Author Topic: The windfall of all windfalls  (Read 5547 times)

The Investing Hispster

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The windfall of all windfalls
« on: May 12, 2018, 08:13:33 AM »
Hi folks,

Have a question I want to pose to the forum. I am set to inherent money from a family member that just passed away to the tune of between $250k-500k depending on how the taxes shake out. I currently have about $15k of investments in index funds between a TFSA and RRSP (the RRSP is a downpayment fund for the potential buying of a house) 5K in an emergency fun and a 2012 car I own that is fully paid for. I have yet to buy a house but am debating how to best invest/spend this money. I currently have about 35,000 worth of room in my TFSA and the rest would need to go into a taxable account or an RRSP. I would like to travel with this money but I am wondering about recommendations around how much to invest/how much to put into a house or property? Any questions or feedback is appreciated

Freedomin5

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Re: The windfall of all windfalls
« Reply #1 on: May 12, 2018, 08:37:48 AM »
$500k is not a lot of money, but at a safe withdrawal rate of 4%, it should give you $20K per year for the rest of your life. If you can keep your expenses, including your trave expenses, under $20K per year, then theoretically you wonít have to work another day.

However, your post has the flavor of someone who has just won the lottery. A word of caution: Most lottery winners fritter away spend the winnings on houses and travel within a few years. Donít be like them and waste this opportunity.

My advice would be to not touch the principal (the original $500K) and instead only spend the interest/dividends/earnings from the $500K. Donít even spend it on a house, unless this house is going to generate more profit for you.

Reynolds531

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Re: The windfall of all windfalls
« Reply #2 on: May 12, 2018, 08:50:16 AM »
This can change your life, or you could waste it.

1. Everyone will want a piece. Only you can stop that.
2. When investing, see #1
3. With the opposite sex see #1
4. Bitcoin, weed stocks, real estate, advisors see #1

Do a good job with $500k and you're set.

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #3 on: May 12, 2018, 08:52:08 AM »
Thanks for the feedback. Funny my post comes off that way, I have been trying to continue to operate life under the assumption that it isnt coming and to continue it as per usual... In terms of the 20k a year, would you suggest keeping it in a TFSA and then a taxable account for the rest? I am assuming index funds and ETFS

RWD

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Re: The windfall of all windfalls
« Reply #4 on: May 12, 2018, 08:59:15 AM »
Read the Investment Order post. It's a great guide for how to invest any money whether it's a sudden windfall or slower accumulated savings.

The subreddit /r/personalfinance has a good short post on general advice about larger windfalls.

Case

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Re: The windfall of all windfalls
« Reply #5 on: May 12, 2018, 09:01:06 AM »
$500k is not a lot of money, but at a safe withdrawal rate of 4%, it should give you $20K per year for the rest of your life. If you can keep your expenses, including your trave expenses, under $20K per year, then theoretically you wonít have to work another day.

However, your post has the flavor of someone who has just won the lottery. A word of caution: Most lottery winners fritter away spend the winnings on houses and travel within a few years. Donít be like them and waste this opportunity.

My advice would be to not touch the principal (the original $500K) and instead only spend the interest/dividends/earnings from the $500K. Donít even spend it on a house, unless this house is going to generate more profit for you.

500k IS a lot of money.
Everything is a relative, obv.

Could be defined. Variety of ways, but 500k can make a huge difference is most lives here, including the OP, therefore i would argue it is large.
« Last Edit: May 12, 2018, 09:02:47 AM by Case »

Freedomin5

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Re: The windfall of all windfalls
« Reply #6 on: May 12, 2018, 09:13:13 AM »
500k is not a lot if you want to buy a house in Canada (Iím assuming in a reasonably populated city) AND travel (per OPís post).

Yes, thatís what I would do. TFSA first, then taxable. I donít think putting it in RRSPs will lower your tax bracket because I donít think this is considered income (though I could be wrong since Iím not a tax professional). Given the softening real estate market, I might even consider investing in property (not a house for me to live in, but something that could generate rental income in addition to providing me with a home), but only if the numbers worked out.

Even after it comes, I would recommend operating as per usual until the newness wears off a bit. Speaking from personal experience here where our net worth exploded in a few short years from around $30K to over $600K. Itís a lot to take in at first.

MrDelane

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Re: The windfall of all windfalls
« Reply #7 on: May 12, 2018, 09:13:53 AM »
Any questions or feedback is appreciated

Do you have any debts, and if so at what rates?
What is your current savings rate?
What is your annual spending?
When do you plan to retire?

Without knowing a bit more about your specific situation it's difficult to give any advice on how to best utilize any unplanned 'windfall.'

