYSA into the portfolio. Yes was planning on keeping the equities in his account, with the other assets in mine since they wouldn't benefit from the step up.
Watty wrote:
Wed Jul 17, 2019 8:26 pm
Even if your Dad wants to comingle the funds it would be good to keep the accounts separate since there is a very reasonable chance that he could live to be 95 and him living to be 105 is possible.
With his lifetime pension generating a surplus, isn't it better for the fund if he lives to 105? Granted thats if we aren't talking about 20 years of in home nursing care. (but even then it appears his pension would cover a large % annually)

Watty wrote:
Wed Jul 17, 2019 8:26 pm
You are talking about a lot of different things and are very likely to get in over your head. Vanguard will provide advisory services for a fee of 0.3% and you could use them for a few years to get your and your dads portfolios set up for the long term.

It would also be good to get a lawyer who specializes in elder care law to help get your Dads legal affairs in order. That would need to set up contingencies for all sorts of situations like your Dad getting married, you dying before you Dad, etc.
Yes, was planning on using vanguard's advisory service, however, I'd still need to make the decision and give direction, presumably. I'm also worried that there is a bias towards doing things the "simple way" of a simple 40/60 or things that might not take into account the current state where, in my view, having something more diversified is important. Will definitely look into it though, thanks for reminding me about it.

All the legal stuff is worked out, it's agreed to keep this family money even in the case of remarried (although potentially also providing health care / nursing care to future spouse if they don't have funds of their own, but they wouldn't have access to the money directly). His will and my will already takes care of my spouse and future children.

Hope this can clarify the situation and get things back on track to how to actually manage this. It does make sense for tracking to keep our individual money in separate accounts under our own names, but still isn't it more tax advantageous to manage the portfolio as one instead of each of us mirroing a 3-fund or all-weather? Again my primary concerns are needing to gift one another money to rebalance, even though it should be under lifetime gift tax limits, but does it actually make it murkier? I realize some families create an LLC to invest with, but then would be losing cost basis step-up, which seems like it could be several million in taxes if he lives another 15-20 years with historical returns.

Topic Author
keenbrasss
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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 3:01 am

chessknt wrote:
Wed Jul 17, 2019 10:41 pm
Well whatever he is, he is living in America and there are major disadvantages to entangling his assets with his dad, the biggest of which is healthcare costs consuming both of their nest eggs.
Unless you are talking about transferring all his assets to my name to avoid medicaid's lookback period (which has been discussed), it would likely still eat into "my" nest egg... all of this is being treated as family money, and I am pretty committed to keeping him out of a nursing home, even if that impacts "my" funds. With that said, a private room at a nursing home is still significantly less than his pension each year, so we'll have to see what happens, in any case, it's just an amount of risk, which is one reason I'd like a lower-risk portfolio.

SemperFi79
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Re: 2.5 million to invest for myself[35] and father[70]

Post by SemperFi79 » Thu Jul 18, 2019 3:18 am

Just my two cents... you mentioned private room nursing home is “significantly” less than his pension. If his pension is $75k, I’m curious what your expectation of a potential private room nursing home is. As an example my good friends wife is in a private room nursing home, with full time nursing care pays over $10k a month! His rates were just raised $500 a month. And this isn’t some grand palatial place in the big city. So my point being if you don’t have long term care insurance to cover his costs in a nursing home, and to adjust for inflation ( as some LTC Ins plans don’t) I would prepare myself for what is current costs in a place you like and calculate/budget for that. As I am going through a difficult situation with my parents situation, dad will need to be moved to a memory care facility because at home it just isn’t working. Caregiving is not easy despite our best intentions to keep them home. Good luck with your plan!

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keenbrasss
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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 4:12 am

SemperFi79 wrote:
Thu Jul 18, 2019 3:18 am
Just my two cents... you mentioned private room nursing home is “significantly” less than his pension. If his pension is $75k, I’m curious what your expectation of a potential private room nursing home is. As an example my good friends wife is in a private room nursing home, with full time nursing care pays over $10k a month! His rates were just raised $500 a month. And this isn’t some grand palatial place in the big city. So my point being if you don’t have long term care insurance to cover his costs in a nursing home, and to adjust for inflation ( as some LTC Ins plans don’t) I would prepare myself for what is current costs in a place you like and calculate/budget for that. As I am going through a difficult situation with my parents situation, dad will need to be moved to a memory care facility because at home it just isn’t working. Caregiving is not easy despite our best intentions to keep them home. Good luck with your plan!
His *surplus* is 75k a year, that's on top of 80k expenses (which would fall drastically if confined to home) and paying taxes, while medical care is deductible. Already went through that with my mom, but luckily that was all handled by pension even with home care.

