Author Topic: Gut check with huge 2M windfall  (Read 8518 times)

_one_time_

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Gut check with huge 2M windfall
« on: June 26, 2017, 08:58:49 AM »
My wife and I (both ~30 years old) have combined annual income around $170k.

We had saved up about $400k in various investment accounts so far, which I feel quite comfortable managing. Basic index funds / some bond funds, etc. with some funny money for risky/toy investments.

Plot twist: We are about to receive 2 million dollars (after gift taxes) as a gift from family.

First of all this is pretty crazy - knew there was a chance for something like this but certainly didn't expect it now. We're very very lucky, and we know it.

I expect I could just take the same asset allocations and scale everything up, but I'm suddenly feeling like this is a totally new picture. Obviously this changes timelines for FI, especially since we could conceivably retire NOW since we are quite comfortable at very low withdrawal rate.

We talked to some fee-only financial advisors, but most of them still want have management fees if you actually invest with them, which seems silly. If they are fiduciary they are just going to be passive mutual fund investors w/ occasional rebalancing - is there something I'm missing there?

I'm thinking next steps might be talking to a tax attorney or accountant - also a bit concerned about taxes this year because it will be vastly more complicated than any year prior (for several reasons, not just the gift).

Should we get some kind of umbrella insurance policy, setup a trust (even though we don't have kids), or perhaps some other kind of legal/tax protection? These kinds of questions suddenly feel relevant.

Feeling a bit overwhelmed so for now we are just going to put it in ultra-conservative vanguard funds and proceed-as-if-normal so that we don't rush into anything.

Has anyone else dealt with this? Are there other concerns I should have that I don't?

Thanks!

SnackDog

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Re: Gut check with huge 2M windfall
« Reply #1 on: June 26, 2017, 09:07:18 AM »
Here's some advice https://www.bogleheads.org/wiki/Managing_a_windfall

Windfalls have also been discussed on Bogleheads a few times. You can google for those.

I, for one, hope you blow some of it on something totally frivolous.  Report back here if you do!

Catbert

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Re: Gut check with huge 2M windfall
« Reply #2 on: June 26, 2017, 10:37:13 AM »
Remember, if these were gifted to you (rather than inherited) you assume the lower original cost basis along with the gift.  For example, if an asset was originally purchased for 100K and is now worth 500K you'd owe capital gains tax on 400K gain.  OTOH if you inherited the asset, the basis would be re-set to 500K upon death and you could sell for 500K without owing any capital gains.

See a good tax attorney or CPA before you sell anything.

_one_time_

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Re: Gut check with huge 2M windfall
« Reply #3 on: June 26, 2017, 10:43:32 AM »
Thanks for the links SnackDog
I, for one, hope you blow some of it on something totally frivolous.  Report back here if you do!

This counts as "totally frivolous" and is definitely on the radar: https://www.trekbikes.com/us/en_US/bikes/mountain-bikes/trail-mountain-bikes/stache/stache-9-8/p/2025000-2017/ :D

you are in panic mode.

I recognize this and that's sort of why we are just going to stick it in Vanguard and defer making any major life changes. Need to feel settled, otherwise I'm worried about doing something stupid. Airing it out here is a huge part of replacing panic with peace in the new situation, because I don't think I can really talk about it with anyone else.

Working part-time sounds really interesting... I wonder if my employer would play ball.

Remember, if these were gifted to you (rather than inherited) you assume the lower original cost basis along with the gift.

It's all cash, unbelievably - my post left that out though -- definitely an important consideration!
« Last Edit: June 26, 2017, 10:46:27 AM by _one_time_ »

Friar

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Re: Gut check with huge 2M windfall
« Reply #4 on: June 26, 2017, 10:50:37 AM »

acroy

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Re: Gut check with huge 2M windfall
« Reply #5 on: June 26, 2017, 11:35:48 AM »
Badass, congratulations!
You're done! FI!

If you like to work, do the SWAMI thing. Good luck!

