How to preserve $10M+ in wealth owned by unsophisticated people?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
RayLopez
Posts: 25
Joined: Wed May 29, 2019 1:09 pm

How to preserve $10M+ in wealth owned by unsophisticated people?

Post by RayLopez » Thu May 30, 2019 1:02 pm

How to preserve $10M+ in wealth owned by unsophisticated people? Lol, I'm not the unsophisticated person. But read on and you'll see my problem and the proposed solution (a wealth brokerage service, and/or it's an intractable problem meaning there's no real solution, unfortunately). BTW I love this site, and I myself am a Boglehead, even having once written a Monte Carlo simulator in C# in my spare time--similar to what you get now for free at Portfolio Visualizer online-- and I study the literature constantly (among other books, I'm presently reading for fun "Modern Portfolio Theory" by E.J. Elton et al and comparing it to Bode, Marcus & Kane's classic)

Imagine a southern European couple that immigrated into a NE USA premier city (Boston, NYC, DC) back in the 1950s. They, not believing in banks, knowing very little about stocks ('gambling' they call it), poured all their money from working at good jobs into real estate. As luck would have it, due to gentrification, due to sheer good luck with residential areas becoming high density commercial, due to the growth of cities, in 70 years their once modest investment in real estate is worth, along with their cash, some individual stocks and mutual funds, over $10M. In short, they--and I, who am due to inherit it-- are now in the US 1% of families (minimum net worth of $10M or above).

My background: technical, legal, knowledge worker, I made close to a half million dollars net worth by working in various cities across the USA with my advanced degrees, and I retired in my 40s, now I just hang around the house with my young wife from overseas with our young family.

Here's the problem: everybody in my family (except me! ;-p) is very unsophisticated about investing. Very, as in: they lost about $1M in penny stocks over the years, they avoid mutual funds except in their retirement fund (where they like T.Rowe Price's internet and tech fund, which is a rather wild ride), they buy individual stocks several hundred thousand dollars at a time, which rarely work out, they bought Citigroup in 2007, GE when it was $30 a share, VIA.B (the Nickelodeon company) when it was expensive and other such stocks they see on TV (I did talk them into buying a large block of MSFT when it was $30 a share which has done well for them). They know nothing about diversification, much less beta, alpha; they think buying stocks is gambling and they like to gamble. Even and especially my new young wife, who comes from a poor family in a developing country overseas. My young wife is completely clueless but a kind person. For any of you guys reading this, she's not a mail order bride, and to find her I had to quit my high paying job and spend several years living in a developing country before I met her, and in the meantime I met countless scam artists. She's pretty, young, but a typical 'teen' in mentality, she's a shopaholic and I'm pretty sure she would sell every piece of real estate we own at assessed value, probably less, if given the opportunity, in short, a perfect 'mark' for a either a con artist or those daytime TV ad companies that advertise to buy your house for cash in seven days.

Here is my family's net worth by asset class: Real estate, all paid off, all cash cows, but yielding only about 2%: 55% of total; cash (CD's): 25% of total; stocks (mostly individual stocks,very non-diversified, low Sharpe ratio, terrible returns less than intermediate term bonds but greater than money market funds): 20% of total. The grand total is north of $10M. Over the next few decades I intend to redevelop and then sell the real estate since I doubt my family will be able to manage it, so I'll have towards the end of my life mostly "paper" wealth.

Now my question:

If I pass away, how do I preserve the paper wealth for my kids? Some ideas:

0) Educate my young wife and kids according to the principles found at bogleheads.org and hope after years of study, including the works of Thaler et al about behavioral economics, that they finally get it. HA HA HA. Just kidding.

1) set up a trust, headed by a lawyer as trustee, but trusts have annual fees, and there's a 40% trust and estate tax fee for any income generated by trusts

2) set up a C-corporation holding our paper wealth as shareholders equity, but even with the lower 21% tax rate it's a constant battle with the IRS to keep retained earnings without them being taxed, and with this family you need a lawyer to supervise it

3) set up a series of "target" funds, laddered, so when kids are due for college one tranche comes due, then when my wife is middle aged another tranche comes due, when she's 65 a third tranche and so on, and she and the kids will live on income from a dividend paying mutual fund. This 'sounds good' but this arrangement is easy to 'break', and, like a piggy bank made of clay, it will be broken sooner than later I'm afraid. Along this line set up one or more mutual funds that are 'all-weather' and teach my wife and kids to never sell this fund(s); what funds would you recommend?

4) preferred solution: I notice my family and my wife are very impressed by appearances, status, and professionalism. Since they are largely uneducated or at best have a few years college, they would believe in a competent investment professional telling them something I could tell them for free. For example, the other day my family was enthusiastic about a young woman broker they met at the bank who told them about the benefits of a mutual fund in the long run (something I've told them for years but they've ignored). It's striking that the women members of my family were particular impressed by her professional demeanor and the fact she was juggling a job while at the same time raising kids. So I think this is the solution: find a 'wealth brokerage service' that's conservative, 'brand-name' (this is important), and sell my family this service (even though I personally would not use it). Then hope my surviving family does not get ripped off. To this end, what is good firm to invest in, in the NE USA, that's 'name brand' and will accept $10M+ in assets (today, I hope to increase it in the future)? Wells Fargo? Bank of America (Merrill Lynch)? I'm not thinking Julius Baer, since we're not yet in that league (but a Swiss banker would have cred).

5) As a tech type I realize sometimes solutions are intractable. The proverb "shirtsleeves-to-shirtsleeves in three generations" is based on fact, as is the phrase "Homo Proponit Deus Disposit" (Man Proposes God Disposes). In-sample prediction vs out-of-sample performance for you quants. So, this problem may not have a solution. Even with #4, I can easily see how the women of my family would fire any wealth management firm I recommend once I pass away.

Any advice appreciated. This is not a short term project so I'm not acting but just collecting information.

Presintense
Posts: 175
Joined: Thu Nov 06, 2014 1:58 pm
Location: "Somewhere in the middle of America"

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Presintense » Thu May 30, 2019 1:11 pm

That's a tough one Ray. Lots of people here (including me) think a like-minded spouse is a key ingredient to obtaining and maintaining financial independence. I would imagine it may be easier for you to convert to their ways than the other way around. As a result, you may have no option outside of an independent, professionally managed trust, etc.
Performance = Potential - Distraction

barnaclebob
Posts: 3624
Joined: Thu Aug 09, 2012 10:54 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by barnaclebob » Thu May 30, 2019 1:12 pm

There is a lot in your post but you need to separate investment strategy and estate planning. Take care of estate planning first. If they end up with a high fee manager its not the end of the world compared to a poorly setup estate that can be spent down quickly.

