My daughter's inheritance.

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KRBerly
Posts: 3
Joined: Sun Sep 09, 2018 4:31 pm

My daughter's inheritance.

Post by KRBerly » Sun Sep 09, 2018 4:55 pm

Hello friends,
I am in need of sound financial guidance. My soon-to-be 20-year old daughter will be inheriting $1.25M in a few months from her late father's buy-sell agreement with his business partner. We recently created a trust for her, and I am co-trustee at this time. (Fyi, I was no longer married to her father at the time of his death.) THIS IS A REVOCABLE LIVING TRUST, a detail I failed to mention initially in this post.

I have talked to two financial advisors presenting various plans for the funds. Morgan Stanley proposed an Assets Under Management fee structure, and Edward Jones presented a fee-based-type investment plan with some passively, some actively managed investments. I have been reading The Bogleheads' Guide to the Three-Fund Portfolio, and I like the sound of low fees and index funds. But I am scared I am going to mess this up! I also have plans to meet with a wealth management advisor from a local bank soon.

There is a lot of emotion attached to this money. The death of my daughter's father was a sudden and tragic accident, and it is hard for her to take much interest in what he has left her. She is currently in college, and she does not need these funds for many, many years down the road.

I want to be smart about how we invest this money and with whom. The tax-implications for various investments quickly gets confusing to me as well. I would like her portfolio to be simple and easy to manage, but I don't think we need to pay an advisor over $10K a year to help us do that. Right?

Thank you,
Concerned Mom
Last edited by KRBerly on Tue Sep 11, 2018 9:20 pm, edited 1 time in total.

CascadiaSoonish
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Re: My daughter's inheritance.

Post by CascadiaSoonish » Sun Sep 09, 2018 6:28 pm

Concerned Mom, first, this is a terribly tough thing for you all to go through -- condolences for your loss, it's difficult to be making huge financial decisions at the same time.

My guess is that you'll hear from a lot of people here who suggest a Vanguard-based three-fund portfolio or a target date fund or leaving it in cash for a year until you decide what to do. All are valid options and all have their merits in my opinion. But what I'll also suggest is that you give yourself permission to use advisers for a few years if you want. You could use a fiduciary adviser for a while until you're both comfortable managing the fund. You could use the time to ask questions, read, do your research, get comfortable with your priorities, and enjoy the peace of mind that comes with having someone paid to help you through the process.

We have family members continuing to use AUM advisers even though they don't need to because they can afford it and it's reassuring to them. I don't think that's such a bad thing. Others may feel differently, however.

edit: I noticed you said "inherit" but it's from a buy/sell transaction from a business partner of your late ex-husband? I'd be concerned about tax ramifications here. I'd get a CPA involved soon if there's not one already advising on this transaction.

RadAudit
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Re: My daughter's inheritance.

Post by RadAudit » Sun Sep 09, 2018 6:35 pm

Sorry for the loss.

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

Note the paragraphs that say don't do any investing for at least six months.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

jackholloway
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Re: My daughter's inheritance.

Post by jackholloway » Sun Sep 09, 2018 6:40 pm

I would suggest just putting it all in a treasury fund, or bank cds across five banks (for fdic insurance) until you get your plans together. You may miss a few percent in gains, but you will not lose anything, and you can then become comfortable with your plan. This can take six months or a year - that is totally ok!

You also have the option of using Vanguards advisor service. They are capable of giving reasonable advice for less than a third of what Edward Jones or Morgan Stanley will cost. They will put you in a three or five fund portfolio, but that is not a bad place to start, and for most people here, a pretty good way to continue.

I do also suggest a visit to a cpa right away, and possibly a fee only fiduciary advisor who does not sell investments. If you have not been a trustee before, consider visiting a lawyer for an hour to get questions answered.

Gill
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Re: My daughter's inheritance.

Post by Gill » Sun Sep 09, 2018 6:42 pm

Do you have authority to manage this money? How was the trust created?
Gill
Last edited by Gill on Sun Sep 09, 2018 6:43 pm, edited 1 time in total.

ResearchMed
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Joined: Fri Dec 26, 2008 11:25 pm

Re: My daughter's inheritance.

Post by ResearchMed » Sun Sep 09, 2018 6:43 pm

KRBerly wrote:
Sun Sep 09, 2018 4:55 pm
Hello friends,
I am in need of sound financial guidance. My soon-to-be 20-year old daughter will be inheriting $1.25M in a few months from her late father's buy-sell agreement with his business partner. We recently created a trust for her, and I am co-trustee at this time. (Fyi, I was no longer married to her father at the time of his death.)

I have talked to two financial advisors presenting various plans for the funds. Morgan Stanley proposed an Assets Under Management fee structure, and Edward Jones presented a fee-based-type investment plan with some passively, some actively managed investments. I have been reading The Bogleheads' Guide to the Three-Fund Portfolio, and I like the sound of low fees and index funds. But I am scared I am going to mess this up! I also have plans to meet with a wealth management advisor from a local bank soon.

There is a lot of emotion attached to this money. The death of my daughter's father was a sudden and tragic accident, and it is hard for her to take much interest in what he has left her. She is currently in college, and she does not need these funds for many, many years down the road.

I want to be smart about how we invest this money and with whom. The tax-implications for various investments quickly gets confusing to me as well. I would like her portfolio to be simple and easy to manage, but I don't think we need to pay an advisor over $10K a year to help us do that. Right?

Thank you,
Concerned Mom
Welcome to BH!

First, do not do anything with high one-time fees (aka "front load" sometimes) or anything with "annuity" or "insurance" in the name (but unfortunately, some "names" are changing to mask some of these problems).

At a minimum, before you agree to move ANY of the money into anything other than cash/money market funds/etc., name what is recommended, so we can offer some feedback, comparisons, etc., or some questions to ask of the person making the recommendation.
And there is no need to rush into decisions. Indeed, there are reasons *not* to rush!

You may find a variety of opinions here (or surprising agreement!), but one thing is definite: None of us has any selfish motive with what we suggest :happy

You mention you are co-trustee. Is your daughter the other co-trustee? If not, who is that?
And which person(s) has what type of power to make decisions? Can one person decide? Joint agreement?
And what is the goal of this money? Is there a time when she gets sole control?

