Assets going from 600K->15M, should I change my asset allocation?

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KyleAAA
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by KyleAAA »

RocketShipTech wrote: Wed Aug 12, 2020 2:21 pm
WildBill wrote: Wed Aug 12, 2020 2:08 pm
RocketShipTech wrote: Wed Aug 12, 2020 12:08 pm
coffeeblack wrote: Wed Aug 12, 2020 11:54 am
RocketShipTech wrote: Wed Aug 12, 2020 11:50 am

The “tax-efficient” Vanguard funds you refer to will have the OP writing $100k+ checks to the US Treasury every year.
Why is that?

If you are talking about his gains from those investments then he made gains and will pay taxes on gain. So how will he go broke? His principal is not being taxed.
Total Stock Market generates 1.7% dividend return per year

Total Bond Market generates 1.1% interest return.

Total International generates 2.4% dividend return.

2% distribution return on $15M is $300k. 33% tax rate (20% Fed + 9.3% State + 3.8% NIIT) on that is $100k.
Howdy

Not sure what you are doing here, as your calculation is not correct, and in fact inaccurate by quite a large amount. Your general advice on seeking tax efficiency is good, but your facts are not.

Fact: Qualified dividend income and capital income are taxed at 15% up to a total reported income after deductions of circa $240 k. A good chunk, up to 100k including the 20k standard deduction, are taxed at 0%.

In a simple example, the OP could work it to where he had projected qualified dividend income of circa $260 k with some tax free bond income and after all of the rigamarole with taxes would owe 0% on 100k, 15% on the next $140 k, or about $21k, or about 21% of your estimate. This would also avoid the Medicare surtax on investment income.

You can check this out by reference to the 2020 tax tables on capital income. It is not complicated, but does require knowledge of the facts and the ability to run a simple spreadsheet.

OP could also move to any one of a number of states with no income tax and avoid state taxes also.

I do not consider your advice on investigating annuities or whole life to be sound, unless there are compelling estate planning reasons. Complexity and cost increase, and simpler solutions should be better.

Happy tax avoidance

W B
You totally missed the fact that OP earns $350k ordinary income at a job he has no intention of quitting.
OP says the opposite: "...If we decide to scale back working (which we are considering)..."
coffeeblack
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by coffeeblack »

nix4me wrote: Wed Aug 12, 2020 2:23 pm
coffeeblack wrote: Wed Aug 12, 2020 1:38 pm
nix4me wrote: Wed Aug 12, 2020 12:43 pm
Luckywon wrote: Wed Aug 12, 2020 12:38 pm I recomment OP put the money in some mix of VTI and BND and go see a well qualified tax and estate attorney for estate planning, like bsteiner.
Terrible advice!

Why is this terrible advice?
Because there are ways to reduce the dividend income by using more tax efficient funds thus saving on taxes.
I agree. But overall they are very tax efficient funds. So they are not terrible.
nix4me
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by nix4me »

You can invest in the same types of stocks without just ignoring taxes. The attitude of using Total stock or bust is laziness and ignorance. If the OP wants a hands off 1 fund approach then at least use the Tax Managed balanced fund from Vanguard. But even that can be improved upon.
coffeeblack
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by coffeeblack »

RocketShipTech wrote: Wed Aug 12, 2020 1:39 pm
coffeeblack wrote: Wed Aug 12, 2020 1:34 pm
Also, I would argue that he won't be paying 33% in effective taxes. 33% is a marginal tax rate. The state tax is somewhat adjusted for the feds. His gains are capital gains so if you just look at that it won't be 33% effective or marginal.
Like I said, pitiful tax knowledge on this forum.
Ok.
Any dividend he would be taking out is a qualified dividend. Cap gain.
Interest is ordinary taxes.
Principal is not taxed.

Lets say he get 150K in dividends and 150K in interest and no principal is used. That puts him just under 42K in Federal taxes. Then, let say state tax is 10% and he pay 10% on the taxable income. So that would be around 28K.

So 42K + 28K = 70K not 100k as you said. I guess my boglehead math is working it's magic.

Percentage wise that would be 23.3% of his 300K. Perhaps there is another tax in there i didn't add up.

Either way. He will not go broke as you said. And I'm not a tax attorney but just like you I can use a tax calc.

So Like I said, His tax rate won't be 33%.

OHHH wait. I didn't see you are one those variable annuity, whole life guys. So your advice would be to give away his millions to some insurance companies to handle it for him. He has 15 mil cash now and most likely will never run out of money. But you would have him give it to some company, So he saves a few thousand on taxes.
Last edited by coffeeblack on Wed Aug 12, 2020 3:25 pm, edited 1 time in total.
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principlegeneration
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by principlegeneration »

Hi all, OP here.

Thanks for all of the really helpful replies! The diversity of insight is helpful, as well as where people tend to agree.

I'm not opposed to paying for advice, but honestly I assumed it'd result in me signing up with a money manager. I'm definitely interested in a flat-free advisor. I've extensively consulted with CPAs and estate planners already... now I have to figure out how to invest the money. But I also trust this forum a lot (I've lurked and never had reason to post until now).

This is the first I'd heard of MUNI bonds, so will look into those. I also hadn't even considered the 250K cap on cash being secured, which is an important thing to remember.

