Need help for investing life insurance for 6 year old nephew

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Topic Author
New2This1
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Joined: Sun Nov 25, 2018 12:08 pm

Need help for investing life insurance for 6 year old nephew

Post by New2This1 » Fri Oct 11, 2019 6:09 pm

I need some investment advice. To make a long story short my sister passed away unexpectedly this year, and since her sons father is not fiscally responsible, she had her life insurance with me as the beneficiary in order to make sure her son had something when he grew up.



I was left 125k and would like to invest it for my nephew so he has something to start his life with, in 15-20 years. I am not really sure what my best options would be honestly. One thought is locking it into a high yield savings account but I feel like I would be short changing him on potential growth. I also plan to add to this each holiday, rather than gift him gifts, just buy him something small and add to his fund.



I have a 1 year old son myself and would like to probably follow suit with an account for him.

I guess my questions would be:

1. Should I just start a typical 3 fund portfolio for them? Something like Fidelity Total Market Index Fund FSKAX(60%) Fidelity Total International Index Fund FTIHX(30%) and Fidelity U.S. Bond Index Fund FXNAX(10%) or are there better options for a taxable account?


2. If I open a 529 account what happens if they decide not to further education? Are you just taxed on the gains at that point?

I am at a loss here.

Thank you for any guidence



Thanks for any help.
Last edited by New2This1 on Fri Oct 11, 2019 7:01 pm, edited 1 time in total.

Silk McCue
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Re: Need help for investing life insurance for 6 year old nephew

Post by Silk McCue » Fri Oct 11, 2019 6:12 pm

Please update by our original post with fund names.

Cheers

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Tyler Aspect
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Re: Need help for investing life insurance for 6 year old nephew

Post by Tyler Aspect » Fri Oct 11, 2019 6:37 pm

I am thinking that you might want use a separate individual brokerage account with "pay on death" directive.

Brokerage transaction fees are disappearing, so that the typical Vanguard Three Fund portfolio in their ETF form are very portable with different brokerage vendors.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Grt2bOutdoors
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Re: Need help for investing life insurance for 6 year old nephew

Post by Grt2bOutdoors » Fri Oct 11, 2019 6:59 pm

Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.

If you open a 529 plan and the funds are not used for college, you are taxed on the gains plus a 10% penalty on earnings.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
New2This1
Posts: 13
Joined: Sun Nov 25, 2018 12:08 pm

Re: Need help for investing life insurance for 6 year old nephew

Post by New2This1 » Fri Oct 11, 2019 7:07 pm

Tyler Aspect wrote:
Fri Oct 11, 2019 6:37 pm
I am thinking that you might want use a separate individual brokerage account with "pay on death" directive.



Brokerage transaction fees are disappearing, so that the typical Vanguard Three Fund portfolio in their ETF form are very portable with different brokerage vendors.
Pay on death with the child as the beneficiary? Or my wife or someone responsible?

Are you saying use the VTSAX, VTIAX, etc through fidelity?
Grt2bOutdoors wrote:
Fri Oct 11, 2019 6:59 pm
Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.
Thank you. It is a really difficult time right now as we were very close. Now having to try and sort though this, is really stressful.
Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.
I haven't created his account yet. It is still held in the life insurance settlement fund. Would I start a separate account in my own name or the childs? I want to safe guard the money in the event the father finds out he can't protest it(if it is in the kids name for example)

And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.

HomeStretch
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Re: Need help for investing life insurance for 6 year old nephew

Post by HomeStretch » Fri Oct 11, 2019 7:32 pm

New2This1 wrote:
Fri Oct 11, 2019 7:07 pm
And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
Sorry for your loss. Sounds like your sister knew you would be an advocate for her son. So, if you know for a fact that the SS funds are not being used for your nephew’s benefit, you can report the father to SS for an investigation.

SS requires that the representative payee (father) use the SS funds solely for the care and well-being of the minor (nephew). The funds can be used for food, shelter, healthcare and minor’s personal needs. Anything left over must be saved ideally in a bank account or US savings bonds. At some age (15?) the funds can be paid directly to the child.

Secure the $125k that was entrusted to you for your nephew by your sister. Not sure if the best way is a trust, POD account, etc. Don’t leave it to chance in the unlikely event something happens to you before you can turn the funds over to your nephew. The money may be the only chance he has to pay for college and become self-supporting.
Last edited by HomeStretch on Fri Oct 11, 2019 7:37 pm, edited 2 times in total.