Your daughter is fortunate that you are being careful/cautious, rather than rushing the money into the pockets control of someone who may have more than minimal selfish interests in how the money is invested.

RM
This signature is a placebo. You are in the control group.

keepingitsimple
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Re: My daughter's inheritance.

Post by keepingitsimple » Sun Sep 09, 2018 6:56 pm

RadAudit wrote:
Sun Sep 09, 2018 6:35 pm
Sorry for the loss.

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

Note the paragraphs that say don't do any investing for at least six months.
I agree with the above.

While tax implications can be worrisome when starting out, a consultation with a good CPA can provide invaluable direction. The reason behind waiting at least six months to take any investing action is that you'll need that time to educate yourself about your options. This education is important to obtain whether you self-manage or utilize an advisor. I personally am not in favor of advisors, as they tend to over-charge and over-complicate a portfolio. It is easy to find posts from individuals who are trying to untangle their investment portfolios to get away from the two advisors you reference. If you feel you need direction beyond the recommended reading and beyond this forum, then consider a fee-only advisor who will help you formulate an investment plan, then submit the plan to this forum for review and feedback. Once you are ready to implement your investment plan, do it yourself without involving an advisor.
jackholloway wrote:
Sun Sep 09, 2018 6:40 pm
I would suggest just putting it all in a treasury fund, or bank cds across five banks (for fdic insurance) until you get your plans together. You may miss a few percent in gains, but you will not lose anything, and you can then become comfortable with your plan. This can take six months or a year - that is totally ok!

You also have the option of using Vanguards advisor service. They are capable of giving reasonable advice for less than a third of what Edward Jones or Morgan Stanley will cost. They will put you in a three or five fund portfolio, but that is not a bad place to start, and for most people here, a pretty good way to continue.

I do also suggest a visit to a cpa right away, and possibly a fee only fiduciary advisor who does not sell investments. If you have not been a trustee before, consider visiting a lawyer for an hour to get questions answered.
I also agree with these suggestions, especially regarding using a Vanguard Advisor (if you feel you must start with an advisor).

sambb
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Re: My daughter's inheritance.

Post by sambb » Sun Sep 09, 2018 7:18 pm

run away from those advisors, and seek help with vanguard or fidelity. Only.

Luckywon
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Re: My daughter's inheritance.

Post by Luckywon » Sun Sep 09, 2018 7:27 pm

Much excellent advice already given. I would like to emphasize: Do not, under any conditions, use Edward Jones. Have no further contact with them.

KESP
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Re: My daughter's inheritance.

Post by KESP » Sun Sep 09, 2018 8:46 pm

A wealth adviser at a bank will probably put her in things she shouldn’t be in. My friend is 64 years old and the bank tried to convince her to purchase whole life insurance. The only place to go where she won’t get taken advantage of is Vanguard Personal Advisory service. They are not getting commissions on anything they invest her money in. As others mention, meet with a CPA before anything. If there is any case where it’s important to be concerned with fees, it’s this one. Your daughter is so young and has many years to grow this money. There’s also many years for fees and expenses to greatly cut into this growth. Someday she will greatly appreciate you protecting this inheritance.

NYC_Guy
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Re: My daughter's inheritance.

Post by NYC_Guy » Sun Sep 09, 2018 9:15 pm

Leaving this in cash (a suggestion that this website suggests for windfalls) may be a violation of your fiduciary duties as a trustee (assuming you are a trustee). If you are not a financial expert or financially sophisticated, you should get some professional guidance. I’d suggest a flat fee-based fiduciary. Remember, it’s not your money, so it’s not your windfall. But I would recommend finding that non-AUM, flat fee fiduciary to help you and your co-trustee.

NYC_Guy
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Re: My daughter's inheritance.

Post by NYC_Guy » Sun Sep 09, 2018 9:17 pm

KESP wrote:
Sun Sep 09, 2018 8:46 pm
A wealth adviser at a bank will probably put her in things she shouldn’t be in. My friend is 64 years old and the bank tried to convince her to purchase whole life insurance. The only place to go where she won’t get taken advantage of is Vanguard Personal Advisory service. They are not getting commissions on anything they invest her money in. As others mention, meet with a CPA before anything. If there is any case where it’s important to be concerned with fees, it’s this one. Your daughter is so young and has many years to grow this money. There’s also many years for fees and expenses to greatly cut into this growth. Someday she will greatly appreciate you protecting this inheritance.
Vanguard may be a good option. But it isn’t the “only” place to go to get solid advice.

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BL
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Re: My daughter's inheritance.

Post by BL » Sun Sep 09, 2018 9:36 pm

I would add that I agree with the Vanguard PAS as maybe the only sure way not to get burned. They charge 0.3%/year and put you into low-ER index funds and won't try to sell you high-expense funds or insurance products.

You may have a legal responsibility to use a manager if you are not prepared to justify your own choices, and this would be a much better choice than those you mentioned or pretty much anyone else. Yes, there are probably some good ones out there, but finding them and recognizing them is nearly impossible. That nice person that your neighbor recommends, that attends your church, or whatever, may be a very expensive choice.

I have heard mention of Garrett here, also I think The Finance Buff who posts here can be hired to locate someone. https://adviceonlyfinancial.com/
Last edited by BL on Sun Sep 09, 2018 9:50 pm, edited 1 time in total.

ResearchMed
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Re: My daughter's inheritance.

Post by ResearchMed » Sun Sep 09, 2018 9:38 pm

NYC_Guy wrote:
Sun Sep 09, 2018 9:15 pm
Leaving this in cash (a suggestion that this website suggests for windfalls) may be a violation of your fiduciary duties as a trustee (assuming you are a trustee). If you are not a financial expert or financially sophisticated, you should get some professional guidance. I’d suggest a flat fee-based fiduciary. Remember, it’s not your money, so it’s not your windfall. But I would recommend finding that non-AUM, flat fee fiduciary to help you and your co-trustee.
I'd check with an attorney about this.
I am NOT an attorney, so this is only my non-expert opinion.