Honestly I feel very validated that there seems to be consensus on
- No AUM fees at all costs
- Don't be worried about some complex financial finagling I could be doing
- In general, my current strategy doesn't totally break down even with this new set of assets

I now intend to rethink my 90/10 allocation (maybe more like 70/30). We have so far told no one about this transaction, and will continue to do that, though unfortunately that might not be fully within our control :/ for those who have mentioned the valley, you're spot on.

Some folks have said to set up a CD ladder. A cursory check didn't reveal much better interest rates on CDs than high-yield savings accounts... am I just looking in the wrong places?
Cash is King
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Cash is King »

OP is a no show. Yet, this post has three pages of bogleheads having conversation amongst themselves and offering advice. Priceless! :mrgreen:
Topic Author
principlegeneration
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by principlegeneration »

(OP again) Also I just finished reading the last page of replies (all the tax stuff) and it's been very enjoyable :) You all disagree but certainly at least some of you know more than me! I've focused so much on income tax over the years that I've totally ignored tax implications of my investments so far.
nix4me
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by nix4me »

principlegeneration wrote: Wed Aug 12, 2020 3:00 pm Hi all, OP here.

Thanks for all of the really helpful replies! The diversity of insight is helpful, as well as where people tend to agree.

I'm not opposed to paying for advice, but honestly I assumed it'd result in me signing up with a money manager. I'm definitely interested in a flat-free advisor. I've extensively consulted with CPAs and estate planners already... now I have to figure out how to invest the money. But I also trust this forum a lot (I've lurked and never had reason to post until now).

This is the first I'd heard of MUNI bonds, so will look into those. I also hadn't even considered the 250K cap on cash being secured, which is an important thing to remember.

Honestly I feel very validated that there seems to be consensus on
- No AUM fees at all costs
- Don't be worried about some complex financial finagling I could be doing
- In general, my current strategy doesn't totally break down even with this new set of assets

I now intend to rethink my 90/10 allocation (maybe more like 70/30). We have so far told no one about this transaction, and will continue to do that, though unfortunately that might not be fully within our control :/ for those who have mentioned the valley, you're spot on.

Some folks have said to set up a CD ladder. A cursory check didn't reveal much better interest rates on CDs than high-yield savings accounts... am I just looking in the wrong places?
You might try Rick Ferri - he is well respected around here and a one time fee only type of advisor.
Cash is King
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Cash is King »

Surprise, Surprise. Carry on. :sharebeer
KyleAAA
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by KyleAAA »

nix4me wrote: Wed Aug 12, 2020 2:55 pm You can invest in the same types of stocks without just ignoring taxes. The attitude of using Total stock or bust is laziness and ignorance. If the OP wants a hands off 1 fund approach then at least use the Tax Managed balanced fund from Vanguard. But even that can be improved upon.
Nobody has adopted that attitude, so what exactly are you arguing against?
coffeeblack
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by coffeeblack »

WildBill wrote: Wed Aug 12, 2020 2:08 pm
RocketShipTech wrote: Wed Aug 12, 2020 12:08 pm
coffeeblack wrote: Wed Aug 12, 2020 11:54 am
RocketShipTech wrote: Wed Aug 12, 2020 11:50 am
coffeeblack wrote: Wed Aug 12, 2020 11:48 am

I doubt he will go broke paying taxes. Taxes are based on him making money from his taxable investments. So he won't be paying taxes if he doesn't make any money.

Also, Vanguard has several tax friendly index funds. Such as the total stock and total bond funds. Also, the VWIUX a muni fund would work as part of a tax efficient bond fund(s). So he can easily put together a 3 fund portfolio using tax efficient funds and not go broke paying taxes.
The “tax-efficient” Vanguard funds you refer to will have the OP writing $100k+ checks to the US Treasury every year.
Why is that?

If you are talking about his gains from those investments then he made gains and will pay taxes on gain. So how will he go broke? His principal is not being taxed.
Total Stock Market generates 1.7% dividend return per year

Total Bond Market generates 1.1% interest return.

Total International generates 2.4% dividend return.

2% distribution return on $15M is $300k. 33% tax rate (20% Fed + 9.3% State + 3.8% NIIT) on that is $100k.
Howdy

Not sure what you are doing here, as your calculation is not correct, and in fact inaccurate by quite a large amount. Your general advice on seeking tax efficiency is good, but your facts are not.

Fact: Qualified dividend income and capital income are taxed at 15% up to a total reported income after deductions of circa $240 k. A good chunk, up to 100k including the 20k standard deduction, are taxed at 0%.

In a simple example, the OP could work it to where he had projected qualified dividend income of circa $260 k with some tax free bond income and after all of the rigamarole with taxes would owe 0% on 100k, 15% on the next $140 k, or about $21k, or about 21% of your estimate. This would also avoid the Medicare surtax on investment income.

You can check this out by reference to the 2020 tax tables on capital income. It is not complicated, but does require knowledge of the facts and the ability to run a simple spreadsheet.

OP could also move to any one of a number of states with no income tax and avoid state taxes also.

I do not consider your advice on investigating annuities or whole life to be sound, unless there are compelling estate planning reasons. Complexity and cost increase, and simpler solutions should be better.