Grt2bOutdoors
Posts: 21385
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Location: New York

Re: Need help for investing life insurance for 6 year old nephew

Post by Grt2bOutdoors » Fri Oct 11, 2019 7:32 pm

New2This1 wrote:
Fri Oct 11, 2019 7:07 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 6:59 pm
Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.
Thank you. It is a really difficult time right now as we were very close. Now having to try and sort though this, is really stressful.
Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.
I haven't created his account yet. It is still held in the life insurance settlement fund. Would I start a separate account in my own name or the childs? I want to safe guard the money in the event the father finds out he can't protest it(if it is in the kids name for example)

And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
If you put the money in the child’s name you should engage the services of an attorney to create a trust, you will set the conditions as to when child can access funds, what reasons - health and welfare, education and if you look up posts by fellow forum member BSteiner you could have child become the owner of the trust at a later age (you set that). Placing the money in a trust with you as trustee but not owner will also protect the funds in the event you are sued down the road (unforeseen events) or divorce (depending on state all assets could be subject to community property laws). The segregation of assets would distinguish your assets from that of marital assets. It is also a legal contract that can prevent others from accessing the funds (father). The accounting of any taxes though might be a potential issue - trust or even if not in a trust would generate about 2% in interest and dividends annually. That’s about $2,500 today. You can read up on trust tax rates at www.irs.gov. A consultation with a reputable trust attorney may be worthwhile to explore these issues. Whatever you do though, be wary of referrals to “wealth advisers” or specific accounting service providers - you are in a vulnerable state due to recent loss so going slow is preferable.

As for social security benefits- the father is required to provide an accounting of the monies and where it is spent. He is custodian of those funds for child, you can read more on social security just how strictly the social security administration views this. I would think that court would require an accounting as well.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

EddyB
Posts: 1039
Joined: Fri May 24, 2013 3:43 pm

Re: Need help for investing life insurance for 6 year old nephew

Post by EddyB » Fri Oct 11, 2019 8:05 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 7:32 pm
New2This1 wrote:
Fri Oct 11, 2019 7:07 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 6:59 pm
Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.
Thank you. It is a really difficult time right now as we were very close. Now having to try and sort though this, is really stressful.
Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.
I haven't created his account yet. It is still held in the life insurance settlement fund. Would I start a separate account in my own name or the childs? I want to safe guard the money in the event the father finds out he can't protest it(if it is in the kids name for example)

And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
If you put the money in the child’s name you should engage the services of an attorney to create a trust, you will set the conditions as to when child can access funds, what reasons - health and welfare, education and if you look up posts by fellow forum member BSteiner you could have child become the owner of the trust at a later age (you set that). Placing the money in a trust with you as trustee but not owner will also protect the funds in the event you are sued down the road (unforeseen events) or divorce (depending on state all assets could be subject to community property laws). The segregation of assets would distinguish your assets from that of marital assets. It is also a legal contract that can prevent others from accessing the funds (father). The accounting of any taxes though might be a potential issue - trust or even if not in a trust would generate about 2% in interest and dividends annually. That’s about $2,500 today. You can read up on trust tax rates at www.irs.gov. A consultation with a reputable trust attorney may be worthwhile to explore these issues. Whatever you do though, be wary of referrals to “wealth advisers” or specific accounting service providers - you are in a vulnerable state due to recent loss so going slow is preferable.

As for social security benefits- the father is required to provide an accounting of the monies and where it is spent. He is custodian of those funds for child, you can read more on social security just how strictly the social security administration views this. I would think that court would require an accounting as well.
An UTMA account may serve these purposes, while being simpler and cheaper. It may be worth it to the OP to look at whether the UTMA in his state serves his purposes, and he may think about either gifting alongside his wife to get most of the proceeds into the account in the next few years, or if he doesn’t expect the estate tax to be an issue, he might just want to do it all up front and file the Form 709. For the great majority of people, an oversized gift is just a filing issue, not a tax obligation.

OP, sorry for your loss.