Sorry to hear about your parent's situation. I know what memory care is like, it can be stressful. Good luck

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Re: 2.5 million to invest for myself[35] and father[70]

Post by retiredjg » Thu Jul 18, 2019 7:53 am

keenbrass, we sometimes have unmarried couples post here for investing advice. Since all advice is based on tax law, even though these couples see things as "family money", they are better served by holding separate portfolios. This protects each of them, and their children, from possible bad consequences of unexpected events.

I see no reason why your family should not do the same. Your father should have his portfolio and you and your wife should have your portfolio.

All of the details that you mentioned will affect how his portfolio and how your portfolio should be invested. But the do not change the fact that it should be two separate portfolios.

All that happens to your family financially will be decided by law and tax law, not by the fact that you consider it family money.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by 8foot7 » Thu Jul 18, 2019 7:57 am

retiredjg wrote:
Thu Jul 18, 2019 7:53 am
keenbrass, we sometimes have unmarried couples post here for investing advice. Since all advice is based on tax law, even though these couples see things as "family money", they are better served by holding separate portfolios. This protects each of them, and their children, from possible bad consequences of unexpected events.

I see no reason why your family should not do the same. Your father should have his portfolio and you and your wife should have your portfolio.

All of the details that you mentioned will affect how his portfolio and how your portfolio should be invested. But the do not change the fact that it should be two separate portfolios.

All that happens to your family financially will be decided by law and tax law, not by the fact that you consider it family money.
+1. How you view this money and how reality and government view it are really two different things. This money cannot serve three people well viewed under one lens in this tax environment. You are almost guaranteed to make a costly decision in one way or another if you do not manage this money as three separate portfolios.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by marcopolo » Thu Jul 18, 2019 8:23 am

keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm

35yr, married and spouse is homemaker with no assets. kids soon, but not yet
no debt, renting
170k cash in HYSA
145k in 401k
55k in roth IRA (myself and spouse)
135k in roboadvisor
210k income, maxing out 401k (employer matched not listed) and 2 roth IRAs(backdoor), still some leftover
OP claims to view things as "family money", but evidently that does not extend to spouse. I guess it is a case of "what's yours is mine and whats mine is also mine".

Good luck. As others have said, regardless of how you "think" about the money, there are laws that will govern how it is taxed, inherited, divided, etc.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by Dottie57 » Thu Jul 18, 2019 8:47 am

rascott wrote:
Wed Jul 17, 2019 10:07 pm
No offense, but this is bizarre.

I think Dad should invest his money that's appropriate for him, you should keep doing whatever it is you do for $200k/yr.

Is there something missing here?
This. Don’t complicate things. You could lose your money if you combine into one account - if he needs nursing home at some point.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by Jack FFR1846 » Thu Jul 18, 2019 8:56 am

Beyond the lifetime federal estate allowance.....what's your state limit? Mine is $1M. So $1,000,001 brings on the state tax man.
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Re: 2.5 million to invest for myself[35] and father[70]

Post by MotoTrojan » Thu Jul 18, 2019 9:06 am

If you are worried about conditions then buy TIPS, that is insurance against rampant inflation. The all-weather has risks of its own. To each their own. I don’t think this time is different and I ignore the financial “news”.

Topic Author
keenbrasss
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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 12:42 pm

Again... there is a bunch of judgmental advice about how I should "view" the money, and not investing advice. I realize people are trying to be helpful, but your opinions aren't going to change the situation. I mentioned spouse with no assets to give a clear picture, not because the family money is any more or less theirs, mostly because in initial post I was expecting investment advice rather than judgment.

There is no state estate tax involved.

He would be fine giving me the lump sum now to manage, but it seems like that could be literally millions lost without the cost basis step up.

I'm fine keeping it in separate accounts and understand that makes taxes clearer, but in terms of actually distributing the investments across the accounts, it seems like a lot more work and less tax advantageous to keep both accounts with the same distribution vs having the target distribution spread over both, such as bonds and commodities in my tax advantaged accounts and equities in his account, especially if we can let the equities sit for 15-20 years untouched.