Happy tax avoidance

W B
Exactly.
H-Town
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by H-Town »

principlegeneration wrote: Tue Aug 11, 2020 1:41 pm With this sudden windfall, I have a few questions:
- What asset allocation would you recommend? Is 90% equity now too high?
- Should I use mutual funds instead of ETFs to get rebalancing and auto-investing?
- Should I be considering more complex investment vehicles?
- My partner keeps bugging me about tax loss harvesting... does it really matter?
- Is it worth considering CDs for my emergency fund (which will likely now be more like 200K in "cash")
- If we decide to scale back working (which we are considering), how should I think about annual disbursements for expenses? Do I just sell 2% of my portfolio every year or is there some more complicated strategy?

Finally, for anyone who has been in a similar situation: How do we ensure we don't make too abrupt of lifestyle changes? e.g. I could stop working, but am hesitant to do so without getting used to this new world first.

I'm very nervous about this new world and would love any and all advice.
- I think you can afford to be in 100%, 90%, or even 0% stocks. But you mentioned that you're conservative with finance, so keep it at 60/40, unless you have any strong opinion against 60/40.

- Mutual funds are fine. I prefer mutual funds for various reasons.

- No. Whether you have $0.5M or $15M, stick to passive index funds. Don't invest in other complex investment vehicles. They have high fees and their risk-adjusted returns are too low compared to a balanced 60/40 portfolio.

- Tax Loss Harvesting: I think you should learn more about this in a separate topic. Search wiki article, read it and create a separate thread if you have questions.

- CDs? No. If you already have 60/40 portfolio, no reasons to touch CDs.

- Tax planning is a more complicated topic. You should create another thread on this topic. But big picture, 2% withdrawal rate ($15M * 2% = 300k) should replace your income. But you can withdraw up to your annual expenses.
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principlegeneration
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by principlegeneration »

[quoted post removed by admin LadyGeek]

How does one prove they aren't a troll without sharing anything that could be personally identifiable...? It's like a reverse Turing test..

I promise I am totally not a troll! Yesterday I read the first ~3 replies and then checked back today and saw how much the conversation had progressed.
nix4me
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by nix4me »

People sell businesses and inherit money all the time. Hope they seek tax advice too! :)
Shael_AT
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Shael_AT »

[quoted post removed by admin LadyGeek]

Half the people in my industry reach these numbers with pre-public companies and options for startups that are ultra-high risk.

@OP, 10m is a nice start, but start thinking about 30-50m in your future, as long as you're not dumb about it, even with a passive approach to investing. :sharebeer
GMT-8
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by GMT-8 »

You're proving it now - reacting and responding to the gang here. I can only repeat the consensus -- don't tell anyone, get your "partner" situation squared away if possible, and go on living a reasonable lifestyle. Cheers,

GMT
jarjarM
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by jarjarM »

principlegeneration wrote: Wed Aug 12, 2020 3:08 pm (OP again) Also I just finished reading the last page of replies (all the tax stuff) and it's been very enjoyable :) You all disagree but certainly at least some of you know more than me! I've focused so much on income tax over the years that I've totally ignored tax implications of my investments so far.
This is exactly the reason why it's generally very helpful to get professional (tax/estate planning) advice, even for investing. As you can see, tax drag and etc is very much so depending on your personal situation. Also, once you get above certain level of wealth, certain doors open that maybe higher risk but higher reward too. I have personally witness this several times in the valley and so far that's the best step forward for most. Of course, buying that dream car is also a common move :beer Good luck with whatever decision you make :D
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by LadyGeek »

I removed an off-topic post. As a reminder, see: General Etiquette
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by WildBill »

KyleAAA wrote: Wed Aug 12, 2020 2:40 pm
RocketShipTech wrote: Wed Aug 12, 2020 2:21 pm
WildBill wrote: Wed Aug 12, 2020 2:08 pm
RocketShipTech wrote: Wed Aug 12, 2020 12:08 pm
coffeeblack wrote: Wed Aug 12, 2020 11:54 am

Why is that?

If you are talking about his gains from those investments then he made gains and will pay taxes on gain. So how will he go broke? His principal is not being taxed.
Total Stock Market generates 1.7% dividend return per year

Total Bond Market generates 1.1% interest return.

Total International generates 2.4% dividend return.

2% distribution return on $15M is $300k. 33% tax rate (20% Fed + 9.3% State + 3.8% NIIT) on that is $100k.
Howdy

Not sure what you are doing here, as your calculation is not correct, and in fact inaccurate by quite a large amount. Your general advice on seeking tax efficiency is good, but your facts are not.

Fact: Qualified dividend income and capital income are taxed at 15% up to a total reported income after deductions of circa $240 k. A good chunk, up to 100k including the 20k standard deduction, are taxed at 0%.

In a simple example, the OP could work it to where he had projected qualified dividend income of circa $260 k with some tax free bond income and after all of the rigamarole with taxes would owe 0% on 100k, 15% on the next $140 k, or about $21k, or about 21% of your estimate. This would also avoid the Medicare surtax on investment income.

You can check this out by reference to the 2020 tax tables on capital income. It is not complicated, but does require knowledge of the facts and the ability to run a simple spreadsheet.

OP could also move to any one of a number of states with no income tax and avoid state taxes also.