Secretly Saving

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Re: Gut check with huge 2M windfall
« Reply #6 on: June 26, 2017, 11:40:34 AM »
Cash!?!  Wow. Congratulations.  Take it all slow.  Give yourself plenty of time to process it all and thank that family member or members profusely!  You want to honor the legacy that they have just passed on.

trashmanz

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Re: Gut check with huge 2M windfall
« Reply #7 on: June 26, 2017, 11:50:31 AM »
If they are fiduciary they are just going to be passive mutual fund investors w/ occasional rebalancing - is there something I'm missing there?

I'm not sure I follow why you think them being a fiduciary would mean they should manage your money for free? 

MrGville

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Re: Gut check with huge 2M windfall
« Reply #8 on: June 26, 2017, 12:27:15 PM »
Congrats!  Very exciting!  Please keep everyone updated on what you decide to do.

spokey doke

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Re: Gut check with huge 2M windfall
« Reply #9 on: June 26, 2017, 12:43:11 PM »
I too took a little chunk of an inherited amount and spent it on a ridiculously nice mountain bike...love it still and would do it again in a heartbeat...enjoy

ysette9

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Re: Gut check with huge 2M windfall
« Reply #10 on: June 26, 2017, 12:46:54 PM »
The Bogleheads article on how to manage a windfall is good and stressed the importance of basically making no big decisions for about six months or so. Throw it all in Vanguard in your current AA or put it in 8 different FDIC-insured savings accounts and just let it sit while you sort out the emotions and what your future vision looks like for your lives. If part-time work sounds appealing, go for it! I think that if you approach your management from a position of polite entitlement they may agree to things you would be surprised about. I'm thinking of Dr Doom's posts on making demand at his last job and his his manager bent over backward once he explained that he was FI and didn't need to work for a living.
Congratulations and be sure to report back to us what you end up doing!

Bicycle_B

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Re: Gut check with huge 2M windfall
« Reply #11 on: June 26, 2017, 01:28:05 PM »
The Bogleheads article on how to manage a windfall is good and stressed the importance of basically making no big decisions for about six months or so. Throw it all in Vanguard in your current AA or put it in 8 different FDIC-insured savings accounts and just let it sit while you sort out the emotions and what your future vision looks like for your lives. If part-time work sounds appealing, go for it! I think that if you approach your management from a position of polite entitlement they may agree to things you would be surprised about. I'm thinking of Dr Doom's posts on making demand at his last job and his his manager bent over backward once he explained that he was FI and didn't need to work for a living.
Congratulations and be sure to report back to us what you end up doing!

+1

LifeHappens

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Re: Gut check with huge 2M windfall
« Reply #12 on: June 26, 2017, 02:24:32 PM »
Congratulations on the windfall! Do take some time to adjust to your new reality before you take any major actions.

If charitable giving is part of your values, you may want to consider setting up a donor advised fund. You are in a position to potentially make some very large donations in the future and a dedicated fund will help you be more intentional about that process. Vanguard and Fidelity are both good places to set up a fund. You could also look into your local community foundation and decide if their operations are a good fit.

neil

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Re: Gut check with huge 2M windfall
« Reply #13 on: June 26, 2017, 03:01:44 PM »
Agree with a lot of the above.  You only have maybe one or two hard requirements and the rest can be done on your schedule.

- Proper insurance.  You have more assets to go after.  Get on the phone, increase auto and other liability coverages and get umbrella for a couple million.  Maybe it isn't 100% right, but this is pretty cheap relatively and very easy to call up an insurer and get it all paid for.  A thirty minute phone call probably sorts this out immediately and you can have an opinion on how much you really need at a later date.
- Tax year ends in December.  In the short term I probably would be willing to pay a professional to get my 1040 right, and maybe indefinitely depending on how I feel about doing my taxes after this.