Grt2bOutdoors
Posts: 21385
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Location: New York

Re: Need help for investing life insurance for 6 year old nephew

Post by Grt2bOutdoors » Fri Oct 11, 2019 8:12 pm

EddyB wrote:
Fri Oct 11, 2019 8:05 pm
Grt2bOutdoors wrote:
Fri Oct 11, 2019 7:32 pm
New2This1 wrote:
Fri Oct 11, 2019 7:07 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 6:59 pm
Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.
Thank you. It is a really difficult time right now as we were very close. Now having to try and sort though this, is really stressful.
Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.
I haven't created his account yet. It is still held in the life insurance settlement fund. Would I start a separate account in my own name or the childs? I want to safe guard the money in the event the father finds out he can't protest it(if it is in the kids name for example)

And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
If you put the money in the child’s name you should engage the services of an attorney to create a trust, you will set the conditions as to when child can access funds, what reasons - health and welfare, education and if you look up posts by fellow forum member BSteiner you could have child become the owner of the trust at a later age (you set that). Placing the money in a trust with you as trustee but not owner will also protect the funds in the event you are sued down the road (unforeseen events) or divorce (depending on state all assets could be subject to community property laws). The segregation of assets would distinguish your assets from that of marital assets. It is also a legal contract that can prevent others from accessing the funds (father). The accounting of any taxes though might be a potential issue - trust or even if not in a trust would generate about 2% in interest and dividends annually. That’s about $2,500 today. You can read up on trust tax rates at www.irs.gov. A consultation with a reputable trust attorney may be worthwhile to explore these issues. Whatever you do though, be wary of referrals to “wealth advisers” or specific accounting service providers - you are in a vulnerable state due to recent loss so going slow is preferable.

As for social security benefits- the father is required to provide an accounting of the monies and where it is spent. He is custodian of those funds for child, you can read more on social security just how strictly the social security administration views this. I would think that court would require an accounting as well.
An UTMA account may serve these purposes, while being simpler and cheaper. It may be worth it to the OP to look at whether the UTMA in his state serves his purposes, and he may think about either gifting alongside his wife to get most of the proceeds into the account in the next few years, or if he doesn’t expect the estate tax to be an issue, he might just want to do it all up front and file the Form 709. For the great majority of people, an oversized gift is just a filing issue, not a tax obligation.

OP, sorry for your loss.
Given the large size of the account and the extenuating circumstances whereby the father is a spendthrift and potential influencer AND the requirement that child be given the funds at age 18 or 21 (state law), a UTMA lacks the “teeth” to protect the integrity of the account and intention of the deceased to provide for child in life without undue influence by outside/inside forces. I would not put it a UTMA.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

EddyB
Posts: 1039
Joined: Fri May 24, 2013 3:43 pm

Re: Need help for investing life insurance for 6 year old nephew

Post by EddyB » Fri Oct 11, 2019 8:29 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 8:12 pm
EddyB wrote:
Fri Oct 11, 2019 8:05 pm
Grt2bOutdoors wrote:
Fri Oct 11, 2019 7:32 pm
New2This1 wrote:
Fri Oct 11, 2019 7:07 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 6:59 pm
Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.
Thank you. It is a really difficult time right now as we were very close. Now having to try and sort though this, is really stressful.
Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.
I haven't created his account yet. It is still held in the life insurance settlement fund. Would I start a separate account in my own name or the childs? I want to safe guard the money in the event the father finds out he can't protest it(if it is in the kids name for example)

And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
If you put the money in the child’s name you should engage the services of an attorney to create a trust, you will set the conditions as to when child can access funds, what reasons - health and welfare, education and if you look up posts by fellow forum member BSteiner you could have child become the owner of the trust at a later age (you set that). Placing the money in a trust with you as trustee but not owner will also protect the funds in the event you are sued down the road (unforeseen events) or divorce (depending on state all assets could be subject to community property laws). The segregation of assets would distinguish your assets from that of marital assets. It is also a legal contract that can prevent others from accessing the funds (father). The accounting of any taxes though might be a potential issue - trust or even if not in a trust would generate about 2% in interest and dividends annually. That’s about $2,500 today. You can read up on trust tax rates at www.irs.gov. A consultation with a reputable trust attorney may be worthwhile to explore these issues. Whatever you do though, be wary of referrals to “wealth advisers” or specific accounting service providers - you are in a vulnerable state due to recent loss so going slow is preferable.