I do not consider your advice on investigating annuities or whole life to be sound, unless there are compelling estate planning reasons. Complexity and cost increase, and simpler solutions should be better.

Happy tax avoidance

W B
You totally missed the fact that OP earns $350k ordinary income at a job he has no intention of quitting.
OP says the opposite: "...If we decide to scale back working (which we are considering)..."
Howdy

That was my assumption ( the OP would quit working) as well when I constructed the example, based on his statement indicating that was prospective.

In general, if you are making an income of circa $350 k per year, and have $15 m to invest, and choose to keep working, and also want to minimize taxes, good options are limited.

Some of them, such as an investment bias to low dividend growth stocks, present the prospect of minimizing taxes in a sector investment at the risk of permanent loss of capital. See the “Nifty Fifty” of the 1960s or the Internet bubble of 1994-2000.

I have faced similar decisions and I have always been biased towards maintaining investment diversification and simplicity and have accepted some increase in taxes as the cost.

If OP is real, and the situation is as he states it, he should use the services of a good tax accountant, along with the understanding that complex tax avoidance is usually very expensive.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by RocketShipTech »

I would have no problem with all the folksy “if it’s good enough for my $150k it’s good enough for your $15M” wisdom around here if the very next sentence was “but make sure you write $25k checks every quarter to the IRS and FTB”.

Otherwise OP is in for quite a shock on penalties and interest come tax time, and probably would have wished he had hired an advisor.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by hornet96 »

RocketShipTech wrote: Wed Aug 12, 2020 4:03 pm I would have no problem with all the folksy “if it’s good enough for my $150k it’s good enough for your $15M” wisdom around here if the very next sentence was “but make sure you write $25k checks every quarter to the IRS and FTB”.

Otherwise OP is in for quite a shock on penalties and interest come tax time.
Maybe we can restate the opposing points as well:

We would have no problem with all of the "$15M requires a different investment approach" wisdom around here if the very next sentence was "but make sure you're comfortable with a riskier, less diversified and sub-optimal portfolio for the sake of saving a few grand on taxes each year."

There are merits to both sides of the equation (portfolio construction and tax optimization) that the OP should consider in any discussions with advisors, etc. I think the general consensus around here is to "optimize for taxes as best you can, but don't let the tax tail wag the investment dog" kind of mentality. I guess I would tend to fall into that camp.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by WildBill »

RocketShipTech wrote: Wed Aug 12, 2020 4:03 pm I would have no problem with all the folksy “if it’s good enough for my $150k it’s good enough for your $15M” wisdom around here if the very next sentence was “but make sure you write $25k checks every quarter to the IRS and FTB”.

Otherwise OP is in for quite a shock on penalties and interest come tax time, and probably would have wished he had hired an advisor.
Howdy

Getting good advice on taxes and tax effects on investments is outstanding advice.

However, the shock would be even greater if he followed a narrow and poorly diversified investment strategy that created a permanent impairment in capital of, for example 20%, which would be circa $3 million. Larger impairments in narrow portfolios of growth equities have often occurred.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Orbuculum Nongata »

RocketShipTech wrote: Wed Aug 12, 2020 4:03 pm I would have no problem with all the folksy “if it’s good enough for my $150k it’s good enough for your $15M” wisdom around here...
Spoiler alert. There are more of the latter than the former here. If you stick around a while you’ll realize many of them don’t post as much in a year as you have today. Regardless of HNW, bogleheads is an ideal place to learn.
Potential - distraction = performance.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by nix4me »

Again. It’s possible to invest in the total market without accepting large dividends.
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principlegeneration
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by principlegeneration »

I think my spouse will keep working regardless, and we can live off that income (130-200K depending on the year) for at least the next n years (maybe not after we have expensive kids). So I think I will just invest the 15M funds and let them grow for the next 3-10 years without planning more than 1 or 2 withdrawals. In the longer-term future, though, I can see us living off the distributions alone.

It sounds like living off the salary rather than dividends minimizes our opportunities to change how the investments would be taxed...? Maybe? Though we could take advantage of better tax strategies if we ever end up living off the assets themselves?
senex
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by senex »

principlegeneration wrote: Wed Aug 12, 2020 3:00 pm Honestly I feel very validated that there seems to be consensus on
- No AUM fees at all costs
- Don't be worried about some complex financial finagling I could be doing
- In general, my current strategy doesn't totally break down even with this new set of assets
Agree.
principlegeneration wrote: Wed Aug 12, 2020 3:00 pm Some folks have said to set up a CD ladder. A cursory check didn't reveal much better interest rates on CDs than high-yield savings accounts... am I just looking in the wrong places?
To me, CDs ladders are a hassle and potential FDIC risk. I favor putting all $15M into treasury bills for a year, keeping your job, taking the year to study tax & investments, and to assess your life. There is no rush. Rushing into "advisor" relationships can be disastrous. I've seen it many times. Huge swaths of the "advisor" industry will start suctioning your money (fees) & complexifying your holdings/life. They are professional salesmen and very persuasive. No need rush into that.