However, I could imagine that it might be viewed as a breach if fiduciary duty to rush into investments that have costs and/or risks before you have had time to explore what is "best". And "best" would need to take into account a variety of factors.
That should include not rushing into agreements that have high starting or ongoing fees, etc. This is for the long term, after all.

Sure, you may want to meet with a "flat fee based fiduciary", but that don't think that means you should immediately take that person's advice and invest however that person recommends.

It seems that you didn't have a long time to plan in advance for this, given the unexpected death, so you need to make those plans now, after the money has arrived.
You should speak with an attorney about what your fiduciary duties actually are, now and in the future, and perhaps also get advice about the ongoing planning as well.

RM
This signature is a placebo. You are in the control group.

Finridge
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Re: My daughter's inheritance.

Post by Finridge » Sun Sep 09, 2018 10:55 pm

KRBerly wrote:
Sun Sep 09, 2018 4:55 pm
Hello friends,
I am in need of sound financial guidance. My soon-to-be 20-year old daughter will be inheriting $1.25M in a few months from her late father's buy-sell agreement with his business partner. We recently created a trust for her, and I am co-trustee at this time. (Fyi, I was no longer married to her father at the time of his death.)

I have talked to two financial advisors presenting various plans for the funds. Morgan Stanley proposed an Assets Under Management fee structure, and Edward Jones presented a fee-based-type investment plan with some passively, some actively managed investments. I have been reading The Bogleheads' Guide to the Three-Fund Portfolio, and I like the sound of low fees and index funds. But I am scared I am going to mess this up! I also have plans to meet with a wealth management advisor from a local bank soon.

There is a lot of emotion attached to this money. The death of my daughter's father was a sudden and tragic accident, and it is hard for her to take much interest in what he has left her. She is currently in college, and she does not need these funds for many, many years down the road.

I want to be smart about how we invest this money and with whom. The tax-implications for various investments quickly gets confusing to me as well. I would like her portfolio to be simple and easy to manage, but I don't think we need to pay an advisor over $10K a year to help us do that. Right?

Thank you,
Concerned Mom
Another vote for the Vanguard PAS. You can use them to get started, and then cancel after you see how easy it is.

Also, I'd recommend reading the following books so that you better understand the theory and thought behind the 3-fund portfolio:
- A Random Walk Down Wall Street
- The Four Pillars of Investing

In my opinion, this would probably be a better use of your time than meeting with financial advisers.

If you use a financial adviser, use a "fee only" financial adviser. Even "fee only" financial advisers have an incentive to steer you towards unnecessarily complex portfolios--because this makes it more likely that you will keep using them. Their continued employment by you is dependent on you perceiving investing as being too complicated to handle on your own.

NancyABQ
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Re: My daughter's inheritance.

Post by NancyABQ » Sun Sep 09, 2018 11:24 pm

EDIT: The below does not apply to OP's situation. It is a revocable living trust.

Do some investigating on how taxes work with a trust. If your daughter is an "income beneficiary", she will probably have all the income distributed to her (which, should probably be at least 2% per year, if it is invested in some sane way), so that's ~$25k of income for her. Because her tax rate will be much less than the trust's tax rate, it makes good fiscal sense to distribute this income to her, unless the trust terms say otherwise.

You may also want to distribute "capital gains", but that's a less straightforward issue (depends on the trust details). If it's invested in some nice sensible index funds and not being churned, the capital gains should be minimal anyway.

This article shows the tax rates a trust would pay, if you don't distribute the income:
https://www.thetaxadviser.com/issues/20 ... eform.html

(Basically we're talking 37% tax rate vs. your daughter's probable 12% tax rate)

My thought on using an advisor is that you may want to, just to be covered for fiduciary responsibility, but find something with a minimal fee. I would consult a lawyer to make sure you completely understand the trustee responsibilities. It does matter who the other co-trustee is -- is it your daughter?
Last edited by NancyABQ on Tue Sep 11, 2018 9:04 pm, edited 1 time in total.

tibbitts
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Re: My daughter's inheritance.

Post by tibbitts » Sun Sep 09, 2018 11:54 pm

I think some of the replies may be skipping over the intricacies of the trust. Maybe this is a job for a JD/CPA.

Gill
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Re: My daughter's inheritance.

Post by Gill » Mon Sep 10, 2018 6:18 am

I’m still wondering how it came to be in trust, who created the trust and the terms of the trust. For all we know, the trust terminates next year when she’s 21.
Gill

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Strayshot
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Re: My daughter's inheritance.

Post by Strayshot » Mon Sep 10, 2018 7:36 am

Somehow you managed to talk to salesmen from two horrible places: Morgan Stanley and (drumroll please!) Edward Jones who takes the cake for borderline criminal thievery of hard earned funds from unknowing victims.

Do not allow these vampires access to the money. They prey on the emotionally vulnerable because money and investing are scary! (Sarcasm)

Find a fee-only financial planner (with a fiduciary duty) who is educated in trusts (some will know more than others). Pay them an hourly rate to come up with a plan for the money and discuss options. Do not get locked in to an assets-under-management scheme with high costs and fees at a place like Edward Jones.

You can manage the funds yourself, but if not Vanguard is a good place to start looking for help.

stan1
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Re: My daughter's inheritance.

Post by stan1 » Mon Sep 10, 2018 7:55 am

There is a lot of well intended but premature advice up thread. Sure Edward Jones and Morgan Stanley aren't your friends but there's a lot of information missing.

- Who is the trustee?
- How is the trust structured to give control of the money to your daughter?
- Will she need money for education expenses? If she plans to go to medical school and there are no other funds a large portion of the trust may be spent down. Very different situation than if she does not plan to go to college and plans to use income from the trust to supplement income for the rest of her life or if there is also a large 529 that will pay for her education expenses and this money is for a home down payment and her retirement savings.
- What is her expected level of financial maturity in 10 years? 18 is too young to have control over $1M but at that age you should have indications on her maturity level to handle this responsibility in the future. Does she make good adult decisions now for the most part? Or does she make a lot of bad decisions?
- Protect the money from a future spouse and divorce. She needs to understand the money is hers and should not be co-mingled. She is very vulnerable to being exploited in this situation. Plenty of men will tell her "I love you" because she has $1M. Hopefully she'll see through that line very quickly.

marcopolo
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Re: My daughter's inheritance.