Let's skip past the judgment, and assume I'm running either 3 fund or all-weather in 2 accounts. Is the overall plan a fine way to go?
Dottie57 wrote:
Thu Jul 18, 2019 8:47 am
This. Don’t complicate things. You could lose your money if you combine into one account - if he needs nursing home at some point.
Could you explain this? His pension more than covers a private room at a nursing home. Also, if that was a big risk, wouldn't it be more prudent to just transfer all the money to me now to manage, which would have the side effect of being outside of any medicaid lookback period?
marcopolo wrote:
Thu Jul 18, 2019 8:23 am
Good luck. As others have said, regardless of how you "think" about the money, there are laws that will govern how it is taxed, inherited, divided, etc.
The will is already set that I'll get 100% of the estate. There is a verbal agreement that any future spouses will have their medical care covered. I understand the tax implications, which is the whole reason I'm talking about distributing the portfolio across both accounts to maximize tax efficiency.

I understand will can change or he could be hit with some personal liability that isn't covered with home or auto liability insurance, but that is a risk to my accounts as well, and doesn't seem relevant for planning investments. I trust my father, and he trusts me.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by Dottie57 » Thu Jul 18, 2019 12:54 pm

I am sorry if this seems harsh, but your concepts of money management signal greed to most born in this country. It also reads as manipulation of an elderly person.

To suggest someone put their money in your accounts, well I would never, ever do that. The money in her accounts is for her care. We might live together at some point so I can help her more but that is in the future. At some point with a medical necessity She may need a nursing home. Her money will likely suffice. Am not looking for an inheritance.

I think you could very well get into a claw back situation wheregovt tries to get money back.

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keenbrasss
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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 1:11 pm

Dottie57 wrote:
Thu Jul 18, 2019 12:54 pm
I am sorry if this seems harsh, but your concepts of money management signal greed to most born in this country. It also reads as manipulation of an elderly person.

I think you could very well get into a claw back situation wheregovt tries to get money back.
Again... please skip the judgment. Don't really care if this signals greed or not. The investing advice should be similar whether I'm greedy or not, right? My family is extremely comfortable with the situation.

I agree the money is for his care, but it doesn't matter if his care is paid for from my account or his account, it's literally just an identification number living in some computer somewhere. I have no intention of not taking care of him, which is one reason I want to make sure the portfolio has lower risk than standard options.

Regarding claw back, isn't the period 5 years? If father wanted to transfer everything just so he didn't have to worry about the money, wouldn't it be exempt after that period? Personally, I feel like weighing the risks that it makes most sense to take advantage of the equity step up than worry about nursing home costs eating through the entire account given the lifetime pension, but both options are on the table.

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8foot7
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Re: 2.5 million to invest for myself[35] and father[70]

Post by 8foot7 » Thu Jul 18, 2019 1:18 pm

Just my 2c but someone as sensitive to being given good advice as the OP seemingly is is probably up to some amount of no-good. Especially with stuff like “wouldn’t it be better to transfer all of the money to me now?” I’m out.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by CnC » Thu Jul 18, 2019 1:30 pm

keenbrasss wrote:
Thu Jul 18, 2019 12:42 pm
Again... there is a bunch of judgmental advice about how I should "view" the money, and not investing advice. I realize people are trying to be helpful, but your opinions aren't going to change the situation. I mentioned spouse with no assets to give a clear picture, not because the family money is any more or less theirs, mostly because in initial post I was expecting investment advice rather than judgment.

There is no state estate tax involved.

He would be fine giving me the lump sum now to manage, but it seems like that could be literally millions lost without the cost basis step up.

I'm fine keeping it in separate accounts and understand that makes taxes clearer, but in terms of actually distributing the investments across the accounts, it seems like a lot more work and less tax advantageous to keep both accounts with the same distribution vs having the target distribution spread over both, such as bonds and commodities in my tax advantaged accounts and equities in his account, especially if we can let the equities sit for 15-20 years untouched.

Let's skip past the judgment, and assume I'm running either 3 fund or all-weather in 2 accounts. Is the overall plan a fine way to go?
Dottie57 wrote:
Thu Jul 18, 2019 8:47 am
This. Don’t complicate things. You could lose your money if you combine into one account - if he needs nursing home at some point.
Could you explain this? His pension more than covers a private room at a nursing home. Also, if that was a big risk, wouldn't it be more prudent to just transfer all the money to me now to manage, which would have the side effect of being outside of any medicaid lookback period?
marcopolo wrote:
Thu Jul 18, 2019 8:23 am
Good luck. As others have said, regardless of how you "think" about the money, there are laws that will govern how it is taxed, inherited, divided, etc.
The will is already set that I'll get 100% of the estate. There is a verbal agreement that any future spouses will have their medical care covered. I understand the tax implications, which is the whole reason I'm talking about distributing the portfolio across both accounts to maximize tax efficiency.

