"Safe" funds for a life insurance proceeds

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tea9895
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"Safe" funds for a life insurance proceeds

Post by tea9895 » Sun Apr 15, 2018 11:49 pm

I am recently appointed by the court as my daughter's legal guardian to manage the money (about $400K) from a life insurance policy of her mother, who passed away several years ago. Before this, the money has been sitting in the insurance company's annuity account. The court mandates the money can only be kept in some "safe" investment account buying like CDs or maybe bonds. What is the appropriate Vanguard Bond fund(s) should I invest the money in? Should I go with municipal bond funds for tax reasons? My daughter will be 18 next year - is it a good idea to leave the money at the insurance company until next year so she can directly get the money from them? Any suggestions would be appreciated...

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Nestegg_User
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Re: "Safe" funds for a life insurance proceeds

Post by Nestegg_User » Mon Apr 16, 2018 12:55 am

assuming at 18, she has access to all the funds, I would:
take possession of the funds for her (to avoid the insurance companies costs) and then put into short term CD (one year) or if she reaches the age of majority before then just put into savings account (higher yield if they allow it, but nothing where risk of principle is at stake)

alas, because bond FUNDS can lose principal, I don’t feel that you would be wise, in such a short timeframe, to hold any in a bond fund. in this case, you safest situation is to be VERY conservative and hold in savings only

it may not get much return, but your role is to insure that the funds are available, in full, to her when she can take possession

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welderwannabe
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Re: "Safe" funds for a life insurance proceeds

Post by welderwannabe » Mon Apr 16, 2018 8:49 am

Treasury bills. CDs. Vanguard prime money market. At her low income I don't think municipal bonds, funds, or municipal money markets is worth it.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

sport
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Re: "Safe" funds for a life insurance proceeds

Post by sport » Mon Apr 16, 2018 9:09 am

CDs would be a fine choice. However, if this is what you decide to do, be sure not to have more than $250K (including interest payments) in any one bank.

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VA_Gent
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Re: "Safe" funds for a life insurance proceeds

Post by VA_Gent » Mon Apr 16, 2018 9:17 am

Be sure to check the interest rate on the account at the insurance company. If this policy had been in effect for several years prior to 2008 the rate may be much higher than anything you will find now. I have policies with 4% and 5% guaranteed taken out around 2005- 2007.
"In investing, what is comfortable is rarely profitable." - Robert Arnott

bsteiner
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Re: "Safe" funds for a life insurance proceeds

Post by bsteiner » Mon Apr 16, 2018 9:23 am

VA_Gent wrote:
Mon Apr 16, 2018 9:17 am
Be sure to check the interest rate on the account at the insurance company. If this policy had been in effect for several years prior to 2008 the rate may be much higher than anything you will find now. I have policies with 4% and 5% guaranteed taken out around 2005- 2007.
An excellent point. Some policies offer the option of keeping the money with the insurance company at an interest rate that's well above current interest rates.

aristotelian
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Re: "Safe" funds for a life insurance proceeds

Post by aristotelian » Mon Apr 16, 2018 9:33 am

Interesting situation. Have you consulted an attorney? What does he say?

A couple of CD's would be a fine choice. If the court allows it, you might want to create a ladder with a larger portion of the funds "locked up" in 5 or 10 year CD's, with just enough in short term CD's to pay for college.

Does she have plans for what to do with the money? Does she have a personal copy of The Bogleheads Guide?

tea9895
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Re: "Safe" funds for a life insurance proceeds

Post by tea9895 » Tue Apr 17, 2018 8:11 am

Thanks all for the response. The interest rate at the insurance company is about 0.5%. I will most likely go with the Vanguard money market fund or a CD fund. The attorney suggested same. Yes, she is supposed to have the ownership of the money next year. Her college fund is already set aside so I expect most of this money will be invested and won't be used for a while.