Your family does not have a good financial knowledge foundation or discipline. These are absolutely critical items for DIY low cost investment. Take one away and you are much better with a high fee manager.

GCD
Posts: 910
Joined: Tue Sep 26, 2017 7:11 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by GCD » Thu May 30, 2019 1:15 pm

Managing multi-generational wealth has been on my radar for a bit. I am lucky because my wife is my full partner in this and agrees with the concept. To this end, Family Wealth, by James Hughes has been useful. He acknowledges that the small, easy part of multi-generational wealth is the math and the investing. The hard part is educating each generation in what to do and getting their buy-in not to squander the family wealth. He notes that this isn't really achievable through trusts and other legalities. Each generation has to be raised to be stewards of the wealth.

It may not help you since you are dealing with people older than you and not training the next generation, but it may give you some insight.

https://www.amazon.com/Family-Wealth-Ke ... way&sr=8-1

mhalley
Posts: 7013
Joined: Tue Nov 20, 2007 6:02 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by mhalley » Thu May 30, 2019 1:19 pm

The story of multigenerational wealth is pretty sad. I believe in most cases it is gone by the 3rd generation, so your concerns are valid.
http://money.com/money/3925308/rich-fam ... se-wealth/
My wife has no interest in finance so I told her to go with vanguard pas should I get hit by a bus. The main thing is communication and education.

CommitmentDevice
Posts: 57
Joined: Tue Apr 02, 2019 3:25 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by CommitmentDevice » Thu May 30, 2019 1:29 pm

Sounds sincerely frustrating. That said, I suggest doing a self-check around criticism and contempt, as they can be toxic for a relationship ([url]https://www.gottman.com/blog/the-four-h ... newalling/).

Until they die and your inherit the wealth, your relatives will probably get to call the shots on how they invest. Might be worth trying to educate them on some basic principles (video series in the Bogleheads wiki, a book, a focused conversation). However, it sounds like most of their wealth is in real estate. Maybe even if they have a poorly optimized portfolio, most of it is in a *relatively* stable asset.

You can help teach your wife and kids. Even if they don't learn the underlying concepts,
you can teach rules of thumb and set up simple systems.

niceguy7376
Posts: 2319
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by niceguy7376 » Thu May 30, 2019 1:38 pm

OP, Just curious as to what your current expenses are. You are in 40s with a young (and shopaholic and new immigrant to a developed country and came from a developing country - all the things that you listed) and with young kids.
You retired with half a million dollars in bank.
You are talking about $10M+ wealth that you hope to inherit from your parents.
You can only look into trusts and such once you get the wealth right?
Until then, how much will you be withdrawing from the half a million?

mw1739
Posts: 587
Joined: Mon Mar 21, 2011 5:44 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by mw1739 » Thu May 30, 2019 1:39 pm

Congrats to your parents on achieving the American dream. A few thoughts and comments I had when I read your post:

1. A 2% yield on $5.5 million in RE seems very low ($110,000/year) and unable to support a family in one of the cities you mentioned.
2. Your parents (and yourself) need to meet with a competent estate lawyer to discuss your assets and future goals.
3. Since your family likes status, you could point out that Vanguard is the world's largest money manager.

User avatar
Sandtrap
Posts: 6902
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Sandtrap » Thu May 30, 2019 1:40 pm

Step by steps:

1. You can do little until you inherit the funds/assets. Or at least only in a limited way. Meet with all parties concerned, do you best to preserve what is there.

2. There might not be 10M at the time you inherit. Maybe nothing? Maybe other "things".

3. Estate dissolution and distributions may take many years, longer if anything is contested, much much longer if there is litigation.

4. Once you inherit what you inherit, then that's a time for estate planning.

One step at a time.
j :happy

MotoTrojan
Posts: 4611
Joined: Wed Feb 01, 2017 8:39 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by MotoTrojan » Thu May 30, 2019 1:44 pm

A fund-of-funds (Lifestrategy) honestly may be the way to go. Will prevent tinkering or mistakes, at a cost of tax-efficiency (although the difference between taxable and exempt bonds is far less than penny stock mistakes). When/if you inherit it you'll get a step-up basis and can move it into whatever more advanced portfolio you deem fit (even just a basic 3-fund with tax-exempt bonds).

Convincing them to do this will be the hard part. You'll be in an even bigger pickle if the market turns south just after you convince them to implement it. For that reason alone the expense of a broker/planner may be worthwhile, but fee-only would be a lot better than AUM.

IngognitoUSA
Posts: 168
Joined: Sat Mar 11, 2017 7:54 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by IngognitoUSA » Thu May 30, 2019 1:46 pm

Look into Q tip trusts.

Topic Author
RayLopez
Posts: 25
Joined: Wed May 29, 2019 1:09 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by RayLopez » Thu May 30, 2019 4:20 pm

Hi, an update and also I reply to everybody who has been kind enough to respond.

Update: an annuity may be just what I need, though I personally have read they are not good ideas, but, I notice Vanguard has a fixed income annuity for sale.

https://www.dummies.com/personal-financ ... ties-work/

https://investor.vanguard.com/annuity/fixed-income

Low cost Invest less up-front and still get the guaranteed income you want with a high-quality annuity.
Locked-in interest rate period Lock in your interest rate quote for 7 days. If you decide to buy the income annuity, you have 30 days from the date you received the quote to fund your contract. Annual payment increase Choose annuity payments that increase by a set amount annually (1% to 5%). Onetime flat fee There is a onetime fee equal to 2% of the purchase amount. All income annuity quotes include this transaction fee.

Answers to posters:

@Presintense -yes, I think a third party adviser is called for.

@barnaclebob - agree.

@ GCD - thanks, I ordered this book for myself, but they don't read books (except my wife, she devours romance novels, now I know why romance writer Ms. Steele got rich, and I hear she has something like a dozen biological kids!). I will relate a quick story: I prepared an elaborate PowerPoint a few years ago, treating it as I would do for a high-profile corporate client ,even spending 12 hours a day on it, for over a week, obsessing over every slide, about MPT/mutual funds/behavioral economics etc. I made it just for them (my biological family). I finally got everybody to agree to sit down for a half hour. I hit them with my best slides, colorful, to the point. I also am a pretty good presenter (giving speeches, I've even done amateur stand-up comedy). About half way through (and I've had this happen in professional settings, it's not uncommon), one of my women said: "this is a waste of time, we don't believe in stocks, we've never made money with stocks, yada yada" and she dismissed me with a wave of the hand and left. So I never even finished. But, since I had made an impression, months later the same woman said: "you know, I'm sick of managing real estate, maybe we should do as you said a while back and buy stocks" (actually I advocate only mutual funds but it's a start). Is there hope? Lol.