I understand will can change or he could be hit with some personal liability that isn't covered with home or auto liability insurance, but that is a risk to my accounts as well, and doesn't seem relevant for planning investments. I trust my father, and he trusts me.


I understand exactly what you are saying some people have in their mind preconceived notions that have no basis in reality.

If you and your father agree this is family money and if it is below inheritance tax it really doesn't matter whether it is your money or his.

If you are committed to keeping him out of a nursing home once again it doesn't matter if it is his money or your money.

I would still avoid putting any money into your name for the tax step-up basis.

You could still pretty well follow the same rules put his and your pre-tax money into bonds and taxable accounts into stocks.

Sounds like he has a very high income anyway so it is likely that what is tax-efficient for you will also be tax-efficient for him.

I would also advise slowly changing his stock a location rather than doing it all at once. I realized that he has giving you full reign over his money but ideally you don't want any drastic changes in the market to affect his perception.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by shiftleft » Thu Jul 18, 2019 1:36 pm

My guess is that OP is Asian, and being Asian myself and knowing many Asians, it is very common to share money across generations. I would still keep it separated across accounts however due to tax laws, inheritance laws, liability, and such. Make sure both you and your father are adequately insured. And since you're the only heir, I would look at the portfolio as a combined whole (but keep them in separate accounts).

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Re: 2.5 million to invest for myself[35] and father[70]

Post by Dottie57 » Thu Jul 18, 2019 2:30 pm

8foot7 wrote:
Thu Jul 18, 2019 1:18 pm
Just my 2c but someone as sensitive to being given good advice as the OP seemingly is is probably up to some amount of no-good. Especially with stuff like “wouldn’t it be better to transfer all of the money to me now?” I’m out.
Me 2. Said what I wanted to.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by megabad » Thu Jul 18, 2019 2:37 pm

keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
Chances are high we'll be under the estate tax limit. My plan would be to keep separate vanguard accounts for the two of us, but in terms of fund distribution, should I treat it all like one portfolio? No. I won't go into the details (since this doesn't appear to be your desired focus), but fundamentally, both portfolios have different purposes and should be thought of completely separately. That said, the purpose of father's portfolio may be "leave as much to son as possible in a the most tax efficient manner". My view on this has nothing to do with your family dynamic.

Would it make sense for me to give my dad my 305k just to allow for managing all the post-tax investments in a single vanguard account?
To what end? Is it truly that much more difficult to manage 2 accounts? I guess I would not do this because I don't see the reason.

Given his pension surplus would take care of a lot of the future-needed healthcare, I'm thinking there doesn't need to be a huge amount set aside in HYSA / CD ladders, but would definitely keep a section safe for that care.
Assuming his pension is tied to the CPI, I mostly agree with this assuming father is emotional ok with holding different asset classes. If pension is static, his real income will likely become lowest when he is most likely to need expensive long term care so he might need more from his portfolio later in that case. Also father is in a high tax bracket and likely needs to move somewhat away from instruments producing taxable interest (like high yield savings accounts).

I'm going conservative with all-weather fund with the expectation to switch to a stock-weighted portfolio if the market has a downturn. I realize this is timing the market...
You said it...not me...but I agree that it is market timing. I am a simple guy and I would likely have father invested in 3 funds: Total US Stock, Total Int Stock, and a small amount in a muni bond/money market account. Also, I would strongly consider talking to father about funding a 529 for grandkids. Your investments should be based on your own situation, but will be slightly different given your lower tax bracket.

I'm really on the fence with working another 15 years or trying to live on passive income starting now. On one hand, given his pension surplus is still feeding into the portfolio and I'm really frugal, there is already enough at 3% to live on. OTOH with a looming recession and possibly 10-30 years of reduced returns also scares me, especially given my earning potential. I enjoy my work but obviously would rather not given the choice :)
Personal choice dependent on whether your father is willing to support you and whether you are ok with this sort of arrangement. Personally, at a minimum, I would think a 35 year old would likely be bored/lost with 50+ years of retirement ahead of him/her. Just my view.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 3:54 pm

8foot7 wrote:
Thu Jul 18, 2019 1:18 pm
Just my 2c but someone as sensitive to being given good advice as the OP seemingly is is probably up to some amount of no-good. Especially with stuff like “wouldn’t it be better to transfer all of the money to me now?” I’m out.
I also suggested transferring all my money into his account. Outside of tax and liability purposes, what difference does it make which account # it is under? the money will be used identically if its split 50/50, all in mine or all in his.