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #8 on: May 12, 2018, 09:18:52 AM »
I have no debts. I am getting married next summer and my fiance has about $25k worth of debt. The rate is about 8% on a line of credit. The plan is to have it paid off by the time we are married.

My current savings rate is approx 30-35% my savings are a mix of ETFS into RRSP and TFSA. I also have a pension I contribute to that is a defined benefit where I recieve 70% of my best 5 years of service and it is accessible when I am 55.

My annual spending is about 25k. When my fiance and I have a house in the fall. It will be approx 35k.

I am not sure when I plan to retire at this point.

ysette9

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Re: The windfall of all windfalls
« Reply #9 on: May 12, 2018, 09:33:06 AM »
https://www.bogleheads.org/wiki/Managing_a_windfall

This is a must-read. The summary is to not do anything for a while. Just let the money sit in savings or whatever investment it is in now while you grieve your loss (if from an inheritance), process the change, and create your plan. Talk long and hard about your goals and write out a personal investment policy statement. https://www.bogleheads.org/wiki/Investment_policy_statement Then come back here and run your plan by these smart people in the forums. Congrats on the money and best of luck managing it wisely.

Case

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Re: The windfall of all windfalls
« Reply #10 on: May 12, 2018, 09:38:51 AM »
500k is not a lot if you want to buy a house in Canada (Iím assuming in a reasonably populated city) AND travel (per OPís post).

Yes, thatís what I would do. TFSA first, then taxable. I donít think putting it in RRSPs will lower your tax bracket because I donít think this is considered income (though I could be wrong since Iím not a tax professional). Given the softening real estate market, I might even consider investing in property (not a house for me to live in, but something that could generate rental income in addition to providing me with a home), but only if the numbers worked out.

Even after it comes, I would recommend operating as per usual until the newness wears off a bit. Speaking from personal experience here where our net worth exploded in a few short years from around $30K to over $600K. Itís a lot to take in at first.

Well i think we are disagreeing on semantics,, but I still think your statement is goofy.  It seems your argument is that a sum of money is not large unless it is enough to pay for the topic of discussion.  I point out that 500k can still make a substantial impact on those purchase, and therefore the term Ďlargeí is warranted.  Further, on the absolute scale for the average person, 500k is a shit ton of money.

Moustachienne

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Re: The windfall of all windfalls
« Reply #11 on: May 12, 2018, 09:49:46 AM »
As noted by others, theInvestment Order post has a lot of great advice, including for Canada.  From a big picture perspective I'd say allow yourself a bit of fun, e.g. one nice trip, then plan to use the majority of the rest towards a house when you're ready.  A house, with land, not a condo, and somewhere you want to live for a good while.

I think this might be a Canadian more than US thing as people from the land of 30 year (!) fixed mortgages and mortgage interest deductions are much more comfortable having long term mortgage debt.  For many Canadians, the peace of mind of a paid off house is priceless.  MMM shares this viewpoint - https://www.mrmoneymustache.com/2015/01/21/mortgage-freedom/, btw.  He might have defected south but underneath he's true to his roots. :)


$500K is a lot of money and it can be life changing for you.  Good luck!

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #12 on: May 12, 2018, 09:53:29 AM »
What I am thinking right now is to take a trip ($5k ish), pay off my fiances debt (25K), house down payment ($25k). Lock the rest away in investments between maxing out our TFSA and using taxable accounts. Thoughts?

pecunia

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Re: The windfall of all windfalls
« Reply #13 on: May 12, 2018, 10:00:36 AM »
Quote
What I am thinking right now is to take a trip ($5k ish), pay off my fiances debt (25K), house down payment ($25k). Lock the rest away in investments between maxing out our TFSA and using taxable accounts. Thoughts?

Sounds rather smart.

Yesterday, I had this discussion with this guy who told me about these young guys right out of high school making $150,000 a year in the North Dakota oil fields.  This guy tried to gently counsel these kids about boom and bust years.  They spent the money on big trucks and motor homes.  You guessed it, the bust came and so did the repo man.

BNgarden

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Re: The windfall of all windfalls
« Reply #14 on: May 12, 2018, 10:07:48 AM »
Depending on how much RSP room you gain annually / have accumulated, and how much you could reduce your tax (get into the next lower marginal tax bracket), you might want to direct some of the funds to the RSP as well.

However, another strategy is to wait and build up RSP room til closer to your retirement date then put in lump sums for a few years to reduce your taxable income to a lower bracket (allowing more savings).

As long as you have room you can contribute to the RSP (not just from earned income).