Aside from these, you don't have to anything now.  Even if it "rots" in a savings account there will still be $2M sitting there when you are ready for it.  It doesn't sound like you would need a decade to figure it out, but you do probably need to let the new reality settle in your mind before you are fully ready to deal with it.  A bit of opportunity cost and some extra expenses to get advice from experts in the short term sound like the best investment in the long term.

The people who are giving you this wealth essentially trust you enough with their estate for you to manage it now.  I understand it can be weird to ask for advice from family, but in this case the money is known.  You may not agree 100% on all things, but I'm sure there are aspects of finance that someone who has enough to give you $2M today would know that we do not.  I imagine you are getting this gift now because you are trusted to handle it properly, so I would imagine you are fairly well aligned with the source on financial matters.

Inaya

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Re: Gut check with huge 2M windfall
« Reply #14 on: June 26, 2017, 03:08:42 PM »
It's all cash, unbelievably - my post left that out though -- definitely an important consideration!
I've got this mental image of a ratty mattress stuffed with bills topped with a comically huge bow just showing up on your doorstep, potentially accompanied by a singing telegram.


Congrats!

mxt0133

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Re: Gut check with huge 2M windfall
« Reply #15 on: June 26, 2017, 03:30:52 PM »
When you say 'we' are about to receive the windfall, are the funds in both you and your wife's name or is it just you or your wife?

Is the windfall going to be put in a trust that specifies it is only for the benefit of X person and will NOT be split in the event of a divorce?

I think you can see where I am going with this.  I am in no way implying anything about the stability of your marriage but divorces to happen.  Better to have answers to what happens to the windfall in the event of a divorce now than after the fact for everyone involved which include the benefactor and the beneficiaries.

Other than than, do pay a fee only advisory to help you develop a financial plan.  Like other have said increase your liability insurance, because the more assets you have the more likely people will go after them if you are at fault.

Assuming you don't blow all of the money, setting up a trust can help in the future to avoid inheritance taxes if you plan on leaving them to family or charities.


Aggie1999

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Re: Gut check with huge 2M windfall
« Reply #16 on: June 26, 2017, 04:48:32 PM »
Are you expecting a significant inheritance from the person(s) giving you the money? If not, they should be able to count the $2m against the ~$5m per person that is clear of estate tax. That means the giver should not have to pay any gift tax. From the IRS website:

"But keep in mind; any portion thatís used to avoid the gift tax reduces the amount that will be exempt from estate tax. For example, if you used $2 million of the exemption to make taxable gifts during your lifetime, you will only be able to exclude $3.34 million from the estate tax. If you surpass the $5.34 million limit, you (or your heirs) will have to pay up to 40% tax."

https://www.irs.com/articles/7-things-you-should-know-about-gift-tax

nara

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Re: Gut check with huge 2M windfall
« Reply #17 on: June 26, 2017, 07:49:07 PM »
We were in a similar situation. It's what got us on this forum (and Bogleheads) in the first place because we knew it was life changing and we had to make sure we knew what we were doing. We used part of the money for a deposit on our first house and to pay down all debts. We the rest away in a one year CD to figure out our next move without any pressure (Bogleheads do recommend you sit on it for a year). I'm so glad we did because we knew so little back then compared to what we know now! We finally decided to use Vanguard's personal investor services. Yes, you will need an increased Umbrella policy too. Best to talk to a lawyer about this.

debbie does duncan

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Re: Gut check with huge 2M windfall
« Reply #18 on: June 27, 2017, 08:25:18 AM »
CONGRATS!

https://www.reddit.com/r/personalfinance/wiki/windfall

Most investment firms offer a " different  service " to larger liquid investers . You qualify !!!!!!!
Pls come back in a yr or so and let us bask in your adventure.




Car Jack

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Re: Gut check with huge 2M windfall
« Reply #19 on: June 27, 2017, 09:18:35 AM »
Do you have an IPS and a well defined AA?  If you do, then it would be pretty easy to do the following:

1) pay off all debts including the mortgage, if you have one.
2) Contribute to a non-deductible IRA and backdoor roth.
3) If you've got 401k/403b type accounts, max those.
4) Buy $10k in iBonds each
5) Open a taxable account at one of the low cost houses who will give you bonus $$ and invest per your IPS in low cost index funds or ETFs per your AA.