really thought this was a forum for investment advice, not for accusing people with zero evidence. As I said, everyone actually involved is extremely comfortable with the arrangement (except this forum)

This is last time I'll address it

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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 4:27 pm

megabad wrote:
Thu Jul 18, 2019 2:37 pm
To what end? Is it truly that much more difficult to manage 2 accounts? I guess I would not do this because I don't see the reason.
Mostly thinking about tax purposes, it seems like keeping the same distribution in two portfolios wouldn't take full advantage of my tax advantaged accounts and his eventually basis step up.
megabad wrote:
Thu Jul 18, 2019 2:37 pm
Assuming his pension is tied to the CPI, I mostly agree with this assuming father is emotional ok with holding different asset classes. If pension is static, his real income will likely become lowest when he is most likely to need expensive long term care so he might need more from his portfolio later in that case. Also father is in a high tax bracket and likely needs to move somewhat away from instruments producing taxable interest (like high yield savings accounts).
Understood. It is tied to inflation, and yes as health care is deductible assume we could probably start capital gains harvesting once his tax bracket drops, though if the situation is that dire then wouldn't likely last too many years. And yes, majority is intended to be put in equities once decide on portfolio and how to structure it across both accounts. This aligns with my thinking
megabad wrote:
Thu Jul 18, 2019 2:37 pm
You said it...not me...but I agree that it is market timing. I am a simple guy and I would likely have father invested in 3 funds: Total US Stock, Total Int Stock, and a small amount in a muni bond/money market account. Also, I would strongly consider talking to father about funding a 529 for grandkids. Your investments should be based on your own situation, but will be slightly different given your lower tax bracket.
Have thought about 529, but we are heavily considering homeschooling, especially if I'm retired and able to spend time at home. Generally the family is against expensive college, we both did state schools on scholarships... so there is a concern the money might go unused and the resulting penalty.
megabad wrote:
Thu Jul 18, 2019 2:37 pm
Personal choice dependent on whether your father is willing to support you and whether you are ok with this sort of arrangement. Personally, at a minimum, I would think a 35 year old would likely be bored/lost with 50+ years of retirement ahead of him/her. Just my view.
Understand your concern, but we have plenty of passions that we'd like to spend more time on. Jobs are not a source of meaning or excitement or purpose, it's purely a means to secure a retirement.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by retiredjg » Thu Jul 18, 2019 4:57 pm

keenbrass, sometimes it sounds like you are talking about managing his money and your money as one portfolio. Other times, it sounds like you are talking about your father "transferring his money to my accounts" and vice versa.

Regarding transferring money, there are laws that govern how much of a gift can be given without paying tax. He can't just give you his $2 million in a lump sum. At least, I don't think he can.

What is the current plan to transfer all his money to your accounts?

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Re: 2.5 million to invest for myself[35] and father[70]

Post by Wiggums » Thu Jul 18, 2019 5:05 pm

retiredjg wrote:
Thu Jul 18, 2019 4:57 pm
keenbrass, sometimes it sounds like you are talking about managing his money and your money as one portfolio. Other times, it sounds like you are talking about your father "transferring his money to my accounts" and vice versa.

Regarding transferring money, there are laws that govern how much of a gift can be given without paying tax. He can't just give you his $2 million in a lump sum. At least, I don't think he can.

What is the current plan to transfer all his money to your accounts?
+1 it would be helpful if you can clarify this so we can help you.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by TomatoTomahto » Thu Jul 18, 2019 5:44 pm

retiredjg wrote:
Thu Jul 18, 2019 4:57 pm
Regarding transferring money, there are laws that govern how much of a gift can be given without paying tax. He can't just give you his $2 million in a lump sum. At least, I don't think he can.
Father has $2.1M in a high yield savings account in, I believe, taxable. OP says no state estate tax. So, other than filing a form 709, there should be no tax consequences. Did I miss something?
Edited to correct form #
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Re: 2.5 million to invest for myself[35] and father[70]