As for social security benefits- the father is required to provide an accounting of the monies and where it is spent. He is custodian of those funds for child, you can read more on social security just how strictly the social security administration views this. I would think that court would require an accounting as well.
An UTMA account may serve these purposes, while being simpler and cheaper. It may be worth it to the OP to look at whether the UTMA in his state serves his purposes, and he may think about either gifting alongside his wife to get most of the proceeds into the account in the next few years, or if he doesn’t expect the estate tax to be an issue, he might just want to do it all up front and file the Form 709. For the great majority of people, an oversized gift is just a filing issue, not a tax obligation.

OP, sorry for your loss.
Given the large size of the account and the extenuating circumstances whereby the father is a spendthrift and potential influencer AND the requirement that child be given the funds at age 18 or 21 (state law), a UTMA lacks the “teeth” to protect the integrity of the account and intention of the deceased to provide for child in life without undue influence by outside/inside forces. I would not put it a UTMA.
In my state, gifts of securities can stay in an UTMA until 25. Of course, we don’t know when the OP intends to turn the fund over. Still worth becoming informed rather than acting from assumptions that aren’t universally true.

Topic Author
New2This1
Posts: 13
Joined: Sun Nov 25, 2018 12:08 pm

Re: Need help for investing life insurance for 6 year old nephew

Post by New2This1 » Fri Oct 11, 2019 9:26 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 7:32 pm

If you put the money in the child’s name you should engage the services of an attorney to create a trust, you will set the conditions as to when child can access funds, what reasons - health and welfare, education and if you look up posts by fellow forum member BSteiner you could have child become the owner of the trust at a later age (you set that). Placing the money in a trust with you as trustee but not owner will also protect the funds in the event you are sued down the road (unforeseen events) or divorce (depending on state all assets could be subject to community property laws). The segregation of assets would distinguish your assets from that of marital assets. It is also a legal contract that can prevent others from accessing the funds (father). The accounting of any taxes though might be a potential issue - trust or even if not in a trust would generate about 2% in interest and dividends annually. That’s about $2,500 today. You can read up on trust tax rates at www.irs.gov. A consultation with a reputable trust attorney may be worthwhile to explore these issues. Whatever you do though, be wary of referrals to “wealth advisers” or specific accounting service providers - you are in a vulnerable state due to recent loss so going slow is preferable.

As for social security benefits- the father is required to provide an accounting of the monies and where it is spent. He is custodian of those funds for child, you can read more on social security just how strictly the social security administration views this. I would think that court would require an accounting as well.
HomeStretch wrote:
Fri Oct 11, 2019 7:32 pm
New2This1 wrote:
Fri Oct 11, 2019 7:07 pm
And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
Sorry for your loss. Sounds like your sister knew you would be an advocate for her son. So, if you know for a fact that the SS funds are not being used for your nephew’s benefit, you can report the father to SS for an investigation.

SS requires that the representative payee (father) use the SS funds solely for the care and well-being of the minor (nephew). The funds can be used for food, shelter, healthcare and minor’s personal needs. Anything left over must be saved ideally in a bank account or US savings bonds. At some age (15?) the funds can be paid directly to the child.

Secure the $125k that was entrusted to you for your nephew by your sister. Not sure if the best way is a trust, POD account, etc. Don’t leave it to chance in the unlikely event something happens to you before you can turn the funds over to your nephew. The money may be the only chance he has to pay for college and become self-supporting.
Thank you both, I will have to talk to a trust attorney asap.

As for SS, it is like NO ONE cares. We tried to talk to the SS administration and they basically don't really care.... All all this stuff on their site about their laws and rules are just words as far as I am concerned. They have no actual interest in what is best for the kids or enforcing any of it.

The father was barely in the kids life as it was. Him and my sister were polar opposites, which is why they had not been together in YEARS. Now the kid is back with him, and he is a delinquent. We tried to get the kid out of there, but the courts side with the parent. Even if he is on multiple narcotic prescriptions that he is selling(proven via text messages), selling his food stamps, no job(in YEARS), a straight up piece of trash. He plays the victim well, and is quick to convince these authorities he is a changed man.