If I were you, the only tax planning I would do this year is to pay estimated taxes and avoid buying dumb investments for the year. The only estate planning I would do this year is ensure I have a will. (lots of people love to optimize weird hypotheticals 50 years hence in their estate plan, but that's not my priority in life; you can find boglehead threads about trust fund regret; it's fine to do that eventually, if you value it, but I would take time to learn/adjust first).
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by KyleAAA »

nix4me wrote: Wed Aug 12, 2020 4:25 pm Again. It’s possible to invest in the total market without accepting large dividends.
Not in the US, unfortunately. Neither VUG nor the tax managed funds will mimic it.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by WildBill »

principlegeneration wrote: Wed Aug 12, 2020 4:28 pm I think my spouse will keep working regardless, and we can live off that income (130-200K depending on the year) for at least the next n years (maybe not after we have expensive kids). So I think I will just invest the 15M funds and let them grow for the next 3-10 years without planning more than 1 or 2 withdrawals. In the longer-term future, though, I can see us living off the distributions alone.

It sounds like living off the salary rather than dividends minimizes our opportunities to change how the investments would be taxed...? Maybe? Though we could take advantage of better tax strategies if we ever end up living off the assets themselves?
Howdy

Under the current tax laws capital income - qualified dividends and capital gains - have an advantage.

As an example - if you had zero earned income from employment and $300 k in capital income, eg from a market index fund, the first $104 k in income, less standard deduction, would be taxed at 0%. The rest would be taxed at 15%. If you switched part of of the investment to municipal bonds you could avoid the Medicare surtax at 250k of investment income. If you moved to Texas, Florida, etc you could avoid any state taxes. So the tax bill would run about $22 k on investment income of circa $300k

If you keep working, your tax bill will be way higher, especially with earned income of circa $350 k. There are some strategies you can follow to minimize investment income, but these all carry cost or risk and you should make sure that the trade off is worth it.

In my experience, focusing on minimizing taxes is not as important as other elements of investing. My experience goes back to the late 1970s, and my portfolio size is similar to yours. In my experience the order of importance in investment success is:

1 - Managing yourself - Your mindset and resilience in defining and maintaining and following your chosen investment strategy
2 - Allocation - Mix of stable and risk assets
3 - Proper diversification and selection of securities within chosen allocation
4 - Preserving optionality wrt the cost and consequences of change, as you can expect learning and adaptation of above as you learn and mature
5 - Minimizing tax drag

Expert advice on taxes is important, but as you can see the tax advice is peripheral to other elements that I believe are more important.

Good luck

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
RocketShipTech
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by RocketShipTech »

KyleAAA wrote: Wed Aug 12, 2020 4:30 pm
nix4me wrote: Wed Aug 12, 2020 4:25 pm Again. It’s possible to invest in the total market without accepting large dividends.
Not in the US, unfortunately. Neither VUG nor the tax managed funds will mimic it.
Futures, with the $15M in T-bills as collateral.

That’s just one idea and I’m not even an expert. Imagine what a good advisor could bring to the table.
WildBill
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by WildBill »

RocketShipTech wrote: Wed Aug 12, 2020 5:01 pm
KyleAAA wrote: Wed Aug 12, 2020 4:30 pm
nix4me wrote: Wed Aug 12, 2020 4:25 pm Again. It’s possible to invest in the total market without accepting large dividends.
Not in the US, unfortunately. Neither VUG nor the tax managed funds will mimic it.
Futures, with the $15M in T-bills as collateral.

That’s just one idea and I’m not even an expert. Imagine what a good advisor could bring to the table.
Howdy

Gains in futures contracts are considered a mix of 60% long and 40% short term capital gains and marked to market at EOY. The STCG will be treated as ordinary income. This would be a disimprovement on the gains realized from an index fund. Trading futures contracts is also a moderately expensive exercise.

There are some advantages from timing sales of losing positions to offset gains, and then reestablishing the position, akin to TLH, but so what in this situation?

The worst part from my point of view is that trading futures is a speculative exercise, and that is a bad habit to get into for an investor.

W B
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Luckywon
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Luckywon »

RocketShipTech wrote: Wed Aug 12, 2020 5:01 pm
KyleAAA wrote: Wed Aug 12, 2020 4:30 pm
nix4me wrote: Wed Aug 12, 2020 4:25 pm Again. It’s possible to invest in the total market without accepting large dividends.
Not in the US, unfortunately. Neither VUG nor the tax managed funds will mimic it.
Futures, with the $15M in T-bills as collateral.

That’s just one idea and I’m not even an expert. Imagine what a good advisor could bring to the table.
I'm sure there are many advisors who would bring this idea and others even more risky to the table for OP which is exactly why OP should stick to a basic strategy of passive funds like VTI, BND.
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Sandtrap
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Re: OP UPDATE

Post by Sandtrap »

principlegeneration wrote: Wed Aug 12, 2020 3:00 pm Hi all, OP here.

Thanks for all of the really helpful replies! The diversity of insight is helpful, as well as where people tend to agree.

I'm not opposed to paying for advice, but honestly I assumed it'd result in me signing up with a money manager. I'm definitely interested in a flat-free advisor. I've extensively consulted with CPAs and estate planners already... now I have to figure out how to invest the money. But I also trust this forum a lot (I've lurked and never had reason to post until now).

This is the first I'd heard of MUNI bonds, so will look into those. I also hadn't even considered the 250K cap on cash being secured, which is an important thing to remember.