Post by retiredjg » Thu Jul 18, 2019 5:53 pm

TomatoTomahto wrote:
Thu Jul 18, 2019 5:44 pm
Did I miss something?
I don't know. I didn't think you could give someone that much but this is an area with which I have no experience. I thought there is a limit on gifting.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by TomatoTomahto » Thu Jul 18, 2019 6:03 pm

retiredjg wrote:
Thu Jul 18, 2019 5:53 pm
TomatoTomahto wrote:
Thu Jul 18, 2019 5:44 pm
Did I miss something?
I don't know. I didn't think you could give someone that much but this is an area with which I have no experience. I thought there is a limit on gifting.
You have to file form 709 for any gift that exceeds (currently) $15k from one person to another in one calendar year. Some states have low lifetime exclusions (MA, for example, is $1M), but no tax is due immediately AFAIK. In OP’s case, with no state estate tax, he has millions to go ($11M iirc currently).
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 6:27 pm

retiredjg wrote:
Thu Jul 18, 2019 4:57 pm
keenbrass, sometimes it sounds like you are talking about managing his money and your money as one portfolio. Other times, it sounds like you are talking about your father "transferring his money to my accounts" and vice versa.

Regarding transferring money, there are laws that govern how much of a gift can be given without paying tax. He can't just give you his $2 million in a lump sum. At least, I don't think he can.

What is the current plan to transfer all his money to your accounts?
The federal gift lifetime limit is $11.4 million. If the amount is over $15k per year then you have to file a form with IRS, but it isn't taxed. So he can.

Regarding transferring, I'm open to all possibilities, whichever is most tax efficient. Right now I'm leaning towards keeping the money in separate accounts and balancing them as a single portfolio, then keeping them separate and balancing each account identically a close second. I'm indifferent about transferring all my money into his account, all his money into my account or leaving them as is, only making that decision for the health of the family fund.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by TomatoTomahto » Thu Jul 18, 2019 6:41 pm

OP, rather than being influenced by Ray Dalio, I’d just try to place 3-fund assets appropriately given your limited tax deferred space. Personally, I’d be too nervous to have as much in high yield, but that’s me.
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Re: 2.5 million to invest for myself[35] and father[70]

Post by Lauretta » Thu Jul 18, 2019 7:01 pm

keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm

Considering Dalio's post from today as well, doesn't fill me with hope for bond + stocks alone: https://www.linkedin.com/pulse/paradigm ... ray-dalio/

I have read that piece (which according to some media is the reason why gold has rallied since yesterday). I have a huge admiration for Dalio and I am personally increasing my holdings in gold to at least 10% of my assets. Even Bogle had quite a large proportion allocated to gold in an endowment he was managing. (And btw he also invested some of his own money in an active small cap fund, which was managed by his son).

So I would not go for a three fund portfolio (not even Bogle did). What has worked well in the last decade is probably not going to work in the next, as explained in Dalio's article. As he says, the worst thing you can do is pick the investments that have performed well believing that this will go on forever. Yet many people continue to think that US stocks will continue to do well and to beat the rest of the world just because they've done so in the last decade...

Also, I think that perhaps it will be time for value to outperform growth in the next decade (saw a good article by OSAM on this), so I am pretty heavily tilted to value.
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Re: 2.5 million to invest for myself[35] and father[70]

Post by retiredjg » Thu Jul 18, 2019 7:18 pm

keenbrasss wrote:
Thu Jul 18, 2019 6:27 pm
retiredjg wrote:
Thu Jul 18, 2019 4:57 pm
keenbrass, sometimes it sounds like you are talking about managing his money and your money as one portfolio. Other times, it sounds like you are talking about your father "transferring his money to my accounts" and vice versa.

Regarding transferring money, there are laws that govern how much of a gift can be given without paying tax. He can't just give you his $2 million in a lump sum. At least, I don't think he can.

What is the current plan to transfer all his money to your accounts?
The federal gift lifetime limit is $11.4 million. If the amount is over $15k per year then you have to file a form with IRS, but it isn't taxed. So he can.

Regarding transferring, I'm open to all possibilities, whichever is most tax efficient. Right now I'm leaning towards keeping the money in separate accounts and balancing them as a single portfolio, then keeping them separate and balancing each account identically a close second. I'm indifferent about transferring all my money into his account, all his money into my account or leaving them as is, only making that decision for the health of the family fund.
Well I have no idea about whether all this transferring or any transferring should happen or not. Either way, the portfolios should be managed separately because tax law sees them separately.

I would trust Boglehead ideas before trusting Ray Dalio.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by delamer » Thu Jul 18, 2019 7:18 pm

chessknt wrote:
Wed Jul 17, 2019 10:41 pm
retire2022 wrote:
Wed Jul 17, 2019 10:12 pm
rascott wrote:
Wed Jul 17, 2019 10:07 pm
No offense, but this is bizarre.

I think Dad should invest his money that's appropriate for him, you should keep doing whatever it is you do for $200k/yr.