@mhalley - thanks, added this Money magazine "70% of Rich Families Lose Their Wealth by the Second Generation" article to my file. I recall the WSJ had an article about a wealthy guy who wanted his family to preserve their wealth for the next 1000 (sic) years, and the article implied he'd be fortunate to have it survive for the next 100 years. I'm also reading this book now: "Fortune's Children: The Fall of the House of Vanderbilt" (1989) by Arthur T. Vanderbilt II (title and author says it all).

@ CommitmentDevice - thanks, I guess I might fall into the "Stonewall" bucket in that I just don't bother anymore discussing finance topics. We agree to simply not mention it. It's not toxic, just frustrating. BTW due to luck in investing in real estate in a big US Eastern city, my family has done OK. Numbers are a bit hard to figure out, since I have to guess at purchase prices for the early properties, but I'm estimating they've returned about 9%/yr CAGR, which even for their penny stock loses (which I don't even include in their stock market returns) is pretty good and makes up for a lot of mistakes. A lot. Like the time they bought a house, in cash, sight unseen, asking price, no negotiation, based on a rumor from the seller's friend that the neighborhood would go commercial. They overpaid, the house inside had termite damage and was in shambles, and the neighborhood stayed low-density residential. But due to rising real estate prices we've done "OK" with this property and now rent it out.

@ niceguy7376 - I get a monthly family allowance since I retired. I also believe in the 2% rule (not 3%, not 4%) for principle, spend no more than this and you'll be OK if you invest the principle in 60/40 stocks. Living overseas, annually $10k goes a long way (though my burn rate was more like $36k/yr overseas)

@mw1739 - we make in the mid 100s from the properties, which is OK for our lifestyle, we cook at home, never travel, live modest lives, cheaper cars, so we do OK. Me and my wife are not a power couple. She is a shopoholic overseas only, where something expensive is only $20. I worry how she will adjust once she gets here in the USA. We finally got married after years of dating but a spousal visa takes 18 months (or more, though I sped things up with lawyers) and so she's overseas still. I have seen how some Wall Streeter was complaning that $500k a year is not enough to live the Hamptons lifestyle but that's not me.

@Sandtrap - very true but no next of kin save me. The wildcard is end-of-life care, as hiring a full time caretaker, living in the house, can easily cost $100k a year. I hope my young wife will do that (ha?!) if need be, or maybe we'll hire one of her immigrant friends.

@MotoTrojan - I will research this "A fund-of-funds (Lifestrategy) honestly may be the way to go". Convincing them is not a problem now, since I intend to do nothing until I get the stepped up basis, since they've stopped speculating in penny stocks years ago, and what they have now is stable (though VIA.B?! is not my cup of tea, I know more about Sumner Redstone than I care to know). Convincing my wife is not an issue since we never argue over money. She will, on occasion, get me to invest in her home country, for her relatives, and I have, I built them a house costing $70k USD which is super luxury over there, and she wants a condo in the capital there to rent out, which we'll probably do (another $70k) but so far such expenses/investments are trivial.

@IngognitoUSA - QTIP trusts! Wow, thanks. We've done an AB Living Trust which saved us probate when my father passed away, but I did not know about this except vaguely, I will research it.

I think my OP is similar to the story of low-income people who win the lottery and lose the money, or, professional athletes who make big money for five or six years, but, within 5 years, I've read more than 50% end up bankrupt. Human nature, and why 'taxing the rich' is not the way to go, since eventually human nature will ensure the rich will lose most of their money over time. I'm also reading this book: Bunny Mellon: The Life of an American Style Legend, by Meryl Gordon (decay of the rich theme).

Thank you all.

Ray

Dottie57
Posts: 6206
Joined: Thu May 19, 2016 5:43 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Dottie57 » Thu May 30, 2019 4:32 pm

How much would you spend n an annuity? And what type? What is the goals having an annuity.

I will probably purchase a single premium immediate annuity for an income stream in retirement. When I die, it dies. Money is gone.

I really can’t see why you would think an annuity is a good idea. High fee, high commission.

bubbadog
Posts: 774
Joined: Wed Mar 26, 2014 9:17 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by bubbadog » Thu May 30, 2019 4:43 pm

Your parents arrived as immigrants and have amassed a net worth of over ten million dollars. They did not do this by being stupid. Congratulations to them. They deserve to be very proud. Maybe they are more "sophisticated" than you think.

It is pretty dangerous to count someone else's assets as your own. Your post makes it sound like you are the only sophisticated member of the family and yet you "retired" by receiving a monthly family allowance. I am not trying to be rude but this does not meet my definition of retired. If it did, my children are retired as they also live off of a family allowance.

KyleAAA
Posts: 7133
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by KyleAAA » Thu May 30, 2019 4:52 pm

I don't think you can, really. Not without being heavy handed, and that breeds resentment. Probably for the best.

Broken Man 1999
Posts: 2530
Joined: Wed Apr 08, 2015 11:31 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Broken Man 1999 » Thu May 30, 2019 5:07 pm

You might want to seek your parents council.

They are worth $10 mil.

You managed to get to a $500k portfolio. Kinda underwhelming given all your education.

With all due respect, you haven't really accomplished all that much financially.

Good luck!

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

veindoc
Posts: 547
Joined: Sun Aug 14, 2016 9:04 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by veindoc » Thu May 30, 2019 5:09 pm

I wouldn’t worry about the parents. They are unlikely to outlive 10 million unless they fall into dementia and become prey. Let them have at it and enjoy themselves: gambling or otherwise.

As far as your wife goes, I would work on a plan to give her a monthly stipend to make sure the kids are taken care of until the last is 18. Make sure college is paid for and then perhaps leave some in a trust for when they hit 30.

If she spends all her inheritance when the kids fly the coop so be it. Hopefully the kids will bail her out. They are the only ones I would focus on right now- ensuring good money habits.

I’ve learned not to care too much about how other people manage their money. I had a few opinions regarding my dad’s finances and still do. But honestly he is not likely to outlive his money so if he manages it in a way antithetical to what I would do, who cares? If he blows it all, again unlikely, I have an extra bedroom.