Post by marcopolo » Mon Sep 10, 2018 8:00 am

CascadiaSoonish wrote:
Sun Sep 09, 2018 6:28 pm
But what I'll also suggest is that you give yourself permission to use advisers for a few years if you want. You could use a fiduciary adviser for a while until you're both comfortable managing the fund. You could use the time to ask questions, read, do your research, get comfortable with your priorities, and enjoy the peace of mind that comes with having someone paid to help you through the process.

We have family members continuing to use AUM advisers even though they don't need to because they can afford it and it's reassuring to them. I don't think that's such a bad thing. Others may feel differently, however.
First of all, sorry for your loss.

While I can understand the sentiment expressed above. I would caution you at least try to learn a little about good portfolio construction BEFORE allowing even a fiduciary advisor to take control. We see way too many people come here after the fact wanting to get away from the financial advisor, but they have a very complex mix of expensive investment which will cost significant money (in taxes, and sometimes penalties) to unravel.
Once in a while you get shown the light, in the strangest of places if you look at it right.

afan
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Re: My daughter's inheritance.

Post by afan » Mon Sep 10, 2018 8:02 am

It sounds like the trust was recently created as part of estate planning, before the father died. The money in the trust came from the buy sell agreement but it probably does not matter where it came from.

If the trust was created recently, then there is a chance that it provides for the daughter in trust for a long time, which is what the OP implies.

The terms of the trust, if not clear to the OP, could best be explained by the attorney who set it up, or by the attorney who is helping with settling the estate if they are different people. This would include the trustee powers and limitations, if any, on how the funds can be invested.

From the original post
She is currently in college, and she does not need these funds for many, many years down the road.
That implies her education funding needs are taken care of. Long term investing thus is appropriate.

OP has no need for an accountant.

OP should not deal with high priced brokers or commission based advisors.

If OP wants to have the money managed by someone, they should not charge more than 0.3%.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Grt2bOutdoors
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Re: My daughter's inheritance.

Post by Grt2bOutdoors » Mon Sep 10, 2018 8:17 am

sambb wrote:
Sun Sep 09, 2018 7:18 pm
run away from those advisors, and seek help with vanguard or fidelity. Only.
I partially disagree, Fidelity has been known to place their interests ahead of the individual investor, use of umpteen funds, etc. What the OP needs to do is to place the money in 5 fdic insured CDs for a few months while she reads a few books. The surest way to lose money is to make rash decisions based on emotions, the same emotions that sharks like Edward Jones, Morgan Stanley and purported “wealth advisers” prey upon, salivating at the thought of getting their hands on a seven figure portfolio.

OP - AVOID anyone who recommends purchase of variable annuities or any annuity for that manner, AVOID Whole Life Insurance - your daughter has no dependents or insurance need. Avoid anyone who says you need to own more than 4-5 funds to be diversified, AVOID anyone who says you need to pay advisory fees exceeding 50bps -0.50% per year.

Read - All About Asset Allocation- Rick Ferri.
The Only Guide to a Winning Investment Strategy - Larry Swedroe

After you’ve read those two books you will know more than 90% of the purported “advisers” out there.

Only meet with “advisers” when you are on a level playing field. Knowledge is your friend here.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Dottie57
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Re: My daughter's inheritance.

Post by Dottie57 » Mon Sep 10, 2018 9:28 am

Grt2bOutdoors wrote:
Mon Sep 10, 2018 8:17 am
sambb wrote:
Sun Sep 09, 2018 7:18 pm
run away from those advisors, and seek help with vanguard or fidelity. Only.
I partially disagree, Fidelity has been known to place their interests ahead of the individual investor, use of umpteen funds, etc. What the OP needs to do is to place the money in 5 fdic insured CDs for a few months while she reads a few books. The surest way to lose money is to make rash decisions based on emotions, the same emotions that sharks like Edward Jones, Morgan Stanley and purported “wealth advisers” prey upon, salivating at the thought of getting their hands on a seven figure portfolio.

OP - AVOID anyone who recommends purchase of variable annuities or any annuity for that manner, AVOID Whole Life Insurance - your daughter has no dependents or insurance need. Avoid anyone who says you need to own more than 4-5 funds to be diversified, AVOID anyone who says you need to pay advisory fees exceeding 50bps -0.50% per year.

Read - All About Asset Allocation- Rick Ferri.
The Only Guide to a Winning Investment Strategy - Larry Swedroe

After you’ve read those two books you will know more than 90% of the purported “advisers” out there.

Only meet with “advisers” when you are on a level playing field. Knowledge is your friend here.
I agree with warning on Fidelity. Great customer service. But beware the sales person in every Financial Advisor.
You can also read books suggested in the Boglehead wiki. The wiki also suggests a three fund portfolio which can be implemented in multiple Brokerages. ( https://www.bogleheads.org/wiki/Three-f ... head-style)

aristotelian
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Re: My daughter's inheritance.

Post by aristotelian » Mon Sep 10, 2018 9:39 am

Please read before you go anywhere near an Edward Jones branch.
http://kronstantinople.blogspot.com/p/e ... -saga.html

The best thing your daughter can do is educate herself about finances. That will be far more important than any specific investment or brokerage. If she has emotional attachment to the money, she can invest it conservatively. I think she is better off doing nothing for a year or two than to get involved in a financial advisor that will skim off her money for years and years to come.

You both might start with "If You Can" free PDF by William Bernstein to see if you think you might be able to take a "DIY" approach.

Without getting into details, I got my start investing at a young age from a similar situation and also felt very emotionally invested in the money. Through thick and thin, the nest egg has a provided me a sense of security my whole life. I made many mistakes along the way, but they were my mistakes and I learned from them. I never touched the money until deciding to buy a house.

DavidW
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Re: My daughter's inheritance.

Post by DavidW » Mon Sep 10, 2018 10:04 am

sambb wrote:
Sun Sep 09, 2018 7:18 pm
run away from those advisors, and seek help with vanguard or fidelity. Only.
+1. Sharks are in the water....

Invest the time and learn how to manage this money not only for near term items (home/car) but future retirement.