Is there something missing here?
Rasscott you are assuming OP is American, I don’t think so, some cultures parent money and childs money are the one and the same.
Well whatever he is, he is living in America and there are major disadvantages to entangling his assets with his dad, the biggest of which is healthcare costs consuming both of their nest eggs.
He has a wife. A non-working wife, as a matter of fact.

He needs to be sure that she is financially protected. If I was in her position, transferring assets belonging to my husband (and possibly me) into his father’s name would be an absolute no-go.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Thu Jul 18, 2019 8:41 pm

delamer wrote:
Thu Jul 18, 2019 7:18 pm
He has a wife. A non-working wife, as a matter of fact.

He needs to be sure that she is financially protected. If I was in her position, transferring assets belonging to my husband (and possibly me) into his father’s name would be an absolute no-go.
Speaking of facts: homemaker is hard work, and I never said I had a wife. You know what they say about making assumptions.

As I've said, my spouse is already the sole beneficiary in both mine and fathers wills (if I've passed) and they are comfortable with the situation and feel protected.

I trust bogleheads ideas as well, the ETF recreation of all-weather fund I linked was created by a bogleheads member. As I said, I'm still deciding between 3 fund and all weather, but the arguments for TIPS, gold, and commodities seem extremely persuasive given the climate, and that most all the gains of the last 10 years came from skyrocketing debt.
Lauretta wrote:
Thu Jul 18, 2019 7:01 pm
I have read that piece (which according to some media is the reason why gold has rallied since yesterday). I have a huge admiration for Dalio and I am personally increasing my holdings in gold to at least 10% of my assets. Even Bogle had quite a large proportion allocated to gold in an endowment he was managing. (And btw he also invested some of his own money in an active small cap fund, which was managed by his son).

So I would not go for a three fund portfolio (not even Bogle did). What has worked well in the last decade is probably not going to work in the next, as explained in Dalio's article. As he says, the worst thing you can do is pick the investments that have performed well believing that this will go on forever. Yet many people continue to think that US stocks will continue to do well and to beat the rest of the world just because they've done so in the last decade...

Also, I think that perhaps it will be time for value to outperform growth in the next decade (saw a good article by OSAM on this), so I am pretty heavily tilted to value.
Good points. Agreed on value though that is going to take a lot more education. For now want to get the funds into low rate index funds to get some market exposure. Could easily tilt towards value once I feel comfortable with it.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by JD Leonard » Thu Jul 18, 2019 11:24 pm

keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
Chances are high we'll be under the estate tax limit.
If there is a chance that your dad will not be under the estate tax limit (the biggest risk might be future changes in legislation!), it might make sense for him to start gifting you the annual gift tax exempt amount ($15k) each year to reduce this risk.

If there is a chance that you will not be under the estate tax limit when you die, it might make sense to plan to have you and your father each gift the generation skipping tax exclusion amount ($15k) to trusts for your children (once they are living) to reduce this risk, but pay attention to trust tax rates, which can be high.

Have you looked into how probate works in your state? If you haven't already, it might make sense for some of your father's assets to be put into a revocable living trust to avoid probate fees when he dies.
keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
My plan would be to keep separate vanguard accounts for the two of us, but in terms of fund distribution, should I treat it all like one portfolio?
I understand the temptation to attempt to simplify by treating your father's portfolio and your portfolio as one, but as some other commenters have pointed out, tax law doesn't treat them that way (but it makes sense for your respective portfolios' asset allocations to be constructed with the other's in mind). The step up in basis upon death seems like an excellent reason to not transfer money from your dad to you before his death and to focus his portfolio on equities likely to appreciate.
keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
While I realize I cannot exchange money for tax purposes, would it make sense for me to give my dad my 305k just to allow for managing all the post-tax investments in a single vanguard account?
There could be unforeseen consequences to doing this. Managing two Vanguard accounts is not significantly more difficult than managing one.
keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
My concerns about treating both our accounts as a single portfolio comes under rebalancing, where if I need to buy more that is on the bonds / gold side of my tax advantaged accounts, that he'd need to gift me the money.
Gifting is one way to solve rebalancing needs in taxable. You can also generally use dividend income or earned income in taxable. In tax advantaged accounts, you can rebalance without consequence.
keenbrasss wrote:
Wed Jul 17, 2019 7:10 pm
I'm really on the fence with working another 15 years or trying to live on passive income starting now. On one hand, given his pension surplus is still feeding into the portfolio and I'm really frugal, there is already enough at 3% to live on. OTOH with a looming recession and possibly 10-30 years of reduced returns also scares me, especially given my earning potential. I enjoy my work but obviously would rather not given the choice :)
Society frequently pressures us to keep working unnecessarily. If you can afford to not work and that is your preference, go for it! Also consider alternatives such as working part-time to get the best of both worlds or trying something completely different.