Honestly I feel very validated that there seems to be consensus on
- No AUM fees at all costs
- Don't be worried about some complex financial finagling I could be doing
- In general, my current strategy doesn't totally break down even with this new set of assets

I now intend to rethink my 90/10 allocation (maybe more like 70/30). We have so far told no one about this transaction, and will continue to do that, though unfortunately that might not be fully within our control :/ for those who have mentioned the valley, you're spot on.

Some folks have said to set up a CD ladder. A cursory check didn't reveal much better interest rates on CDs than high-yield savings accounts... am I just looking in the wrong places?
Thanks for the update.
Sounds like you're heading in a good direction.

j :happy
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BogleFan510
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by BogleFan510 »

RocketShipTech wrote: Tue Aug 11, 2020 1:50 pm With $15M you can afford better advice than Bogleheads
I disagree. Bogleheads consensus advice is very applicable to an 8 figure portfolio. My recommendation is to read the advice, research a bit on your own and maybe expand into a few asset classes, as mentioned.

We like muni owning a small percent of in state long term muni bonds. Near term, though, I would stick with what you are doing, plus consider some enhanced unbrella liability insurance, and explore creating a living trust with some good legal advice, and stay focused on your career.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by nix4me »

Berkshire Hathaway stock. Highly diversified into value stocks, zero dividends. Couple that with Large Cap growth and Tax managed small cap fund (Vanguard has one) and use T-Bills and Muni-bonds and you have a portfolio (Exactly as Mr Bernstein describes in his excellent book - Four Pillars of Investing). Mix in some VTI in a manageable portion as the core and you got something very efficient.

An Example 70/30:
10% BRK - Bershire Hathaway Stock (Value + Microsoft/Apple)
10% VUG - Growth
10% VTI - Core
10% VTCLX - Tax Managed Capital Appreciation Fund
10% VTMSX - Tax Managed Small Caps
20% VTMFX - Tax Managed Balanced fund 50/50 Stock/Bond
20% VWITX - Municipal Bonds

And i'm shocked all the Vanguard people haven't mentioned the excellent Tax Managed Vanguard funds:
VTCLX
VTMSX
VTMFX
VWITX

And if the OP is in one of the highly taxed States, there are plenty of state muni-funds that are state tax exempt.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by KyleAAA »

RocketShipTech wrote: Wed Aug 12, 2020 5:01 pm
KyleAAA wrote: Wed Aug 12, 2020 4:30 pm
nix4me wrote: Wed Aug 12, 2020 4:25 pm Again. It’s possible to invest in the total market without accepting large dividends.
Not in the US, unfortunately. Neither VUG nor the tax managed funds will mimic it.
Futures, with the $15M in T-bills as collateral.

That’s just one idea and I’m not even an expert. Imagine what a good advisor could bring to the table.
This would be more expensive. And still not any more equivalent to investing in the total stock market than VUG would be.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by KyleAAA »

nix4me wrote: Wed Aug 12, 2020 5:50 pm Berkshire Hathaway stock. Highly diversified into value stocks, zero dividends. Couple that with Large Cap growth and Tax managed small cap fund (Vanguard has one) and use T-Bills and Muni-bonds and you have a portfolio (Exactly as Mr Bernstein describes in his excellent book - Four Pillars of Investing). Mix in some VTI in a manageable portion as the core and you got something very efficient.

An Example 70/30:
10% BRK - Bershire Hathaway Stock (Value + Microsoft/Apple)
10% VUG - Growth
10% VTI - Core
10% VTCLX - Tax Managed Capital Appreciation Fund
10% VTMSX - Tax Managed Small Caps
20% VTMFX - Tax Managed Balanced fund 50/50 Stock/Bond
20% VWITX - Municipal Bonds

And i'm shocked all the Vanguard people haven't mentioned the excellent Tax Managed Vanguard funds:
VTCLX
VTMSX
VTMFX
VWITX

And if the OP is in one of the highly taxed States, there are plenty of state muni-funds that are state tax exempt.
Berkshire Hathaway isn't at all a value holding. Its returns are not well explained by any extant factor model. The portfolio you mention is just fine. I wouldn't call it "efficient."
000
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by 000 »

nix4me wrote: Wed Aug 12, 2020 5:50 pm Berkshire Hathaway stock. Highly diversified into value stocks, zero dividends.
You lost me right here.

You will lose all your "tax efficiency" and more when BRK starts paying monster dividends because they have nowhere better to put it...
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by aqan »

RocketShipTech wrote: Tue Aug 11, 2020 1:50 pm With $15M you can afford better advice than Bogleheads
That’s an invaluable advice!!
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by manatee2005 »

BFR wrote: Tue Aug 11, 2020 6:32 pm Curious what this could be: "unanticipated financial transaction"
I’d like to know too.

Inheritance? Lottery? Lawsuit settlement?
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by minimalistmarc »

aqan wrote: Wed Aug 12, 2020 11:16 pm
RocketShipTech wrote: Tue Aug 11, 2020 1:50 pm With $15M you can afford better advice than Bogleheads
That’s an invaluable advice!!
Can afford more expensive advice, not necessarily better.