SS didn't seem to care at all. I am not sure what else to do at this point. I told the father to PLEASE give us my nephew and he could keep the check, and he won't do that. Too scared he will lose it. I don't even care about the money as much as I want my nephew to turn out exemplary, as my sister wanted for him. She was extremely kind(her downfall), intelligent, educated, and hard working, and the kid is all that is left of her, and he is a VERY good, and well mannered kid at this point. She put a lot of time, effort and love into him. But it wont turn out well unless we can get him out of there.
EddyB wrote:
Fri Oct 11, 2019 8:05 pm


An UTMA account may serve these purposes, while being simpler and cheaper. It may be worth it to the OP to look at whether the UTMA in his state serves his purposes, and he may think about either gifting alongside his wife to get most of the proceeds into the account in the next few years, or if he doesn’t expect the estate tax to be an issue, he might just want to do it all up front and file the Form 709. For the great majority of people, an oversized gift is just a filing issue, not a tax obligation.

OP, sorry for your loss.
EddyB wrote:
Fri Oct 11, 2019 8:29 pm

In my state, gifts of securities can stay in an UTMA until 25. Of course, we don’t know when the OP intends to turn the fund over. Still worth becoming informed rather than acting from assumptions that aren’t universally true.
So this is the thing. My sisters death was extremely sudden, and being she was only 30 years old it was not something we talked about much. BUT when she put me as the beneficiary of the policy a couple years back, and knowing how much of a loser the father is, she said if something ever god forbid happened to her to ONLY give her son the money, as an adult, if he was a productive member of society. She told me straight out, if he is like his father, to keep the money, as giving him the money would just be a waste, or possibly a death sentence.

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Tyler Aspect
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Re: Need help for investing life insurance for 6 year old nephew

Post by Tyler Aspect » Fri Oct 11, 2019 9:27 pm

New2This1 wrote:
Fri Oct 11, 2019 7:07 pm
Tyler Aspect wrote:
Fri Oct 11, 2019 6:37 pm
I am thinking that you might want use a separate individual brokerage account with "pay on death" directive.

Brokerage transaction fees are disappearing, so that the typical Vanguard Three Fund portfolio in their ETF form are very portable with different brokerage vendors.
Pay on death with the child as the beneficiary? Or my wife or someone responsible?

Are you saying use the VTSAX, VTIAX, etc through fidelity?
You could use the child, or your wife as the payee.

The ETF equivalents would be VTI, VXUS, and BND.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

User avatar
Watty
Posts: 17439
Joined: Wed Oct 10, 2007 3:55 pm

Re: Need help for investing life insurance for 6 year old nephew

Post by Watty » Fri Oct 11, 2019 11:40 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 7:32 pm
New2This1 wrote:
Fri Oct 11, 2019 7:07 pm

Grt2bOutdoors wrote:
Fri Oct 11, 2019 6:59 pm
Sorry for your loss.
You could invest it in a traditional 60/40 mix. It does not have to be in ETFs, traditional mutual funds are fine. Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.

On a side note: if your sister had worked in the past, child is entitled to survivor benefits from Social Security.
Thank you. It is a really difficult time right now as we were very close. Now having to try and sort though this, is really stressful.
Are you using a separate account to keep track of the fund balances? You could gift the child up to $15k this year with no tax ramifications.
I haven't created his account yet. It is still held in the life insurance settlement fund. Would I start a separate account in my own name or the childs? I want to safe guard the money in the event the father finds out he can't protest it(if it is in the kids name for example)

And yea, the scumbag father is getting the social security benefits..... The kid is seeing 0 benefit from those funds.... But that is a whole other story.
If you put the money in the child’s name you should engage the services of an attorney to create a trust, you will set the conditions as to when child can access funds, what reasons - health and welfare, education and if you look up posts by fellow forum member BSteiner you could have child become the owner of the trust at a later age (you set that). Placing the money in a trust with you as trustee but not owner will also protect the funds in the event you are sued down the road (unforeseen events) or divorce (depending on state all assets could be subject to community property laws). The segregation of assets would distinguish your assets from that of marital assets. It is also a legal contract that can prevent others from accessing the funds (father). The accounting of any taxes though might be a potential issue - trust or even if not in a trust would generate about 2% in interest and dividends annually. That’s about $2,500 today. You can read up on trust tax rates at www.irs.gov. A consultation with a reputable trust attorney may be worthwhile to explore these issues. Whatever you do though, be wary of referrals to “wealth advisers” or specific accounting service providers - you are in a vulnerable state due to recent loss so going slow is preferable.

As for social security benefits- the father is required to provide an accounting of the monies and where it is spent. He is custodian of those funds for child, you can read more on social security just how strictly the social security administration views this. I would think that court would require an accounting as well.
+1 on the trust.