Good luck!
- JD Leonard

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Re: 2.5 million to invest for myself[35] and father[70]

Post by delamer » Fri Jul 19, 2019 10:20 am

keenbrasss wrote:
Thu Jul 18, 2019 8:41 pm
delamer wrote:
Thu Jul 18, 2019 7:18 pm
He has a wife. A non-working wife, as a matter of fact.

He needs to be sure that she is financially protected. If I was in her position, transferring assets belonging to my husband (and possibly me) into his father’s name would be an absolute no-go.
Speaking of facts: homemaker is hard work, and I never said I had a wife. You know what they say about making assumptions.

As I've said, my spouse is already the sole beneficiary in both mine and fathers wills (if I've passed) and they are comfortable with the situation and feel protected.
You’re right; I should not have assumed a homemaker is female.

So you are confident not just that your spouse is protected if you predecease father, but that s/he can take manage the family’s finances if that should happen? Sometimes posters here come up with portfolios that would be difficult for someone else to maintain, especially if the spouse has limited interest/knowledge of investing (which may not be your situation, of course).

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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Fri Jul 19, 2019 1:56 pm

JD Leonard wrote:
Thu Jul 18, 2019 11:24 pm
If there is a chance that your dad will not be under the estate tax limit (the biggest risk might be future changes in legislation!), it might make sense for him to start gifting you the annual gift tax exempt amount ($15k) each year to reduce this risk.

If there is a chance that you will not be under the estate tax limit when you die, it might make sense to plan to have you and your father each gift the generation skipping tax exclusion amount ($15k) to trusts for your children (once they are living) to reduce this risk, but pay attention to trust tax rates, which can be high.
That is an excellent point, had not considered the limit going down when every year it has risen. I am hoping with proper management we could grow this over the next 50 years, so that is definitely a concern.
JD Leonard wrote:
Thu Jul 18, 2019 11:24 pm
Have you looked into how probate works in your state? If you haven't already, it might make sense for some of your father's assets to be put into a revocable living trust to avoid probate fees when he dies.
I'm aware of dangers, though haven't looked into it in detail yet. Avoided probate with my mother, but we also only got 50% step-up because of the joint account.
JD Leonard wrote:
Thu Jul 18, 2019 11:24 pm
I understand the temptation to attempt to simplify by treating your father's portfolio and your portfolio as one, but as some other commenters have pointed out, tax law doesn't treat them that way (but it makes sense for your respective portfolios' asset allocations to be constructed with the other's in mind). The step up in basis upon death seems like an excellent reason to not transfer money from your dad to you before his death and to focus his portfolio on equities likely to appreciate.
Agreed, thanks for the clear advice
JD Leonard wrote:
Thu Jul 18, 2019 11:24 pm
Gifting is one way to solve rebalancing needs in taxable. You can also generally use dividend income or earned income in taxable. In tax advantaged accounts, you can rebalance without consequence.
This makes sense. With his pension rebalancing should be easier, and if I was working it would be easy, but was concerned if living on passive income how to handle it, but gifting could make sense.

Thanks for your direct advice on the investing!

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Re: 2.5 million to invest for myself[35] and father[70]

Post by keenbrasss » Fri Jul 19, 2019 1:58 pm

delamer wrote:
Fri Jul 19, 2019 10:20 am
So you are confident not just that your spouse is protected if you predecease father, but that s/he can take manage the family’s finances if that should happen? Sometimes posters here come up with portfolios that would be difficult for someone else to maintain, especially if the spouse has limited interest/knowledge of investing (which may not be your situation, of course).
That's a good point, and one reason was looking towards a permanent portfolio that would only need rebalancing. They could always enable the vanguard PAS to handle rebalancing, but yes will take time to make sure they know what to do in an emergency situation.

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Re: 2.5 million to invest for myself[35] and father[70]

Post by gogleheads.orb » Fri Jul 19, 2019 2:41 pm

If there is a chance that your dad will not be under the estate tax limit (the biggest risk might be future changes in legislation!), it might make sense for him to start gifting you the annual gift tax exempt amount ($15k) each year to reduce this risk..

Your father could give $15k to you and $15k to your spouse every year.

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