GCD
Posts: 910
Joined: Tue Sep 26, 2017 7:11 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by GCD » Thu May 30, 2019 6:02 pm

RayLopez wrote:
Thu May 30, 2019 4:20 pm
About half way through one of my women said: "this is a waste of time, we don't believe in stocks, we've never made money with stocks, yada yada" and she dismissed me with a wave of the hand and left. So I never even finished. But, since I had made an impression, months later the same woman said: "you know, I'm sick of managing real estate, maybe we should do as you said a while back and buy stocks" (actually I advocate only mutual funds but it's a start). Is there hope? Lol.
I accept that you have embraced BH philosophy and the relatives got lucky in real estate. The problem is you are younger and your net worth is 1/20th of theirs. It's going to be a difficult sell to convince them you know better. It's easy to see why. It would take an extraordinarily introspective and humble person to embrace the idea that their 8 figure wealth was due to luck and not personal prowess. From their perspective, why should they listen to you? Where's your track record? It is, of course, a logical fallacy to dismiss an argument based on who is making it, but then many people base their world views on logical fallacies.
RayLopez wrote:
Thu May 30, 2019 4:20 pm
"70% of Rich Families Lose Their Wealth by the Second Generation"

I recall the WSJ had an article about a wealthy guy who wanted his family to preserve their wealth for the next 1000 (sic) years, and the article implied he'd be fortunate to have it survive for the next 100 years. I'm also reading this book now: "Fortune's Children: The Fall of the House of Vanderbilt" (1989) by Arthur T. Vanderbilt II (title and author says it all).
Don't forget to read about the families that have been successful at managing multi-generational wealth. It's not impossible, the Krupps (since 1587), Rothchilds (since 1760), Mitsubishis (since 1870), Tatas (India, since 1868), and others have done it. Not just in Europe, but in Asia and elsewhere. The book I referenced above, Family Wealth, advocates investing on a 100 year time line. After reading it, I suggest finding some books that explore the family dynamics of these successful multi-generational families. I have no references for you. It's on my to do list. Family Wealth has many footnotes and a couple hundred book bibliography, so we will both be busy reading on this topic.

I think you might gain more traction with your relatives if you make this less about their failures and more about the success of these other families. Perhaps coming at it from the angle of congratulating them on their outstanding success as first generation creators of wealth and then try to expose them to how wealth is lost and maintained.

marcopolo
Posts: 2094
Joined: Sat Dec 03, 2016 10:22 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by marcopolo » Thu May 30, 2019 6:17 pm

Broken Man 1999 wrote:
Thu May 30, 2019 5:07 pm
You might want to seek your parents council.

They are worth $10 mil.

You managed to get to a $500k portfolio. Kinda underwhelming given all your education.

With all due respect, you haven't really accomplished all that much financially.

Good luck!

Broken Man 1999
^This.

I am quite surprised at some of the responses giving advice on how the OP could convince his family to do certain things or structure the assets.

If the post is for real, and not just a troll, the OP comes across as quite condescending, and with more than a bit inflated sense of himself.

I am guessing the parents paid for his education that allowed him to amass his 500k portfolio. Then he "retires" with a stipend from his family, yet he thinks he is the only "sophisticated" one in the family.... :oops:

Good luck
Once in a while you get shown the light, in the strangest of places if you look at it right.

GCD
Posts: 910
Joined: Tue Sep 26, 2017 7:11 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by GCD » Thu May 30, 2019 6:23 pm

marcopolo wrote:
Thu May 30, 2019 6:17 pm
I am quite surprised at some of the responses giving advice on how the OP could convince his family to do certain things or structure the assets.
I try to take OPs, in general, at face value. It does not seem implausible that the parents are unsophisticated with regard to equities. Taken at face value, when the parents stray from real estate they are a mess. It wouldn't hurt for them to adopt a BH philosophy WRT their non-real estate investing.

marcopolo
Posts: 2094
Joined: Sat Dec 03, 2016 10:22 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by marcopolo » Thu May 30, 2019 6:36 pm

GCD wrote:
Thu May 30, 2019 6:23 pm
marcopolo wrote:
Thu May 30, 2019 6:17 pm
I am quite surprised at some of the responses giving advice on how the OP could convince his family to do certain things or structure the assets.
I try to take OPs, in general, at face value. It does not seem implausible that the parents are unsophisticated with regard to equities. Taken at face value, when the parents stray from real estate they are a mess. It wouldn't hurt for them to adopt a BH philosophy WRT their non-real estate investing.
I get your point, and largely agree with taking people at their word.
Taking the OP at face value (based on the information in the opening post), I wouldn't take his advice on how to invest the loose change in my pocket, let alone a 10M portfolio.

I would look at the situation presented from the parents perspective as well, again based on the information provided:

They immigrated to a new country full of opportunities and amassed a small fortune.
They have a son they put through higher education. He goes off and marries a "young" wife who he seems to have some disdain for, and she just likes to shop. Instead of taking advantages of all of his opportunities, he decides to retire in his 40s with 1/20th of their assets, and then relies on a stipend from them to support his family, talks about them in condescending language, but somehow they are the unsophisticated ones that need his advice on how to manage their money?

Call me skeptical that this will end well.
Once in a while you get shown the light, in the strangest of places if you look at it right.

bubbadog
Posts: 774
Joined: Wed Mar 26, 2014 9:17 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by bubbadog » Thu May 30, 2019 6:59 pm

Maybe the best way to preserve 10+ million in wealth is to stop giving away a monthly family allowance. :idea:

Lee_WSP
Posts: 343
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Lee_WSP » Thu May 30, 2019 9:43 pm

I don't understand the question. This isn't your money. You have no control over it.

bsteiner
Posts: 4006
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by bsteiner » Thu May 30, 2019 9:50 pm

Have your mother provide for you in trust rather than outright to keep your inheritance out of your estate and to protect it against your creditors and spouses.

You can provide for your wife and children in trust rather than outright for the same reasons.

The Wizard
Posts: 13355
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by The Wizard » Thu May 30, 2019 10:19 pm

Do what bsteiner says.
That's my vote...
Attempted new signature...

User avatar
sunny_socal
Posts: 1950
Joined: Tue Mar 24, 2015 4:22 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by sunny_socal » Fri May 31, 2019 5:39 am

marcopolo wrote:
Thu May 30, 2019 6:17 pm
Broken Man 1999 wrote:
Thu May 30, 2019 5:07 pm
You might want to seek your parents council.

They are worth $10 mil.

You managed to get to a $500k portfolio. Kinda underwhelming given all your education.

With all due respect, you haven't really accomplished all that much financially.

Good luck!

Broken Man 1999
^This.

I am quite surprised at some of the responses giving advice on how the OP could convince his family to do certain things or structure the assets.

If the post is for real, and not just a troll, the OP comes across as quite condescending, and with more than a bit inflated sense of himself.

I am guessing the parents paid for his education that allowed him to amass his 500k portfolio. Then he "retires" with a stipend from his family, yet he thinks he is the only "sophisticated" one in the family.... :oops:

Good luck
Let's see OP post back, story doesn't ring true (clue: "Young wife" is used 6 times) Parents seem to have done quite well for themselves, why change anything?