Pls don't this the wrong way but I wonder if the $ would be a distraction for her as she can count on the money to get her through tough spots in life (e.g. looking for work, working for the next promotion...).

$1.25M is good money at early 20's but not enough not to work for the rest of her life.

I believe another person suggested the "windfall" article. Please protect her from sharing this info with her friends as this could cause unwanted attention or jealousy.

Best of luck to you....

birdy
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Re: My daughter's inheritance.

Post by birdy » Mon Sep 10, 2018 10:08 am

I just wanted to say you have received a lot of good advice from us. I personally want to tell you how sorry I am for your loss and I hope you daughters pain gets a little easier to bear each day. Some times we get lost in the details when someone dies. Take care of yourself and don't let this overwhelm you. What ever you decide just remember you are doing the best you can. One day she will take an interest (when her pain is not so fresh). You are a great mom---remember that!


birdy

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randomizer
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Re: My daughter's inheritance.

Post by randomizer » Mon Sep 10, 2018 10:11 am

Stay far, far away from those advisors. You absolutely can set up a simple three-fund portfolio at low cost on your own. If in doubt, read another book.
87.5:12.5, EM tilt — HODL the course!

NotWhoYouThink
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Re: My daughter's inheritance.

Post by NotWhoYouThink » Mon Sep 10, 2018 10:28 am

Since you say you have "a few months", can you help us give better advice by describing the trust a little better. You are the co-trustee, who are the other co-trustees? Who is/was the grantor? Was it your late husband? His business partner? How much control will your daughter have over the investments and income of the trust?

Beehave
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Re: My daughter's inheritance.

Post by Beehave » Mon Sep 10, 2018 10:44 am

KESP wrote:
Sun Sep 09, 2018 8:46 pm
A wealth adviser at a bank will probably put her in things she shouldn’t be in. My friend is 64 years old and the bank tried to convince her to purchase whole life insurance. The only place to go where she won’t get taken advantage of is Vanguard Personal Advisory service. They are not getting commissions on anything they invest her money in. As others mention, meet with a CPA before anything. If there is any case where it’s important to be concerned with fees, it’s this one. Your daughter is so young and has many years to grow this money. There’s also many years for fees and expenses to greatly cut into this growth. Someday she will greatly appreciate you protecting this inheritance.
I agree about Vanguard. I trust them based on experience. For example, their annuity sales people advised me that I did NOT need an annuity when I contacted them at a time I was facing a major change in employment. I personally would not trust any other investment firm for advice, especially if recommending to someone inexperienced. The alternative of an hourly, fee-based, independent, not on commission, not selling any product financial advisor would be okay too if you can find one you can vet and with whom you are comfortable.

I also agree strongly about getting CPA assistance before doing any investing and before going to any advisor. You must have a good idea about taxes and reporting before you make investment decisions (you learn a lot by looking at and asking questions about any tax papers prepared for you). For example, the funds easiest to manage (balanced funds such as Vanguard's Life Strategy Conservative) may not be the most advantageous if you want to sell them or exchange out of them in the future.

The two possible exceptions I see to the "wait 6 months before investing" are (and both require a CPA's review regarding rules and implications):
(1) if your daughter has 2018 income from employment, using some of the funds to invest in a Roth IRA (if she will be eligible given the inheritance)
(2) if the inheritance is not in cash but, say, in stock, determining whether to convert some of that inheritance into cash to protect it soon.

Some things worth thinking about:
(1) Paying off all current student debt. (Student debt is not even dischargeable in bankruptcy. To me it's a priority to get rid of it asap.)
(2) Making sure that future education expenses will (a) be paid off and (b) have some tangible relation to employment
(3) Bucketizing the money for your daughter to help her understand its management and best-use, highest-purpose:
(a) this portion is for education
(b) this portion is for housing and home purchase (maybe also prudent car purchase if needed)
(c) this portion is for future family (if she is planning on children)
(d) this portion is for your retirement
(e) this portion is for emergencies (try to define)

Money is for security and reduction of stress and flexibility in opportunity.
It should not be blown, but conserved and employed judiciously.
It should be understood and employed as a long-term, sequence-of-life facilitator and enabler.
It is very important, in my opinion, for your daughter to understand and act on this as best as possible.

Best wishes.

FoolMeOnce
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Re: My daughter's inheritance.

Post by FoolMeOnce » Mon Sep 10, 2018 10:54 am

KRBerly wrote:
Sun Sep 09, 2018 4:55 pm
But I am scared I am going to mess this up!
It is hard to mess up a target date fund!

JGoneRiding
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Re: My daughter's inheritance.

Post by JGoneRiding » Mon Sep 10, 2018 11:18 am

Please don't go the local bank management option! Anything but that!

I have Edward Jones from work. They are heavy maligned on here and for several good reasons but the fact is my advisor works very hard for not a lot out of my portfolio. Eventually he will get more of course as it grows but then eventually I will move it. With the law change 2 years ago EJ no longer does load funds. They also do offer target funds. I think this isn't a bad idea for a couple years. It also prevents your daughter down the road saying you miss managed the money.

If you choose to go alone dumb the whole thing into a balanced target fund with either vanguard or Schwab and call it a day. No real need to think harder than that at this time.

KRBerly
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Re: My daughter's inheritance.

Post by KRBerly » Tue Sep 11, 2018 6:24 pm

Thank you so much for all the replies and condolences. I realize from your questions I left out important details. My ex-husband died without a will (he was in the process of setting up his estate plan, and he and his business partner had only recently taken out the life insurance policies on each other that ultimately funded the buy-sell agreement after his death), and my daughter and her half-brother are the sole heirs to his estate. The estate attorney is the one who created the trust for my daughter after her father's death. My daughter is the grantor, and she and I are co-trustees. (All decisions with the money must be jointly made.) There is no age stipulation on when my daughter takes sole-control of the trust-she can do it tomorrow or when she is 25 (because the trust was voluntarily created by her). There are no stipulations within the trust as far as my fiduciary responsibility, but my daughter trusts me to guide her in investing the money, and she doesn't have the time or interest at this point in her life to devote to it. The money is hers and hers alone-I only want to protect her and educate her about how to manage it.