One other problem with having the money in your name is that when your kid(s) get to be college age that money will be counted as being your asset when they apply for college financial aid.

It sounded like there was some concern that the kid might grow up to be like his father, the trust could also have provisions in it to limit his access to the money if he is irresponsible but still pay for things like basic housing so that the kid does not end up homeless.

One of the Vanguard lifestrategy funds might be a good choice for the money in the trust to be invested in.

https://investor.vanguard.com/mutual-fu ... estrategy/#/

suemarkp
Posts: 202
Joined: Sun Nov 12, 2017 8:18 pm

Re: Need help for investing life insurance for 6 year old nephew

Post by suemarkp » Sat Oct 12, 2019 7:32 pm

When my wife died I asked an attorney about a trust. She said unless you are talking about at least 750k, the trust fees will be larger than any gains if anyone would even manage a trust that small. What are the odds of needing some of that money short term (e g. A gift of shoes or winter coat from the uncle). If you don't need it until he is off to college, then is lock it in a longer term investment and let it grow. Document it in your will what to do with it should you die. Having it in your name will have some negatives (taxes, fafsa, ..).
Mark | Kent, WA

clip651
Posts: 439
Joined: Thu Oct 02, 2014 11:02 am

Re: Need help for investing life insurance for 6 year old nephew

Post by clip651 » Sun Oct 13, 2019 8:39 am

I am very sorry for your loss. Your situation is complicated. It's fine to gather ideas and information here, but you need good personalized legal advice to understand all your options to get this set up properly for your nephew.

Your nephew is lucky to have you in his corner. Offer to babysit as often as possible so you can continue to build your relationship with him. The father may eventually tire of the responsibility of caring for him, which may give you an opportunity to at least spend more time with him. But either way, do what you can to stay in the boy's life.

Best wishes,
cj

EddyB
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Re: Need help for investing life insurance for 6 year old nephew

Post by EddyB » Sun Oct 13, 2019 9:19 am

New2This1 wrote:
Fri Oct 11, 2019 9:26 pm
EddyB wrote:
Fri Oct 11, 2019 8:29 pm

In my state, gifts of securities can stay in an UTMA until 25. Of course, we don’t know when the OP intends to turn the fund over. Still worth becoming informed rather than acting from assumptions that aren’t universally true.
So this is the thing. My sisters death was extremely sudden, and being she was only 30 years old it was not something we talked about much. BUT when she put me as the beneficiary of the policy a couple years back, and knowing how much of a loser the father is, she said if something ever god forbid happened to her to ONLY give her son the money, as an adult, if he was a productive member of society. She told me straight out, if he is like his father, to keep the money, as giving him the money would just be a waste, or possibly a death sentence.
That’s significantly more complicated, and may significantly limit your ability to isolate the trust from your own liabilities. I don’t think the investing piece needs to be very complex (I would likely take a two fund or three fund approach). While an attorney who practices in that field may have some good ideas for you, it wouldn’t take much for the expense to become a decent percentage of the relatively limited amount of money involved.

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New2This1
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Re: Need help for investing life insurance for 6 year old nephew

Post by New2This1 » Wed Oct 16, 2019 8:52 am

Thanks for all the help. Much appreciated. I think for the time being, I will open an account under my own trust(I already have for business holdings) and invest the money in ETF's as recommended.

Topic Author
New2This1
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Re: Need help for investing life insurance for 6 year old nephew

Post by New2This1 » Wed Oct 30, 2019 7:35 am

Good morning, I was just wondering if it would be preferable to use;
VTI, VXUS, and bond or something like ITOT, IXUS and AGG since it is a taxable account?

I have transfered the funds into a separate brokerage account for him and would like to make a purchase.

Thanks

Valuethinker
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Re: Need help for investing life insurance for 6 year old nephew

Post by Valuethinker » Wed Oct 30, 2019 8:05 am

New2This1 wrote:
Fri Oct 11, 2019 6:09 pm


I guess my questions would be:

1. Should I just start a typical 3 fund portfolio for them? Something like Fidelity Total Market Index Fund FSKAX(60%) Fidelity Total International Index Fund FTIHX(30%) and Fidelity U.S. Bond Index Fund FXNAX(10%) or are there better options for a taxable account?

This is a perfectly good asset allocation. Rebalance once a year, say.