Personally, if I received a 15M windfall I’d just bung it all into my one fund all world portfolio.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by leftcoaster »

oscarsonthepond wrote: Tue Aug 11, 2020 2:20 pm
3) As others have mentioned, at your level it's well worth paying an excellent financial adviser who (a) is aligned with you on investment philosophy, (b) works regularly with high net worth individuals such as yourself, and (c) works on a fee-only basis. Not only will they help you with finances, but they can help or connect you with people to assist in estate planning, asset protection, taxes, etc. Make this decision carefully. Here are some possibilities: https://www.whitecoatinvestor.com/financial-advisors/.
It’s comical that WCI’s screening process has a section about “physician specific issues” that has no issues that I consider physician specific. I get that he is trying to stand out from the crowd by speaking to doctors as a peer, but the content of the conversation is pretty generic IMO.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Stormbringer »

RocketShipTech wrote: Tue Aug 11, 2020 1:50 pm With $15M you can afford better advice than Bogleheads
I don't believe this to be true at all.

The concepts of BH investing don't change just because you have another 0 on your account balance. What does change is the juicy commission that a financial advisor would get under the AUM model. They would descend on him like a pack of vultures.
"Compound interest is the most powerful force in the universe." - Albert Einstein
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by StormShadow »

geerhardusvos wrote: Wed Aug 12, 2020 1:08 pm Put all your money in gold. Grow your hair out and grunt when you want something. Hire someone to carry you around, preferably some kind of adult backpack carrier. Only pay for things with gold coins, but don’t tell anyone about your wealth.
+1 Nevermind what I said before. Do this instead.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by random_walker_77 »

Stormbringer wrote: Thu Aug 13, 2020 5:33 am
RocketShipTech wrote: Tue Aug 11, 2020 1:50 pm With $15M you can afford better advice than Bogleheads
I don't believe this to be true at all.

The concepts of BH investing don't change just because you have another 0 on your account balance. What does change is the juicy commission that a financial advisor would get under the AUM model. They would descend on him like a pack of vultures.
At $15M, tax planning and estate planning are important. At age 27 without kids, the estate planning may not be as critical but it's still important to specify where your money would go if the unthinkable were to happen.

Professional AUM financial advisors, wealth managers, and salespeople are very good at sales. They'll stroke your ego, talk about their superior research teams and resources, their track record of beating the market, their connections, and their very successful clientele. They'll offer you access to exclusive investments and deals reserved for the rich and successful, which just aren't available to naive investors with less than a few million. They offer sophisticated products and strategies that promise to offer "higher returns", "lower risk", and save you taxes. Failing that, it might be an offer of networking opportunities. It's a difficult pitch to resist, but there's danger here. For example, maybe it saves you taxes, but the end result is that you have less money than if you'd taken the naive total market investment (i.e. is your goal to stick it to the government or to end up with the most money, after taxes?).

In silicon valley circa 2000, I was a young engineer at a hot post-IPO startup, as well as a firm vanguard investor. A UBS wealth advisor talked me into a series of sales meetings, and despite my skepticism, talked me into investing some of my (meager) after-tax funds with him (into class-A 5% front-end load funds!). This was a very expensive lesson as those funds underperformed and more than one were later sued in class actions. The wealth advisor was very persuasive, he'd even hinted at exclusive programs that I wasn't eligible for until I had millions in assets, such as a successful proprietary fund with an incredible track record available only to "friends of" some guy named Bernie. Also, their high net worth clients could get in on special tax minimization schemes through their home branch in Switzerland. In case you're not aware, both of those later become notorious headlines.

My main point is: Be careful. Caveat Emptor. There are wolves out there, and as good as timeshare salespeople are, these financial/wealth professionals are even better at sales.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by bloom2708 »

Good advice just above. Buyer beware.

Most of us would sure like to try with $15 million.

I'd be 50-50

40% US
10% International
25% Int-Term Tax-Exempt (I assume this is post tax money and not tax sheltered, so tax-exempt likely)
25% Int-Term Treasuries

No need to be 90% stocks or 90% bonds. Go slow. Tell very few people. Stay away from AUM and high expense funds.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by CyclingDuo »

principlegeneration wrote: Tue Aug 11, 2020 1:41 pm I was transferred approximately 15M in cash (after-tax). Otherwise, no other major life events have occurred.
Congratulations! You just won the understatement of the decade here at Bogleheads.org... :beer
Last edited by CyclingDuo on Thu Aug 13, 2020 9:45 am, edited 1 time in total.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by oldfort »

RocketShipTech wrote: Wed Aug 12, 2020 2:21 pm
WildBill wrote: Wed Aug 12, 2020 2:08 pm
RocketShipTech wrote: Wed Aug 12, 2020 12:08 pm
coffeeblack wrote: Wed Aug 12, 2020 11:54 am
RocketShipTech wrote: Wed Aug 12, 2020 11:50 am

The “tax-efficient” Vanguard funds you refer to will have the OP writing $100k+ checks to the US Treasury every year.
Why is that?

If you are talking about his gains from those investments then he made gains and will pay taxes on gain. So how will he go broke? His principal is not being taxed.
Total Stock Market generates 1.7% dividend return per year

Total Bond Market generates 1.1% interest return.

Total International generates 2.4% dividend return.