She is a responsible young woman with a good head on her shoulders, and she understands her father would not have intended to leave her this amount of money, at this young age, to control by herself. And trust me, she is telling no one about the money! Not her boyfriend, not her friends, and I am forbidden from even telling close family members the amount she is getting. This money is in no way intended to change the trajectory of her life. She is working on an engineering degree and will get a job after college-the same plan as before her father's untimely death. She realizes this is a large amount of money, but not that large. We do have other funds that are paying for college; there are no plans to touch the $1.25M unless possibly she uses some of it to buy or help buy a house in the future. (Also the estate attorney has indicated that this money will likely not be taxed because it is the fair-market value of the business, or something along those lines.)

Right now the funds are still in the estate account, in cash. It had been invested in short-term CDs, but now that the probate period is about to end, the money will be distributed to the heirs soon. My thought has been to re-invest the money in several CDs as it had been up until recently, and then continue to figure out our next step, and it sounds like many of you agree. I also like the advice of consulting a CPA and possibly hiring a Fiduciary advisor. And to bring any plans back to this forum BEFORE I do anything else!

I have the list of books recommended by several of you, and I will continue to do my homework.

Thank you for all of your thoughtful replies. I appreciate your time and knowledge in offering objective advice.

KB

Gill
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Re: My daughter's inheritance.

Post by Gill » Tue Sep 11, 2018 7:27 pm

Thanks for the clarification about the trust. It is simply a revocable living trust where she has complete control including the right to withdraw funds or terminate the trust at any time. I suspect the main purpose of it was to give her assistance in managing the funds as well as creating an estate plan for her.
Gill

desiderium
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Re: My daughter's inheritance.

Post by desiderium » Tue Sep 11, 2018 8:27 pm

At the risk of being contrary to the dominant paradigm here:

You daughter’s youth and understandable lack of focus on the financial work involved plus tax and trust issues do argue for considering a full service fiduciary fee only financial adviser. I would suggest exploring Buckingham asst management, Larry Swedroe’s firm. They have the depth needed to steer things well for many years to come. They do not profit off the investments and the fees may be reasonable for what she needs. I do not use them myself but would readily consider if my interest in investing was not as strong.

Gill
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Re: My daughter's inheritance.

Post by Gill » Tue Sep 11, 2018 8:30 pm

desiderium wrote:
Tue Sep 11, 2018 8:27 pm
At the risk of being contrary to the dominant paradigm here:

You daughter’s youth and understandable lack of focus on the financial work involved plus tax and trust issues do argue for considering a full service fiduciary fee only financial adviser. I would suggest exploring Buckingham asst management, Larry Swedroe’s firm. They have the depth needed to steer things well for many years to come. They do not profit off the investments and the fees may be reasonable for what she needs. I do not use them myself but would readily consider if my interest in investing was not as strong.
There really are no trust or tax issues here. Retaining such an advisor would be overkill.
Gill

KRBerly
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Re: My daughter's inheritance.

Post by KRBerly » Tue Sep 11, 2018 8:36 pm

One other question I forgot to ask. If I go the multiple CD route for now, how do I go about this with multiple banks? The estate account ended up being invested in CDs by the financial advisor I mentioned earlier (She is a friend of the estate attorney's and that is how I got connected with Edward Jones.) When the estate settles, I can move the funds to an account set up in the name of my daughter's trust. Then what? Go to five different local banks?

PS Yes, Gill, it is a revocable living trust-should have said that, but you figured it out. :)

NancyABQ
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Re: My daughter's inheritance.

Post by NancyABQ » Tue Sep 11, 2018 8:56 pm

Given that this is a revocable living trust, that seems a lot simpler. There are no weird tax consequences -- the income would be under your daughter's taxes directly.

I don't think any financial advisor is necessary, but if OP is not used to handling this amount of money, you might consider getting some advice (but there is no reason to rush into getting an advisor involved).

Personally I'd consider transferring the whole amount to your broker of choice (I like Schwab, many here would suggest Vanguard -- make sure the account is titled correctly as a living trust, with the trustees setup, etc), and then put it all in a Money Market fund while you figure out how to invest it. If you're uncomfortable with the Money Market (not FDIC insured) then 3-6mo Treasuries? You can also buy a bunch of brokered CDs at the brokerage firm, just making sure no more than $250K per banking institution.

That seems (much) simpler than trying to setup multiple trust accounts in different online banks, to stay under the FDIC limits.

Once you have taken time to figure things out, then it's just a matter of investing the money according to the plan you come up with, using the same brokerage where the money will already be located -- the account will already be setup. You can take your time coming up with that plan (asset allocation, tax efficiency, etc). Bogleheads here will be happy to help you work out a good investment plan. There is no rush.

P.S. Please consider editing your original message (first one in this thread) to include the important information that you are talking about a revocable living trust. That will help late-comers get caught up. Use the pencil icon at the top right of your original post.

grenadaRocks
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Re: My daughter's inheritance.

Post by grenadaRocks » Tue Sep 11, 2018 9:42 pm

BL wrote:
Sun Sep 09, 2018 9:36 pm
...
I have heard mention of Garrett here, also I think The Finance Buff who posts here can be hired to locate someone. https://adviceonlyfinancial.com/
...
$200 to find someone, isn't that expensive? Especially as the final fees itslef can go from $1500 to $2000.

SoAnyway
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Re: My daughter's inheritance.

Post by SoAnyway » Tue Sep 11, 2018 10:37 pm

NancyABQ wrote:
Tue Sep 11, 2018 8:56 pm
Given that this is a revocable living trust, that seems a lot simpler. There are no weird tax consequences -- the income would be under your daughter's taxes directly.

I don't think any financial advisor is necessary, but if OP is not used to handling this amount of money, you might consider getting some advice (but there is no reason to rush into getting an advisor involved).

Personally I'd consider transferring the whole amount to your broker of choice (I like Schwab, many here would suggest Vanguard -- make sure the account is titled correctly as a living trust, with the trustees setup, etc), and then put it all in a Money Market fund while you figure out how to invest it. If you're uncomfortable with the Money Market (not FDIC insured) then 3-6mo Treasuries? You can also buy a bunch of brokered CDs at the brokerage firm, just making sure no more than $250K per banking institution.