(I cannot reply to your later post, because I don't know the US ticker codes for funds. Who does remember them?)

Just on your sister's wishes. I caution you that you cannot, from the grave, legislate for the future. My father had some such notions regarding his grandchildren and there was a degree of messiness (even though he had been given all his inheritance at age 18, free and clear).

Trusts are very expensive. At least in the UK they are, and in the litigation-hungry American system, I don't imagine it's any different.

In the end, the child is going to be upright and careful, or not. Denying the child the money could put you in serious legal breach. Your sister, bless her, is dead - her voice has been silenced in this. And we do not know what she would have said, had the child been 18, or 20 .

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New2This1
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Re: Need help for investing life insurance for 6 year old nephew

Post by New2This1 » Wed Oct 30, 2019 8:11 am

Valuethinker wrote:
Wed Oct 30, 2019 8:05 am
New2This1 wrote:
Fri Oct 11, 2019 6:09 pm


I guess my questions would be:

1. Should I just start a typical 3 fund portfolio for them? Something like Fidelity Total Market Index Fund FSKAX(60%) Fidelity Total International Index Fund FTIHX(30%) and Fidelity U.S. Bond Index Fund FXNAX(10%) or are there better options for a taxable account?

This is a perfectly good asset allocation. Rebalance once a year, say.

(I cannot reply to your later post, because I don't know the US ticker codes for funds. Who does remember them?)

Just on your sister's wishes. I caution you that you cannot, from the grave, legislate for the future. My father had some such notions regarding his grandchildren and there was a degree of messiness (even though he had been given all his inheritance at age 18, free and clear).

Trusts are very expensive. At least in the UK they are, and in the litigation-hungry American system, I don't imagine it's any different.

In the end, the child is going to be upright and careful, or not. Denying the child the money could put you in serious legal breach. Your sister, bless her, is dead - her voice has been silenced in this. And we do not know what she would have said, had the child been 18, or 20 .
Hi, thanks for the reply. Here is some more info on the last post.
ITOT ISHARES CORE S&P TOTAL US STOCK MARKET (%.03)
IXUS ISHARES CORE MSCI TOTAL INTERNATIONAL STOCK(%.09)
AGG ISHARES CORE US AGGREGATE BOND (%.08)

Maybe I should leave out bonds since the account is taxable?


As for your last point, I can't really see any legal ramifications, as the money was left to me, solely. No one even knows it exists except myself, and my wife. It would then be up to me, at an appropriate age to evaluate the situation and see how to best handle it. I mean if the kid is into drugs, or something, I am not going to drop $200k+ in his lap. The money never existed at that point.

evilityb
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Re: Need help for investing life insurance for 6 year old nephew

Post by evilityb » Wed Oct 30, 2019 8:56 am

I'm so sorry for your loss.

I'm not sure how legal this is or how it would look if ever discovered ... but would the father be willing to sign adoption papers giving you permanent custody in exchange for you, say... buying his food stamps at a premium? I hope you are able to be a strong influence in his life in some capacity.

The asset allocation you proposed looks fine to me. Any 3-fund Boglehead portfolio should be appropriate. 90% equities is fine, as you proposed. I think anything less aggressive than 70/30 would be short changing him, personally. The thought of eliminating bonds also crossed my mind -- I would run a simulation to see what the expected tax burden would be with and without them to make that decision.

It could be possible to give him this money in a way that would honor your sister's wishes without it being a single lump sum windfall one day. For example, you may choose to pay for his college with it, or pay off his student loans once he has graduated. Or, perhaps, give it to him incrementally as he starts working with the sole purpose of guiding his financial knowledge/decisions and help him to max out all of his retirement accounts for the first several years of his career. Give him an appropriately-sized lump sum to buy a house, et cetera.
She/her/hers | Make sure the fortune that you seek is the fortune that you need - Ben Harper

Skyler10
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Re: Need help for investing life insurance for 6 year old nephew

Post by Skyler10 » Wed Oct 30, 2019 7:22 pm

OP, maybe you could use some of that money to bribe the father to give you custody or let you adopt the child. It worked for a friend of mine. Her ex was bad into drugs and she wanted him out of her daughter's life. Her new husband wanted to adopt her. The ex told them if they would buy him a vehicle, he would sign away his parental rights. And they did. If the situation is that bad with the father, getting the child away might be the best gift you could give.

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