User avatar
Tamarind
Posts: 1403
Joined: Mon Nov 02, 2015 2:38 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Tamarind » Fri May 31, 2019 6:00 am

bsteiner wrote:
Thu May 30, 2019 9:50 pm
Have your mother provide for you in trust rather than outright to keep your inheritance out of your estate and to protect it against your creditors and spouses.

You can provide for your wife and children in trust rather than outright for the same reasons.
+1

Bsteiner knows his stuff, and the trust is the traditional and best remedy for relationship issues like that described (ie ones lacking in trust and mutual respect), as well as for people who require a neutral third party with some guaranteed training to manage their investments.

ponyboy
Posts: 703
Joined: Fri Feb 06, 2015 10:39 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by ponyboy » Fri May 31, 2019 6:20 am

Wouldnt a dynasty trust be suitable for this situation? That way, no one can ever blow the money all at once...and it will pay out forever?

bubbadog
Posts: 774
Joined: Wed Mar 26, 2014 9:17 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by bubbadog » Fri May 31, 2019 7:54 am

ponyboy wrote:
Fri May 31, 2019 6:20 am
Wouldnt a dynasty trust be suitable for this situation? That way, no one can ever blow the money all at once...and it will pay out forever?
[/quote

I am more than a little skeptical that the parents will set up a trust based on the advice of their son who they have to provide a monthly stipend to pay his bills.

ponyboy
Posts: 703
Joined: Fri Feb 06, 2015 10:39 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by ponyboy » Fri May 31, 2019 8:04 am

Well, if the parents arent willing to set up a trust, who cares what happens to the money? If they're going to split it up among the kids, let everyone else blow the dough.

IntangibleAssets
Posts: 63
Joined: Wed Sep 07, 2016 11:06 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by IntangibleAssets » Fri May 31, 2019 8:37 am

marcopolo wrote:
Thu May 30, 2019 6:36 pm
GCD wrote:
Thu May 30, 2019 6:23 pm
marcopolo wrote:
Thu May 30, 2019 6:17 pm
I am quite surprised at some of the responses giving advice on how the OP could convince his family to do certain things or structure the assets.
I try to take OPs, in general, at face value. It does not seem implausible that the parents are unsophisticated with regard to equities. Taken at face value, when the parents stray from real estate they are a mess. It wouldn't hurt for them to adopt a BH philosophy WRT their non-real estate investing.
I get your point, and largely agree with taking people at their word.
Taking the OP at face value (based on the information in the opening post), I wouldn't take his advice on how to invest the loose change in my pocket, let alone a 10M portfolio.

I would look at the situation presented from the parents perspective as well, again based on the information provided:

They immigrated to a new country full of opportunities and amassed a small fortune.
They have a son they put through higher education. He goes off and marries a "young" wife who he seems to have some disdain for, and she just likes to shop. Instead of taking advantages of all of his opportunities, he decides to retire in his 40s with 1/20th of their assets, and then relies on a stipend from them to support his family, talks about them in condescending language, but somehow they are the unsophisticated ones that need his advice on how to manage their money?

Call me skeptical that this will end well.
I'm with you marcopolo, further there are several contradictions such as... "Our family doesn't like stocks and or banks...gambling to them" yet... "our family blew $1 million on penny stocks and stock picking" which is it? they still own a lot of individual stock it sounds like

or "Im a boglehead" but retired at 40ish with 500k and a monthly stipend from my parents and bought 70K (plus more planned) homes in developing countries? If the stipend were cut off...

A powerpoint presentation to the family? that from the end result sounded like they have equivalent thoughts about OP's sophistication. I genuinely can't tell if this is a troll post or not.

Actionable, I suppose if you can convince them that your general pathway is correct that is sound. Bsteiner knows quite a bit, look into his advice.

User avatar
leeks
Posts: 714
Joined: Thu Apr 07, 2011 4:33 pm
Location: new york

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by leeks » Fri May 31, 2019 8:51 am

Don't skip your option 0 in addition to whatever else you do.

You have the opportunity to spend lots of time with your kids so there is no excuse for not teaching them properly (whether they will follow those teachings as adults is of course a different matter, but it is your responsibility to model and teach good financial behaviors until they are on their own).

If your wife is very young and new to the US (and to being a mother) and new to having money to spend, it may make sense that she seems "clueless" now about personal finance. But she will mature and surely she has the capacity to learn. Encourage her to pursue college (maybe when kids are a bit older but since you are retired child care should not be an issue) and be prepared for a career whenever she wants one (when kids are older, when you die a few decades before her, etc). A part time job now might be good for her anyway to get breaks from the kids and develop community ties outside the family. Don't expect her to be like a teenager forever. I would think that education and workplace experience will help her be better at managing finances in the future -and teaching your children- in addition to other obvious benefits for her own personal development.

JackoC
Posts: 730
Joined: Sun Aug 12, 2018 11:14 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by JackoC » Fri May 31, 2019 9:18 am

RayLopez wrote:
Thu May 30, 2019 1:02 pm

1. Very, as in: they lost about $1M in penny stocks over the years, they avoid mutual funds except in their retirement fund (where they like T.Rowe Price's internet and tech fund, which is a rather wild ride), they buy individual stocks several hundred thousand dollars at a time, which rarely work out

2. Here is my family's net worth by asset class: Real estate, all paid off, all cash cows, but yielding only about 2%: 55% of total; cash (CD's): 25% of total; stocks (mostly individual stocks,very non-diversified, low Sharpe ratio, terrible returns less than intermediate term bonds but greater than money market funds): 20% of total. The grand total is north of $10M. Over the next few decades I intend to redevelop and then sell the real estate since I doubt my family will be able to manage it, so I'll have towards the end of my life mostly "paper" wealth.
Starting with where the parent are now, when it's their money.

1. That's not good, though for now it's their money.

2. Here I think there's some tendency extrapolate from BH'ism that things like real estate are 'inferior assets' and stock index funds the 'superior asset'. This is partly an opinion rather than a fact. I personally only partly agree with the very pro-stock POV on this forum. 55% in real estate in presumably a concentrated local area is a risk concentration, but the degree of risk depends to some degree on the actual properties (location, location, location, etc). Also 20% in a small number of individual stock is not that undiversified, because it's only 20% of the whole portfolio. The 55% RE gives significant diversification against idiosyncratic risk in any one of those stocks. It's not ideal as I said in response to 1. It would be better to have that 20% in a diversified fund. But it's not a ticking time bomb necessarily like 75% in a few stocks might be.