That's it.  Lump sum everything.  Remember that putting your money into a taxable account does NOT mean that you can't access it in the future to do something else.  I just last week sold off some SCHX in Schwab to put towards tuition for my son.  If you want more liquid, easy money available to buy some stache creme or something, put into a Redneck Megamoney 1.25% account (up to $35k) or an Ally account.

doublethinkmoney

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Re: Gut check with huge 2M windfall
« Reply #20 on: June 27, 2017, 09:26:05 AM »
Keep in mind too it's not an all or nothing deal. You can contribute Set amounts into the market every year, six months or monthly. This may prevent you being worried about what the market will do next since it will be evened out a bit.

Definitely talk to a tax accountant as this is a GUARANTEED way to save money on taxes by making smart decisions. This form is good to investing but not a lot of tax experts.


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_one_time_

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Re: Gut check with huge 2M windfall
« Reply #21 on: July 02, 2017, 01:39:28 AM »
If they are fiduciary they are just going to be passive mutual fund investors w/ occasional rebalancing - is there something I'm missing there?

I'm not sure I follow why you think them being a fiduciary would mean they should manage your money for free?

I see how it reads that way, but what I was getting at is that their service might not be very hard to replicate on my own. Would I be 1% worse than them at buying and rebalancing index funds? Maybe!

ysette9

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Re: Gut check with huge 2M windfall
« Reply #22 on: July 03, 2017, 08:53:23 PM »
A fiduciary should not be charging you 1% a year to manage your portfolio. You should be prepared to pay a one-time fee for reviewing your situation and making recommendations. I don't know how much, but when we did advising years ago it was on the order of $500-1000. You would then pay for additional check-in visits. Even if you paid $5k that would still be substantiallyless than getting sucked dry by a 1% vampire.

chasesfish

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Re: Gut check with huge 2M windfall
« Reply #23 on: July 04, 2017, 11:55:49 AM »
If they are fiduciary they are just going to be passive mutual fund investors w/ occasional rebalancing - is there something I'm missing there?

I'm not sure I follow why you think them being a fiduciary would mean they should manage your money for free?

I see how it reads that way, but what I was getting at is that their service might not be very hard to replicate on my own. Would I be 1% worse than them at buying and rebalancing index funds? Maybe!

I'd have to agree with all of the above.   At $2.4mil, I don't think your asset base is at the point where you need a fee-based financial planner.  The estate tax threshold kicks in at just over $5mil for the last six years, that's where you really need it.

Since you already hit the Financial Independence number (assuming your expenses are less than $100,000/year), active management might be more appropriate.  If I were you, I'd consider putting the money in the Vanguard Wellington Fund Admiral Shares - Its active management of a roughly 65% Stock, 35% Bond portfolio and your expense ratio is 0.16%.   If you think that mix is a little to aggressive, buy a bit of the Vanguard Wellesly Income Fund, its the opposite at 35% bonds and 65% stocks.  Admiral shares have a similar expense ratio.

Go and find a good personal accountant.

Dicey

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Re: Gut check with huge 2M windfall
« Reply #24 on: July 05, 2017, 12:00:12 AM »
PTF. Interested to see what you decide to do.

pbkmaine

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Re: Gut check with huge 2M windfall
« Reply #25 on: July 05, 2017, 12:59:06 AM »
Stick with Vanguard, start reading the Bogleheads forum, ask around for a good trusts and estates attorney to get your estate planning done, and get umbrella liability insurance for $3 million to top up your insurance coverage. You might also want a CPA for your taxes going forward.

ysette9

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Re: Gut check with huge 2M windfall
« Reply #26 on: July 05, 2017, 11:49:36 AM »
Quote
I'd have to agree with all of the above.   At $2.4mil, I don't think your asset base is at the point where you need a fee-based financial planner

Personally I disagree with this. I think fee-based financial planners are good for everyone at any net worth level. You definitely don't "need" an actively managed fund or portfolio at any asset level either. If you need the hand-holding because you can't trust yourself for whatever reason, then by all means, call up the Vanguard folks. That is more of a stylistic preference though (hand-holding versus DIY) than anything having to do with net worth.