2% distribution return on $15M is $300k. 33% tax rate (20% Fed + 9.3% State + 3.8% NIIT) on that is $100k.
Howdy

Not sure what you are doing here, as your calculation is not correct, and in fact inaccurate by quite a large amount. Your general advice on seeking tax efficiency is good, but your facts are not.

Fact: Qualified dividend income and capital income are taxed at 15% up to a total reported income after deductions of circa $240 k. A good chunk, up to 100k including the 20k standard deduction, are taxed at 0%.

In a simple example, the OP could work it to where he had projected qualified dividend income of circa $260 k with some tax free bond income and after all of the rigamarole with taxes would owe 0% on 100k, 15% on the next $140 k, or about $21k, or about 21% of your estimate. This would also avoid the Medicare surtax on investment income.

You can check this out by reference to the 2020 tax tables on capital income. It is not complicated, but does require knowledge of the facts and the ability to run a simple spreadsheet.

OP could also move to any one of a number of states with no income tax and avoid state taxes also.

I do not consider your advice on investigating annuities or whole life to be sound, unless there are compelling estate planning reasons. Complexity and cost increase, and simpler solutions should be better.

Happy tax avoidance

W B
You totally missed the fact that OP earns $350k ordinary income at a job he has no intention of quitting.
Where did you see he had no intention of quitting. The OP said they wanted to FIRE.
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by chicagoan23 »

principlegeneration wrote: Wed Aug 12, 2020 4:28 pm I think my spouse will keep working regardless, and we can live off that income (130-200K depending on the year) for at least the next n years (maybe not after we have expensive kids). So I think I will just invest the 15M funds and let them grow for the next 3-10 years without planning more than 1 or 2 withdrawals. In the longer-term future, though, I can see us living off the distributions alone.
Thank you for the additional information.

If you invest $15 million for 10 years at a reasonable asset allocation, historically you can expect it to grow to $30 million and then to $60 million in 20 years (Rule of 72). That assumes that you let the nest egg grow without taking distributions. It also assumes that you spend everything that your spouse earns without saving a thing and that you don't contribute another dime (through work or otherwise) over that period.

Are you prepared to have $60+ million at age 50? $120+ million at age 60?

To me, the far more important concern is estate planning and asset protection planning. You have to consider and anticipate future tax policy (both income and estate) and protect against inflation as well. I would also consider geographic risk and move some money into Switzerland and/or Singapore (while of course complying with all US tax laws for disclosures of such holdings).

I would spend a lot of money (maybe $25k-$50k?) with an experienced lawyer and an experienced financial advisor to set up your financial affairs. That does not mean that you need to pay an AUM fee for someone to guide your investments, but you should have expert guidance in how to hold that much money long-term.
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf
flaccidsteele
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by flaccidsteele »

random_walker_77 wrote: Thu Aug 13, 2020 9:30 am
Stormbringer wrote: Thu Aug 13, 2020 5:33 am
RocketShipTech wrote: Tue Aug 11, 2020 1:50 pm With $15M you can afford better advice than Bogleheads
I don't believe this to be true at all.

The concepts of BH investing don't change just because you have another 0 on your account balance. What does change is the juicy commission that a financial advisor would get under the AUM model. They would descend on him like a pack of vultures.
At $15M, tax planning and estate planning are important. At age 27 without kids, the estate planning may not be as critical but it's still important to specify where your money would go if the unthinkable were to happen.

Professional AUM financial advisors, wealth managers, and salespeople are very good at sales. They'll stroke your ego, talk about their superior research teams and resources, their track record of beating the market, their connections, and their very successful clientele. They'll offer you access to exclusive investments and deals reserved for the rich and successful, which just aren't available to naive investors with less than a few million. They offer sophisticated products and strategies that promise to offer "higher returns", "lower risk", and save you taxes. Failing that, it might be an offer of networking opportunities. It's a difficult pitch to resist, but there's danger here. For example, maybe it saves you taxes, but the end result is that you have less money than if you'd taken the naive total market investment (i.e. is your goal to stick it to the government or to end up with the most money, after taxes?).

In silicon valley circa 2000, I was a young engineer at a hot post-IPO startup, as well as a firm vanguard investor. A UBS wealth advisor talked me into a series of sales meetings, and despite my skepticism, talked me into investing some of my (meager) after-tax funds with him (into class-A 5% front-end load funds!). This was a very expensive lesson as those funds underperformed and more than one were later sued in class actions. The wealth advisor was very persuasive, he'd even hinted at exclusive programs that I wasn't eligible for until I had millions in assets, such as a successful proprietary fund with an incredible track record available only to "friends of" some guy named Bernie. Also, their high net worth clients could get in on special tax minimization schemes through their home branch in Switzerland. In case you're not aware, both of those later become notorious headlines.

My main point is: Be careful. Caveat Emptor. There are wolves out there, and as good as timeshare salespeople are, these financial/wealth professionals are even better at sales.
+10

This post can’t be emphasized strongly enough

Crazy story tho
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Assets going from 600K->15M, should I change my asset allocation?

Post by Broken Man 1999 »

Well, can we at the least all agree he can buy the newest fully-loaded Camry?

OP, there are times when having very experienced professionals on your team are well worth the price.

If this is a serious post, get thee a team.

Simple mistakes at this level of assets can cost you dearly.

Oh, and don't use Nolo or LegalZoom for estate planning.

Good luck!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
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