Also in general on risk concentration it's rare for people to go from nothing to $10mil without concentrating their risk. Even the more likely case on this forum of people who've accumulated $10mil by saving alot from a great job, probably had to concentrate their career risk to work their way up in that job, at which they might not have had what it took, but it turned out they did. Lots of people (absolute number not % of course) come to the US with little, gain a foothold in investing with real estate in their then-low value neighborhoods, are good at managing it, willing to take risk expanding their holdings, and end up rich. They often have a different view of risk concentration than successful people in wage/bonus jobs who tend to focus on how diversified their assets are, and not on the concentration of risk in their career it took to accumulate them. You can get to nominal millionaire now fairly readily with a generic, secure job and just save, save, save. $10mil you more likely are/were in job where people can flame out more easily and fall further. That said, at some point to sustain wealth you probably don't want most of it in a few buildings in one area. I don't dispute the multi-generation goal of cutting back that real estate %, though again I see no reason it be zero in favor of stock funds unless it's a matter of not wanting any hands on involvement at all.

Jack FFR1846
Posts: 9364
Joined: Tue Dec 31, 2013 7:05 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Jack FFR1846 » Fri May 31, 2019 9:34 am

here's what I see:

Accumulated $500k working.
Retired
Now can withdraw a safe 4% of $20k per year.
Grandparents will likely leave nothing and since it's their money, they can do that.

So besides learning how to live on $20k a year, what's the question?
Bogle: Smart Beta is stupid

User avatar
N1CKV
Posts: 793
Joined: Wed Mar 21, 2012 8:18 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by N1CKV » Fri May 31, 2019 9:48 am

My opinion is that the only true solution is to educate your wife/ heirs.
Establish a budget. Make her stick to it. You have plenty of cushion to give her for "extras".
If they are unwilling to learn the bare minimum of financial management and how to live within their means (budget) then no matter what you do you won't win.

User avatar
unclescrooge
Posts: 3372
Joined: Thu Jun 07, 2012 7:00 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by unclescrooge » Fri May 31, 2019 9:52 am

Maybe OP should learn about real estate investing.

2% yield suggests the real estate might not be capturing it full potential.

Maybe you refinance one of the properties (after you inherit) it, and use that money to upgrade it, or purchase another property.

bubbadog
Posts: 774
Joined: Wed Mar 26, 2014 9:17 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by bubbadog » Fri May 31, 2019 10:17 am

Maybe the OP should decline the monthly stipend and find a new way to support himself and his family first.
Getting a job comes to mind. I am sure the parents would appreciate and support that decision.

a2_alice
Posts: 25
Joined: Sat Jan 18, 2014 6:51 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by a2_alice » Fri May 31, 2019 10:41 am

As an educated woman in my 30s who’s saved more than half a million...seems like the parents who made $10M and the wife who got out of poverty through marriage did the most for themselves financially in this story.

(I stand to inherit as much, but I can’t imagine what would prompt my parents to leave their wealth to charity more than me stopping work at 40 to live off them.)

psteinx
Posts: 3027
Joined: Tue Mar 13, 2007 2:24 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by psteinx » Fri May 31, 2019 12:49 pm

RayLopez wrote:
Thu May 30, 2019 1:02 pm
Here is my family's net worth by asset class: Real estate, all paid off, all cash cows, but yielding only about 2%: 55% of total; cash (CD's): 25% of total; stocks (mostly individual stocks,very non-diversified, low Sharpe ratio, terrible returns less than intermediate term bonds but greater than money market funds): 20% of total. The grand total is north of $10M. Over the next few decades I intend to redevelop and then sell the real estate since I doubt my family will be able to manage it, so I'll have towards the end of my life mostly "paper" wealth.
To respond a little more substantively to OP's post.

1) OP, as others have pointed out, does not have claim to parents' assets. If OP *does* inherit, it may be years from now, and OP can implement a plan at that time.

2) The parents' portfolio, as it stands, is not great, IMO, but neither is it terrible.

The 25% CDs are, assuming they're in good CDs, broadly similar to a bond allocation.

20% in stocks - while OP disparages some of his parents' choices here, perhaps with good reason, the 4 specifics named are/were hardly penny stocks - Citigroup, GE, VIA.B (Viacom/Nickelodeon, I guess?), and Microsoft. Now, the first 2 obviously did badly - not as sure about the 3rd, and OP pats himself on the back about the 4th. OP says there were penny stocks besides, but the details are mainly about these non-penny stocks. (I know little about VIA.B, but assume it is/was far from a penny stock.) Are these just 4 specific stock picks from among a couple dozen or so over the last ~20+ years, or do OP's parents have an uncanny knack for picking mostly terrible individual stocks? My guess is that in fact OP's parents had a relatively wide variety of stocks, of which a handful turned out sour. Would an index fund be better? Probably so. But going from 10-20 relatively randomly chosen large cap US stocks, to an S&P 500 index is not AS much of a leap forward, portfolio-wise, as some Bogleheads, and perhaps the OP, believe.

OK, so, the real estate - 55% of the value. So, that's a lot. More than most here would prefer. But it's apparently debt free, and OP's parents may have real skill here. Yes, they were perhaps lucky to have planted themselves in a city that did well (Boston, NYC, DC, perhaps). But there's quite possibly some skill here too, in turning a modest start into a very substantial portfolio. Perhaps it will go south. Perhaps the city they're in will take a turn for the worse, or their particular choices will go badly, or with age their management skills will deteriorate. And no, I would not choose or recommend a 55% real estate allocation for the average senior. But this is what they know, are comfortable with, and have, presumably skill and experience with. Taxes (embedded gains) may favor holding what they have. OP may have a greater understanding of the nuances than has been shared here, but, as others have suggested, OP should perhaps have greater humility about his/her own skill, and more reticence to try to manage wealth that is not his/her own.

User avatar
LadyGeek
Site Admin
Posts: 54308
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by LadyGeek » Fri May 31, 2019 1:06 pm

I removed several off-topic posts. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
Our experienced members should read: Please Do Not Bite the Newcomers
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

JackoC
Posts: 730
Joined: Sun Aug 12, 2018 11:14 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by JackoC » Fri May 31, 2019 5:22 pm

psteinx wrote:
Fri May 31, 2019 12:49 pm

2) The parents' portfolio, as it stands, is not great, IMO, but neither is it terrible.

The 25% CDs are, assuming they're in good CDs, broadly similar to a bond allocation.

20% in stocks - while OP disparages some of his parents' choices here, perhaps with good reason, the 4 specifics named are/were hardly penny stocks - Citigroup, GE, VIA.B (Viacom/Nickelodeon, I guess?), and Microsoft. .... But going from 10-20 relatively randomly chosen large cap US stocks, to an S&P 500 index is not AS much of a leap forward, portfolio-wise, as some Bogleheads, and perhaps the OP, believe.