That seems (much) simpler than trying to setup multiple trust accounts in different online banks, to stay under the FDIC limits.

Once you have taken time to figure things out, then it's just a matter of investing the money according to the plan you come up with, using the same brokerage where the money will already be located -- the account will already be setup. You can take your time coming up with that plan (asset allocation, tax efficiency, etc). Bogleheads here will be happy to help you work out a good investment plan. There is no rush.

P.S. Please consider editing your original message (first one in this thread) to include the important information that you are talking about a revocable living trust. That will help late-comers get caught up. Use the pencil icon at the top right of your original post.
+1

OP, my condolences to you and your daughter. It's no fun dealing with this financial minutiae in the current emotional situation. On the up side, you and your ex raised a great kid with a terrific head on her shoulders. Moreover, from what I've seen in your posts, "like mother, like daughter". :happy My thoughts:
1. No financial advisor necessary, esp. not EJ, Morgan Stanley, "wealth management branch" of a local bank, or any of their "ilk". OP, no one here benefits financially from the advice offered here, and most of it is exceptional. Be confident that you can do this.
2. You can decide whether you need an advisor later. The most immediate need is to get the distribution to someplace that you feel is safe for your daughter. Personally, I'd move it all to Vanguard and stick it in the Prime Money Market Fund until you and your daughter have gotten your bearings. BTW, I have accounts at Vanguard, Schwab and Fidelity - the only 3 options I'd consider in your situation. For your situation, I'd recommend that you start with Vanguard. (If you want to know why, PM me.)
3. You're an amazing Mom, and your daughter is lucky to have you.

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BL
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Re: My daughter's inheritance.

Post by BL » Wed Sep 12, 2018 12:15 am

grenadaRocks wrote:
Tue Sep 11, 2018 9:42 pm
BL wrote:
Sun Sep 09, 2018 9:36 pm
...
I have heard mention of Garrett here, also I think The Finance Buff who posts here can be hired to locate someone. https://adviceonlyfinancial.com/
...
$200 to find someone, isn't that expensive? Especially as the final fees itslef can go from $1500 to $2000.
Maybe, but if it steers you away from the sharks, it may be well worth it.

Actually, I would ask Vanguard PAS to show what they would advise, and pay the 0.3%/year for at least a year to have them set it up and manage. Maybe then go it alone if desired with their portfolio or simply use a Life Strategy or similar fund.

I suggest you check your posts to see if you need to delete any personal info which together could identify her somehow.

msk
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Re: My daughter's inheritance.

Post by msk » Wed Sep 12, 2018 3:44 am

Trust BHs to make things complicated :shock: I am invested 100% in stocks worldwide. My instructions/will to my 6 heirs are simply to sell everything, distribute the cash and each one advised to re-purchase worldwide stocks, VT (or similar Vanguard or iShares ETFs that I list, depending on each one's tax jurisdiction). Then cash out 5% p.a. for eternity. I gave up on using trusts because they live in very varied tax jurisdictions, and I will also be gone in case any one of them wants to be an idiot and not follow my instructions. Hopefully the amount that each inherits will convince them to take my investing advice seriously :greedy One of my heirs is a 20 year-old daughter who has just graduated, so I do have empathy for the OP. Nevertheless do not under-estimate the value of a 1.3 million $ stocks portfolio at any age. 5% delivers $65k p.a., higher than 2018 median household income, and yes, it'll yoyo up and down with the stock market, but it will keep up with inflation forever. With million+ $ to start with, I see my 20 year-old daughter as indeed never having to work if she so chooses, e.g. to be a full-time environmentalist do-gooder as per her degree... I might even be very proud of that in my grave! Ditto for the OP's kid. My own suggestion for the OP is to spend time reading the good books suggested by several people above and get enough confidence over the next several months to put the money into VT, target-date fund or whatever she (and fellow BHs for confirmation!) feel appropriate then. In the meantime just use 6-month CDs. CDs are nice in the sense that they will discourage impulsive, premature, possibly nonsensical decisions. Sorry that the daughter has lost her Dad.

Olemiss540
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Re: My daughter's inheritance.

Post by Olemiss540 » Wed Sep 12, 2018 7:48 am

DavidW wrote:
Mon Sep 10, 2018 10:04 am
sambb wrote:
Sun Sep 09, 2018 7:18 pm
run away from those advisors, and seek help with vanguard or fidelity. Only.
+1. Sharks are in the water....

Invest the time and learn how to manage this money not only for near term items (home/car) but future retirement.

Pls don't this the wrong way but I wonder if the $ would be a distraction for her as she can count on the money to get her through tough spots in life (e.g. looking for work, working for the next promotion...).

$1.25M is good money at early 20's but not enough not to work for the rest of her life.

I believe another person suggested the "windfall" article. Please protect her from sharing this info with her friends as this could cause unwanted attention or jealousy.

Best of luck to you....
+100. 1% doesn't seem THAT bad, until you realize they are churning trade orders so they can rack up multiple other fees, loads, kickbacks, and high dollar fund expense ratios.

Very easy for Morgan Stanley or Edward Jones to walk away with 3% annually. Been there and done that. Most importantly, you should invest time in the coming years to help educate your daughter on personal finance. Do a lot of studying and be ready for when there is a good time to help when she asks. Read some of the bogleheads wiki and send your daughter Bernstein's "If You Can".

Good luck and sorry about the family's loss.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

tibbitts
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Re: My daughter's inheritance.

Post by tibbitts » Wed Sep 12, 2018 7:59 am

tibbitts wrote:
Sun Sep 09, 2018 11:54 pm
I think some of the replies may be skipping over the intricacies of the trust. Maybe this is a job for a JD/CPA.
The OP had not added the revocable trust part before I had posted the above. I did not assume that and it is one of the least complex forms of trust so it's not as complicated as I'd thought. With that out of the way, I never would have suggested professional investment advice - clearly not needed here.

mbres60
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Re: My daughter's inheritance.

