Life Insurance Beneficiary [Received windfall, what to do?]

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Check55
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Life Insurance Beneficiary [Received windfall, what to do?]

Post by Check55 »

Friends, our daughter, a recent 39 year old widow with three kids (7,5 and 3) received proceeds of $1Milllion in life insurance. Any suggestions where to park this until we can talk to a tax lawyer, advisor, etc.?
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CAsage
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Re: Life Insurance Beneficiary

Post by CAsage »

https://www.bogleheads.org/wiki/Managing_a_windfall

Be cautious. Not all "advisors" are your friends.
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bombcar
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Re: Life Insurance Beneficiary

Post by bombcar »

Any brokerage with a MM fund that is decent shouldn't have a problem with that amount at all.

If you store it in banks, you'd want to split it up to stay under FDIC limits.

Sure, it's rare, but you'd hate it to be you!
Rex66
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Re: Life Insurance Beneficiary

Post by Rex66 »

assuming her bank is a normal and in good standings bank. Id put it there and then over the next few weeks open up another account at another bank or two. Although 250k is the limit of protection, assuming you are using normal regular banks id be ok being a little over just to reduce clutter. Probably id chose my new banks based on a savings account rate currently.
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BolderBoy
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Re: Life Insurance Beneficiary

Post by BolderBoy »

Check55 wrote: Mon Jun 10, 2024 4:04 pmFriends, our daughter, a recent 39 year old widow with three kids (7,5 and 3) received proceeds of $1Milllion in life insurance. Any suggestions where to park this until we can talk to a tax lawyer, advisor, etc.?
What state are you in?

I'd be inclined to open a brokerage account at Vanguard or Fidelity or Schwab and park the money in a MMF (if she is in an income-tax free state, the settlement fund is good enough for now.) Interest is running around 5% or so, declared daily and paid monthly.

She should also link her local bank account to the brokerage account.

She should be advised that the brokerage may limit her ability to do on-line transfers of the money (she'll have to call and talk to a human to make transfers) at Vanguard for sure and likely at the other brokerages until some specified holding time period elapses. Anti-money-laundering rules and such. The Vanguard rep didn't know what the online transaction holding period is exactly but said it's at least 60 days after the deposit.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
silvergga
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Re: Life Insurance Beneficiary

Post by silvergga »

Check55 wrote: Mon Jun 10, 2024 4:04 pm Friends, our daughter, a recent 39 year old widow with three kids (7,5 and 3) received proceeds of $1Milllion in life insurance. Any suggestions where to park this until we can talk to a tax lawyer, advisor, etc.?
My condolences. My long time friend is in a similar situation recently so I can feel the pain as well.

IMHO it depends how comfortable your daughter is at managing multiple accounts and finance in general. However, even if she isn't comfortable, she has to learn a little bit moving forward and I am sure you can help her out.

My advice is to keep it simple for now. If the bank she uses has a liquid savings account that yields 4.5%+, just keep it there for now. You will get a lot of suggestions here about brokerages, money market, Vanguard settlement fund etc... but if she is not already doing it, just keep it simple because she has a lot more other things to worry about than getting the extra 0.5-0.75% the next 1-2 years.

Also, beware of "advisors" - especially those that sell annuities even simple SPIA and other products that will lock up the $1M. Your daughter is only 39 and if she locks the money into an annuity, there is no turning back after she sends the $ over to the insurance company. Inflation will gradually make her payout become insignificant. Just be careful on decisions on the $ especially when there is no turning back. There are many worse things she can do with the $1M than letting it sit another year at 4.5%+ in savings. She might be pressured that she needs to plan for something right now, but that is often not the reality.

Best wishes to your daughter and the grandkids!
niagara_guy
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by niagara_guy »

I am sorry for her/your loss.

I will assume that almost any institution that she takes 1mm to will try to 'help' her by recommending their products that benefit the sales guy. Of course, this help will have a high AUM fee of 1% per year or more. I would not let an 'advisor' manage my money if I were in similar circumstances. 1% of 1mm is 10k per year to the 'advisor,' and in my view is not worth it.