OK, so, the real estate - 55% of the value. So, that's a lot. More than most here would prefer. But it's apparently debt free, and OP's parents may have real skill here. Yes, they were perhaps lucky to have planted themselves in a city that did well (Boston, NYC, DC, perhaps). But there's quite possibly some skill here too, in turning a modest start into a very substantial portfolio. Perhaps it will go south. Perhaps the city they're in will take a turn for the worse, or their particular choices will go badly, or with age their management skills will deteriorate. And no, I would not choose or recommend a 55% real estate allocation for the average senior. But this is what they know, are comfortable with, and have, presumably skill and experience with. Taxes (embedded gains) may favor holding what they have. OP may have a greater understanding of the nuances than has been shared here, but, as others have suggested, OP should perhaps have greater humility about his/her own skill, and more reticence to try to manage wealth that is not his/her own.
Yes, better explanation than mine above. Sticking with the portfolio and not OP's job situation or (alleged) ideas about who really owns parents' assets.

There isn't huge risk even in 4 stocks making up 20% of a portfolio...because it's still only 20%. If it were 4*5% that's really not a big risk at all. I agree there's sometimes a tendency here to exaggerate the advantage of funds over individual stocks in all situations. Is it optimal to have the money in a few stocks? No. Nor even 10-20 IMO if starting out (so for example no capital gains to recognize re-orging it into a fund). But I agree with you if it really is 10 or 20 the difference between that and a fund is really marginal, definitely not the key issue in this portfolio.

The fact that 55% of the portfolio is in real estate, and it might be inferred not many properties all in one metro area (though that wasn't specified that I noticed), is the major risk concentration issue. Not that it's 'naive' to gain expertise, take prudent risk, and make a small fortune from nothing as a local RE investor. You can't practically diversify nationally as a small RE investor. You can't make a fortune from nothing just as a stock index fund investor, there has to be some source of pretty high income to buy enough shares to end up with $10mil. Local RE investing is a way some people, with the inclination, can go from nothing to a lot *without* a high paying job. With some good fortune that the high risk turns out OK for them. Anyway, having 'won the game', successful examples of this kind of investor like OP's parents should consider diversifying away from 55% RE in one market, I believe. Perhaps to zero if they don't want to deal with RE at all anymore, but not necessarily, and not because local RE investing is 'naive'. Also you're right about taxes now v potential basis step up at death, depending ages, health etc. That also weighs against a complete dissolution of the RE allocation right away.*

*a more 'advanced topic', you can invest nationally in 'hands off' real estate investments like 'triple net leases' and use the 1031 exchange provision of the tax code to roll the gain from the local property into the basis of the lease property, not recognize the gain now as you would going from RE to stock. With due attention to dealing with reputable intermediaries and avoiding excessive fees, of course. But that tax advantage is real. Real estate in general, once you're into it, is not really like stocks and index funds. You can't apply the principals of simplicity low cost and diversification exactly the same way, although they still apply as general principles.

Saving$
Posts: 1752
Joined: Sat Nov 05, 2011 8:33 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Saving$ » Fri May 31, 2019 7:34 pm

OP, the best way to teach is by example.

Show your young family what it is like to earn an honest living. Get a job, go to work every day. Not sure if you will do this in the US, since you "retired in my 40s, now I just hang around the house with my young wife from overseas with our young family" or if you will have to get a job overseas since "she's overseas still."

Stop taking money from your mother (apparently not "parent" since you noted your father passed). Stop calling your mother and other female relatives "your women." You don't own anyone. Let your mom do with her earnings what she wishes.

In regards to helping your wife learn financial responsibility, that is part of learning the culture. Select your friends carefully, as people often emulate those with whom they spend the most time. Create a culture of scarcity by saving 25% of what you earn. Ask your wife if she will manage the monthly household budget and ask her which app she wants to use, so she can learn and you can see what is happening with your mutual money.

In regards to the real estate, if you do inherit it, it will get a stepped up basis. Strongly consider selling it at inheritance. Otherwise you will need to maintain it, or deal with the property manager who maintains it, and when you do finally sell, you will need to pay 25% recapture. It does not sound like it gives much return- you will do better being a BH.

Topic Author
RayLopez
Posts: 25
Joined: Wed May 29, 2019 1:09 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by RayLopez » Sat Jun 08, 2019 9:36 pm

Thanks for the replies. I am pretty sure I'll get the inheritance, without getting into details. Of course anything can happen, I can get hit by a bus tomorrow and the estate escheats to the state. The other day I heard about a local guy who had $30M in their name, no close next of kin, and he donated it to a state charity. I guess it's more palatable than giving it to a distant relative who you've never met. As to managing the real estate, it is easy to rent. I do some of the property management myself. Call up local repairmen, keep a list of good contractors (which varies year by year as contractors retire or move on), use Craigslist to find renters, etc, it's not rocket science. As for whether their success in real estate is due to luck or skill, it could be a combination of both, but IMO it's mostly luck. We also own property outside the USA and it's been stagnant. Google Germany's property market, by way of example, which for most towns is flat. Lots of Europe is like that.

As for the non-diversified stock portfolio, that's easy to fix once you get stepped up basis, just use Vanguard's VTI (Total Stock Market Index). At this point the folks are not interested in selling anything due to capital gain tax hassles. Their losses would equal their gains plus some profit and it's just easier to do nothing.

The main point of the OP, which was not really addressed, except the poster who mentioned QTIP trusts, is that in lesser hands the estate is likely to be lost. I will have to investigate setting up a trust, like a QTIP trust, and possibly buying annuities when I get older for my wife and kids who are financially illiterate and much younger than me.