Post by mbres60 » Wed Sep 12, 2018 8:12 am

I'm so sorry for you and your daughter's loss. You have received a lot of good advise. There is more than one correct way to do things. Fees are very important because over time they eat away at your portfolio. I use Vanguard but I know others on here use Fidelity too. Check them both out. The way I see it is that you could either put it all in a Target date fund or a Life Strategy fund (with this one though as she gets older you would then have to change to a less aggressive fund instead of Vanguard automatically doing it for you).

The one thing I would caution you on is TAXES. If this is all after tax money then each year any dividends and capital gains will be taxable to your daughter (even if she does not receive a check but automatically reinvests them in the funds they are currently in). Therefore you might want to use some of Vanguards Tax Managed funds. I would contact Vanguard. With that much new money coming into them they might offer, for free, a plan of what funds to use. Even if it costs a little it may well be worth it. Or use their Personal Advisory Service for 0.3%/year. You could do it for a year or two until your comfortable in knowing what you need to do.

Good luck and let us know what you do. Any questions you have don't hesitate to post and someone will help.

NotWhoYouThink
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Re: My daughter's inheritance.

Post by NotWhoYouThink » Wed Sep 12, 2018 8:18 am

You mentioned that you still have a few months before everything is transferred to the trust, so you should have plenty of time to plan setting up the investment. If it were my daughter, I'd recommend putting it all in a target date fund and leaving it alone. Vanguard 2050 or something like that. You can get a little more complicated if you want to minimize taxes, but it might not be worth the trouble while her earned income is low.

Keep in mind that with that much money she will probably have $25-$30K of annual investment income, so her taxes will get more complicated. That's ok, she should still try to do them herself, with a little help from Turbo Tax maybe. This isn't hard, don't encourage her to be intimidated by it. She'll learn something about the tax code from it.

If she has earned income, she can use money from the trust to invest in a Roth IRA. If she takes a job with a company that offers a 401K she can start maxing out her retirement savings early, drawing on the trust money if needed for living expenses. This will help reduce her taxes owed.

If she owns a car, she should have very high limits on her liability insurance, and she may want to look into a personal liability policy also. And renter's insurance. Landlords require renter's insurance to protect the landlord from damage a tenant may cause. Now that she has substantial assets she becomes a target and needs to insure herself against damage she may cause by accident.

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BL
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Re: My daughter's inheritance.

Post by BL » Wed Sep 12, 2018 8:38 am

You might find a bank that participates in CDARS which lets them handle a large amount of money in guaranteed CDs:
https://en.wikipedia.org/wiki/Certifica ... ry_Service

Jane Bryant Quinn has some easy to read books (and articles on her web site) that may serve as a handy reference for personal finance and investing.

She should become more aware of how to protect herself from lawsuits with generous auto and renters or home owners insurance and perhaps umbrella insurance.

afan
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Re: My daughter's inheritance.

Post by afan » Wed Sep 12, 2018 9:48 am

Do not sign up with anyone who will charge more than 0.3% of assets.
Do not sign up with anyone who sells commissioned products.


Do not deal with brokers like Morgan Stanley, Edward Jones or the like. They will charge far too much money, sell overpriced funds, churn the account to generate commissions and generally do things you don't want.

Put the money in Vanguard.

At that level of assets they will give you a free financial plan. This should consider her long term needs- house buying, children's education, retirement. They will also make suggestions for how to invest the money. There will be no fee for any of this.

If you really don't want to just buy the funds Vanguard suggests then you can have them do this for you.
Thes easiest thing to do would be to hire Vanguard PAS and have them set up a portfolio. Their fee would be 0.3% of assets. More than I would pay but you would get something reasonable. They would take taxation into account, would not churn the assets, would charge no commissions and would provide some financial advice as well.

Vanguard will also act as trustee, for more money, but there is no need for that.

She does not need a CPA.

Her taxes will be very simple. Millions of people who would never pass a single engineering course do their taxes every year using simple retail tax programs like TurboTax. It will take her, maybe, half an hour tops the first year and less time thereafter.

Once the portfolio is set up she will realize there is nothing else to do. So she can drop the PAS if she starts with them.

You and your daughter are more than capable of managing this yourselves.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

TXJeff
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Re: My daughter's inheritance.

Post by TXJeff » Wed Sep 12, 2018 10:24 am

KRBerly wrote:
Tue Sep 11, 2018 8:36 pm
One other question I forgot to ask. If I go the multiple CD route for now, how do I go about this with multiple banks? The estate account ended up being invested in CDs by the financial advisor I mentioned earlier (She is a friend of the estate attorney's and that is how I got connected with Edward Jones.) When the estate settles, I can move the funds to an account set up in the name of my daughter's trust. Then what? Go to five different local banks?
Sorry for your loss, and your daughter’s loss.

There are two main ways you could place the money into CD’s:

1. Purchase through a brokerage company
Select a brokerage company, transfer the funds, and buy CD’s. (It’s as simple as viewing a page on the brokerage website with a long list of available CD’s, and clicking a couple of times to buy.) The three brokerage companies recommended here on Bogleheads: Vanguard, Fidelity, and Schwab. Each has their fans. Check out this current thread for a comparison. viewtopic.php?p=4114541#p4114541
The upside of this option: easy transfer of money, easy purchasing process, one convenient tax reporting document.
The downside: if you need the money before the CD term, you’d be $$ penalized more than if you’d bought directly from a bank. Also, at Schwab or Fidelity, likely requests that you let them manage your money, which might not be in your best interest.

2. Purchase directly through banks
Identify 5 banks, set up accounts and directly buy the CD’s. Banks do not need to be local—you can set up accounts purely online.
Upside: if you need the money before the CD term, the penalty is lower than with #1.
Downside: more work to set up, multiple tax documents.

In your situation, I’d choose #1, for the upside reasons above, plus easy transition into investing the funds. To choose the brokerage, search this forum for posts on “compare Schwab, Vanguard and Fidelity” and you’ll get a sense for the pluses and minuses of each.

Gill
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Re: My daughter's inheritance.

Post by Gill » Wed Sep 12, 2018 10:50 am

afan wrote:
Wed Sep 12, 2018 9:48 am
Do not sign up with anyone who will charge more than 0.3% of assets.
I'm glad I'm no longer selling bank trust services when I see comments like this! :happy :happy :happy
Gill

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