Abe

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Re: Gut check with huge 2M windfall
« Reply #27 on: July 05, 2017, 10:19:50 PM »
Didn't realize that large gifts are essentially tax-free until now. Good luck to you and all the advice above is great, nothing else to add other than don't let other people tell you what you "should" be spending on.

KungfuRabbit

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Re: Gut check with huge 2M windfall
« Reply #28 on: July 06, 2017, 11:45:04 AM »
Be very careful about perception.

My grandpa could likely afford to give me a million $$s (but won't for sure), but he also worked well paying jobs until he was 75. If I took his money and then retired at 32 with it he'd be beyond furious.

I'll also second the "do something stupid". Take a $25,000 vacation, buy a new Tesla, remodel your basement with a wicked home theater, etc, etc.  if you have this money and keep working it's more than you need, might as well blow it (someone has to drive the economy...).

boarder42

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Re: Gut check with huge 2M windfall
« Reply #29 on: July 06, 2017, 12:21:22 PM »
start donating chunks to good local charities that throw swanky parties.  you'll get premium invite tickets and help a good cause.  in my state some of these charities are worth 50% of your donation back as a tax credit.  add to that your 25% tax bracket status and you're not paying much to help alot of people and enjoy some fun networking events.

RyanAtTanagra

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Re: Gut check with huge 2M windfall
« Reply #30 on: July 06, 2017, 01:08:35 PM »
start donating chunks to good local charities that throw swanky parties.  you'll get premium invite tickets and help a good cause.  in my state some of these charities are worth 50% of your donation back as a tax credit.  add to that your 25% tax bracket status and you're not paying much to help alot of people and enjoy some fun networking events.

That's another way of saying find the charities where the least amount of your money possible goes to the people that need it.

boarder42

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Re: Gut check with huge 2M windfall
« Reply #31 on: July 07, 2017, 07:24:02 AM »
start donating chunks to good local charities that throw swanky parties.  you'll get premium invite tickets and help a good cause.  in my state some of these charities are worth 50% of your donation back as a tax credit.  add to that your 25% tax bracket status and you're not paying much to help alot of people and enjoy some fun networking events.

That's another way of saying find the charities where the least amount of your money possible goes to the people that need it.

not really ... the charities that our state gives refunds to are only well established very lean machines.  they invite their larger donors to events that are fundraisers for the company where others pay to attend.  local food banks are a big one here.

LifeHappens

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Re: Gut check with huge 2M windfall
« Reply #32 on: July 07, 2017, 08:44:40 AM »
not really ... the charities that our state gives refunds to are only well established very lean machines.  they invite their larger donors to events that are fundraisers for the company where others pay to attend.  local food banks are a big one here.

This varies wildly by state. Some offer no tax credit for charitable giving. Others have very generous policies.

boarder42

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Re: Gut check with huge 2M windfall
« Reply #33 on: July 07, 2017, 10:49:21 AM »
not really ... the charities that our state gives refunds to are only well established very lean machines.  they invite their larger donors to events that are fundraisers for the company where others pay to attend.  local food banks are a big one here.

This varies wildly by state. Some offer no tax credit for charitable giving. Others have very generous policies.

i agree but worth looking into if he's just planning on blowing it on a 25k vacation as some posters have recommended.

when my dad sold his business in our state he donated over 30k at a net cost of around 3k out of his pocket.  personally rather give money to worthy charities at a small cost than let the govt. decide who gets it.

speaking of which this windfall in the right state could net a similar situation for your 2MM dollars.