I agree that splitting up the money so that the FDIC limit (or similar) is not exceeded and I agree that a money market for now would probably be a good choice.

Later on (when it's appropriate) then decisions can be made about how to invest this money. She could post here or you could post here to get the advice of this wise group.

My opinion is that any financial guy (aka salesman) will try to pry this money away and put it in an account with 1% or more per year of fees. How he sleeps at night after doing this I cannot comprehend. Taking the life insurance from a widow with 3 young kids and keeping a fat commission is the worst.
backpacker61
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by backpacker61 »

I think opening a money market fund at Fidelity, Schwab, or Vanguard, would be a good start.
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Wiggums
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by Wiggums »

backpacker61 wrote: Wed Jun 12, 2024 9:13 am I think opening a money market fund at Fidelity, Schwab, or Vanguard, would be a good start.
+1

A Government money market is fine. I US treasuries at the moment for the extra yield.
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Check55
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by Check55 »

She currently resides in Texas
bople
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by bople »

Strongly agree with the open an account at Fidelity/Schwab/Vanguard and put it in an MMF. Can be done online in an hour and the funds can be there same day if wired.

Since she is in Texas and has no state income tax, the highest government money yields right now for $1M minimum buy are:

Code: Select all

7-day yield as of 6/12/24 
Fidelity	FIGXX		5.19%
Schwab		SGUXX		5.19%
Vanguard	VMFXX or VUSXX	5.27%
If she prefers FDIC insurance, get one of the options that allows more than the standard $250,000 limit by federating out to multiple banks. I like https://www.wealthfront.com/cash ($8M insurance) or https://www.betterment.com/cash-reserve ($2M insurance) at 5.00% interest. However, that is at least 0.19% less interest and $1,900 less per year and I personally wouldn't pay that for FDIC coverage.

Oh, I didn't see that Betterment has a 0.50% boost for 3 months at https://www.betterment.com/affiliate-partner-offer which makes it a fantastic 3-month parking spot.
bonesly
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by bonesly »

Check55 wrote: Mon Jun 10, 2024 4:04 pm Friends, our daughter, a recent 39 year old widow with three kids (7,5 and 3) received proceeds of $1Milllion in life insurance. Any suggestions where to park this until we can talk to a tax lawyer, advisor, etc.?
I'll reiterate the advice given so far:

1) Park it in a Vanguard MMF. No brokerage is paying more and she has no state income tax, so VUSXX @ 5.28% and not being tied up like a CD is likely the best first-step.

2) Have her read the Wiki topic on https://www.bogleheads.org/wiki/Managing_a_windfall

3) If she knows nothing about investing and is interested in learning then direct her here to get started (she'll get mostly high-quality free advice here and the Wiki is a great learning resources). If she absolutely has to have a financial advisor (zero interest in learning), I'd probably pick a have her pick a 60/40 AA and use a Robo Advisor (e.g., Vanguard Digital Advisor, Fidelity Go!, or Schwab Intelligent Portfolios). She should disclose her current retirement accounts or the Robo Advisor may not make great choices about Tax-Efficient Fund Placement (one reason I'd rather she managed it all herself).

Regarding a tax lawyer, you could consult with her current CPA/tax-preparer, but generally life insurance proceeds are not taxable. The IRS Site says:
"Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them."
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
Topic Author
Check55
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by Check55 »

Thank you all for your learned advise. This forum never disappoints. I just purchased a copy of The Simple Path to Wealth for her and her brother. :happy
legalwriter1
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by legalwriter1 »

Be sure the widow also files for Social Security benefits for the children.

At some point, she should talk to an estate lawyer and update her estate plan. Set up a trust naming the trust as the beneficiary of the brokerage account where the $1M is invested. She should also name a guardian for the children.
InMyDreams
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Re: Life Insurance Beneficiary [Received windfall, what to do?]

Post by InMyDreams »

BH member, Mike Piper, wrote a book, After the Death of your Spouse
https://www.amazon.com/After-Death-Your ... 1950967123

Perhaps it could be useful.

Condolences on the family's loss.
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