LarryAllen
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Re: "Safe" funds for a life insurance proceeds

Post by LarryAllen » Tue Apr 17, 2018 8:13 am

I'd leave the money at the insurance company. It probably pays better.

aristotelian
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Re: "Safe" funds for a life insurance proceeds

Post by aristotelian » Tue Apr 17, 2018 8:33 am

tea9895 wrote:
Tue Apr 17, 2018 8:11 am
Thanks all for the response. The interest rate at the insurance company is about 0.5%. I will most likely go with the Vanguard money market fund or a CD fund. The attorney suggested same. Yes, she is supposed to have the ownership of the money next year. Her college fund is already set aside so I expect most of this money will be invested and won't be used for a while.
I am interested in this situation as I am custodian of an inheritance for my children. They are younger than your ward but will be in a similar situation at Age 18. I agree, CD is the way to go. One thing you might consider, depending on her ability to manage money, is the term of the CD's and withdrawal penalties. You might consider putting a majority portion of the funds in 3-5 year CD's. Even though she will legally be able to access them, a 5 year CD with a good interest rate would give her a natural disincentive from withdrawing the money right away, as well as some hoops to go through to do so.

The advantage of a money market fund would be that she could invest the money right away, as soon as she gains control, but that might not be such a good idea for an 18 year old. I'm not sure the gains she could make in the first few years would be worth the risks of giving her a liquid cash fund of $400K.

dbr
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Re: "Safe" funds for a life insurance proceeds

Post by dbr » Tue Apr 17, 2018 8:51 am

It would, of course, be timely to have some discussions ahead of time regarding placement of the money when the beneficiary does get control.

talzara
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Re: "Safe" funds for a life insurance proceeds

Post by talzara » Tue Apr 17, 2018 10:30 am

tea9895 wrote:
Sun Apr 15, 2018 11:49 pm
The court mandates the money can only be kept in some "safe" investment account buying like CDs or maybe bonds. What is the appropriate Vanguard Bond fund(s) should I invest the money in? Should I go with municipal bond funds for tax reasons?
Guardians are usually required to keep the money in prudent investments. Is there some reason that the court used the word "safe?" That's much more restrictive than "prudent."

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randomizer
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Re: "Safe" funds for a life insurance proceeds

Post by randomizer » Tue Apr 17, 2018 11:00 am

There are a lot of good choices here. I'd split it across a couple of CDs (ie. two FDIC-insured amounts) of short-term (say 1 year).
75:25 — HODL the course!

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Nestegg_User
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Re: "Safe" funds for a life insurance proceeds

Post by Nestegg_User » Tue Apr 17, 2018 2:10 pm

aristotelian wrote:
Mon Apr 16, 2018 9:33 am
Interesting situation. Have you consulted an attorney? What does he say?

A couple of CD's would be a fine choice. If the court allows it, you might want to create a ladder with a larger portion of the funds "locked up" in 5 or 10 year CD's, with just enough in short term CD's to pay for college.

Does she have plans for what to do with the money? Does she have a personal copy of The Bogleheads Guide?
I WOULDN’T “lock up” funds for 5-10 years.... that’s NOT the job of the guardian... (and could even be viewed as mismanagement)

Better to go CD/savings account until age of maturity while at the same time giving guidance to them so that WHEN they receive the funds they will have better direction. “locking up” funds for 10 years is clearly beyond what was given in the guidance if it said that they would receive funds at eighteen.

aristotelian
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Re: "Safe" funds for a life insurance proceeds

Post by aristotelian » Tue Apr 17, 2018 2:17 pm

Nestegg_User wrote:
Tue Apr 17, 2018 2:10 pm


I WOULDN’T “lock up” funds for 5-10 years.... that’s NOT the job of the guardian... (and could even be viewed as mismanagement)

Better to go CD/savings account until age of maturity while at the same time giving guidance to them so that WHEN they receive the funds they will have better direction. “locking up” funds for 10 years is clearly beyond what was given in the guidance if it said that they would receive funds at eighteen.
I would certainly consult an attorney on this, but according to OP the instruction from the Court is "safe". I fail to see how a 5 or 10 year CD could be construed as anything other than what the Court is asking for.

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Nestegg_User
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Re: "Safe" funds for a life insurance proceeds

Post by Nestegg_User » Tue Apr 17, 2018 2:21 pm

your job as guardian ENDS at the age of maturity... “locking up” funds beyond that is what is uncalled for

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