Willmunny
Posts: 58
Joined: Mon Jun 16, 2014 6:35 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by Willmunny » Sat Jun 08, 2019 10:42 pm

I suggest that your family to speak to an attorney who specializes in trust and estates.
Last edited by Willmunny on Sun Jun 09, 2019 9:14 am, edited 1 time in total.

msk
Posts: 1187
Joined: Mon Aug 15, 2016 10:40 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by msk » Sun Jun 09, 2019 2:47 am

Perhaps relating my situation and "solution" might help. Age mid 70s, Net Worth 8 figures built up from RE and currently in 100% stocks, 6 heirs, none of whom I can trust with a 7 figure windfall. So somewhat familiar to OP's situation after his probable inheriting. Three decades ago I was 100% in RE but I decided that when I retired at age 55 I no longer wanted to be pestered with managing RE, so gradually sold off my 30 rental units (all paid off) that yielded around 5% net. Invested roughly 50% in individual stocks (tiny foreign market that looked stupendously under-priced, P/E 10 to 12) and 50% in SPY and Warren Buffett's BRK. Ten years post retirement I decided to disinvest in individual stock picks and shift gradually/opportunistically to 100% worldwide by free market weight (VT and similar) since Warren Buffett was also getting on in age. I am still trying to time the sales of individual stocks since now they have gone even cheaper to a P/E of 10 and an overall dividend yield of 7.5%. Difficult to let go... Considered writing up a will and/or setting up a trust for my heirs. Major headache: my heirs live in various tax jurisdictions across the world (OP may have to face this since his wife and parent are from foreign climes...). After a year trying to find a way forward I decided against too much ruling beyond the grave and wrote out a simple will and a single page "letter of instruction". Will says: sell everything (now 100% stocks + a couple of homes) and divide the $ proceeds to heirs. Letter of instruction addressed to each heir says: set up a brokerage account and buy VT or equivalent, 100%. Extract a max of 5% in each year (dividends+sale of the ETFs). I also give examples of what is equivalent to VT for those not in the USA, e.g. VWRD for those in Europe and further east and (VCN+VXC) for those in Canada. Will they listen? I decided that, given our family's dispersion worldwide, I cannot effectively and inexpensively rule from the grave. I would have tried harder if my NW was in the very high 8 figures... I expect that my heirs consider that I have enough credibility since I built up the inheritance from scratch and they are already getting annual gifts of $40k to 50k each. I hope they'll listen, but anyone who does not has only him/herself to blame. OP looks as if he does have a credibility gap. Actively managed Mutual Funds? I gave up those decades ago...

DarthSage
Posts: 315
Joined: Tue Sep 19, 2017 9:39 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by DarthSage » Sun Jun 09, 2019 6:07 am

OP--What are you doing to educate your young wife and children, so that they better understand investing and wealth management? You keep talking about them as if they're hopeless, yet you are a prominent figure in their lives. I understand that your children are young, but given the amounts involved, I would think teaching them about finances through the years would be a top priority. The more educated they become, the less of a problem with squandering the inheritance.

If your children grow up with no sense of fiscal responsibility, shame on you.

Topic Author
RayLopez
Posts: 25
Joined: Wed May 29, 2019 1:09 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by RayLopez » Tue Jun 11, 2019 1:32 pm

Dottie57 wrote:
Thu May 30, 2019 4:32 pm
How much would you spend n an annuity? And what type? What is the goals having an annuity.

I will probably purchase a single premium immediate annuity for an income stream in retirement. When I die, it dies. Money is gone.

I really can’t see why you would think an annuity is a good idea. High fee, high commission.
Hi Dottie57, thanks for the reply. The idea is with an annuity the wife cannot spend the principle all at once. She can only spend the monthly distribtion. So if she's a shopaholic, she can't spend all the money at once. I agree there's high fees, high commission, but setting up a trust is also expensive (I figure it will cost $50k a year)

Ray

Topic Author
RayLopez
Posts: 25
Joined: Wed May 29, 2019 1:09 pm

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by RayLopez » Tue Jun 11, 2019 1:36 pm

DarthSage wrote:
Sun Jun 09, 2019 6:07 am
OP--What are you doing to educate your young wife and children, so that they better understand investing and wealth management? You keep talking about them as if they're hopeless, yet you are a prominent figure in their lives. I understand that your children are young, but given the amounts involved, I would think teaching them about finances through the years would be a top priority. The more educated they become, the less of a problem with squandering the inheritance.

If your children grow up with no sense of fiscal responsibility, shame on you.
Good point DarthSage. I'm doing nothing so far. But I will try. Assuming however they are like my family--hopeless--then what? There's only so much you can do. I want to make our (my) estate, which is over $10M and growing, "bullet proof". I recall talking once to somebody who's family is in the Forbes 400 Richest Americans list, and one of the kids is low-IQ, so they set up all kinds of expensive safeguards involving lawyers so the kid is going to be OK. I don't want to spend their kind of administrative fees, hence reaching out to this board for ideas. So far, I like the "QTIP" idea, the "annuity" idea I just came up with as an afterthought, and of course your idea of "more education" (squeezing blood out of a stone? LOL there's one theory that says all of education is useless, just "signaling", Google "education is just signaling" for more on this topic).

This is a long-term project so at this point it's brainstorming.

RL

clip651
Posts: 322
Joined: Thu Oct 02, 2014 11:02 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by clip651 » Tue Jun 11, 2019 1:45 pm

I will never be in your situation or anything close to it. But from what you have described, your best investment will be spending time with your wife and kids. Treat them with respect and teach them to treat you with respect in turn. At the appropriate times, gradually teach them money management, starting with the basics (allowances, saving, giving small amounts to charity, etc) for kids and working up from there for them. Involving your wife in monthly bill paying and checking accounts and eventually with investing as she learns more. Teach them how fortunate you are as a family to be in the position that your in, and that this comes with responsibility to be good stewards for the future.

And realize that life is much more than money - spend time teaching them other things that matter in life, and spend time learning from them too! Kids have plenty to teach us older folks at various stages of their lives. And I bet your wife has plenty to teach you from the life experiences she has had, as well.

best wishes,
cj

mchampse
Posts: 195
Joined: Mon Feb 26, 2007 1:45 am

Re: How to preserve $10M+ in wealth owned by unsophisticated people?

Post by mchampse » Tue Jun 11, 2019 2:20 pm

Wow, people can be nasty around here.

I’m in a somewhat similar situation. My parents accumulated a large fortune in real estate. They’ve had some retirement money in stocks, but were always distrustful of it on some level.

My dad opened a brokerage account and had what was essentially play money in it (though an amount that would be substantial to most people.) He would get stock tips from his friends and act on them. On the one hand, it was a bad way to invest. On the other hand, this was a successful business man who was having fun “gambling” with some of his money. If it went to 0, he wasn’t going to be on the street.

Before he died, my dad got an offer he couldn’t refuse on a property and realizing his age decided to put the money with a money manager. Their bank had a private wealth group and he was assigned an investment advisory with discretionary authority.

The advisor they got has a lot of experience working with wealthy families. While he’s all about individual stocks, hedge fund type products, etc. he does seem to get asset allocation and disciplined about rebalancing.

That said, by far and away his best skill was convincing his clients to stay the course. In that way, he’s well worth the money. Yes, he says things that I could have told them, but the important thing is that my parents listen to someone giving mostly good advice. They could get a slightly better return if they ditched the manager and went the passive route, but their return is fine enough.

Locked