2Birds1Stone

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Re: The windfall of all windfalls
« Reply #15 on: May 12, 2018, 10:09:51 AM »
$500k is certainly a huge amount of money, regardless of where it can or cannot purchase a house. There are many parts of the USA where you can live very comfortably on $20k/yr which $500k provides at a 4% WR.

Heck, I plan on ditching my career around that mark.

OP, I would follow the bogleheads link on managing a windfall, take your time, this could set you up for life if you avoid making rash decisions.

Also, if you didn't plan on being a landlord prior to the windfall, I would not suddenly change my mind just because I had enough to buy property.

Laura33

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Re: The windfall of all windfalls
« Reply #16 on: May 12, 2018, 12:04:44 PM »
What I am thinking right now is to take a trip ($5k ish), pay off my fiances debt (25K), house down payment ($25k). Lock the rest away in investments between maxing out our TFSA and using taxable accounts. Thoughts?

Yes.  Keep in mind the power of compounding says that every penny you put toward investments now gets you the maximum compounding towards FIRE.  If you put $450k in investments now and average a 7% return, in a decade you will have $900k, in 20 years $1.8M, and in 30 $3.6M.  But if you wait a decade before you start, you miss an entire doubling -- now in 20 years you'll only have $900k, and $1.8M in 30 years.  Since the market tends to produce the highest average return over long periods of time, you want to put your money there first; then you can add lower-returning investments later, because giving them time to build isn't as important. 

And btw, $900k would throw off an income of around $36K/yr.  So if you keep your expenses low, this inheritance could give you the opportunity to FIRE in 10 years, all by itself.  That's pretty awesome.

Blonde Lawyer

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Re: The windfall of all windfalls
« Reply #17 on: May 12, 2018, 02:53:01 PM »
Consider talking to a lawyer before getting married about what happens to that inheritance if your marriage doesn't work out.  I know nothing about Canadian law.  In the US, it varies by state.  In some states, if you keep it separate, in just your name, and don't spend it on marital things, it won't be split in a divorce.  In other states, you need a pre-nup to accomplish that.  In my state it's really up to the discretion of the judge looking at a whole host of factors.  In yet other states, inheritance is always given to the person who received it.  If you want to make sure it always stays yours, even if you spend some of it on your marriage (house for both of you, her debt, car for both of you, whatever) you might consider a prenup. 

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #18 on: May 12, 2018, 03:39:27 PM »
@Blonde Lawyer something I have debated....Is it the same for common law?

Lews Therin

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Re: The windfall of all windfalls
« Reply #19 on: May 12, 2018, 05:08:31 PM »
Common law: Yes, because in ontario, is it the same as married. Nota: I don't know how inheritance works for splitting assets during marriage or common law, it would be worth finding that out.

Windfall: Your 500k will be taxed. you should figure out how to minimize that taxation the most, accountants will probably be extremely cost-effective, since they will save you more money than it would cost.

TFSA fill it; RRSP, fill it, house downpayment: Useful, but only because Ottawa skews towards Own over Rent. As long as you don't go overboard in housing, your costs should remain very close to your renting one. (My 225k house costs me 1200 a month everything included, and my roommate brings it below your rent cost)

The rest: Taxable investment account. + Get rid of all your bad debt (mortgage is not bad debt); You will also be an excellent candidate for the Smith maneuver (google it, it`s the way to make mortgage costs tax-deductible in Canada.)

I`m FIREing on 500k, so anybody who says it`s a nothing number, doesn`t realize that it`s literally enough for someone who really wants to to be FIREd immediately.

gaja

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Re: The windfall of all windfalls
« Reply #20 on: May 12, 2018, 06:26:38 PM »
Depending on how long youíve been together, and how your normal dynamic works around money and stuff, I might hold off paying the fiancťís debt until after the wedding. Call it a morning gift.

nairnejay

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Re: The windfall of all windfalls
« Reply #21 on: May 12, 2018, 07:59:25 PM »
I know it might make sense financially to pay off your fiance's debt, but in doing so you take away the opportunity for her to do it herself - an achievement she can be proud of.
Also, the sting of paying interest on debt is a powerful motivator to not get into debt again.
Just my 2 cents.

BNgarden

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Re: The windfall of all windfalls
« Reply #22 on: May 12, 2018, 08:56:30 PM »
...Windfall: Your 500k will be taxed. ...

Not correct AFAIK (estate pays tax, but recipient does not); refer this link:
https://turbotax.intuit.ca/tips/canada-inheritance-tax-laws-information-463

Lews Therin

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Re: The windfall of all windfalls
« Reply #23 on: May 12, 2018, 09:05:05 PM »
...Windfall: Your 500k will be taxed. ...

Not correct AFAIK (estate pays tax, but recipient does not); refer this link:
https://turbotax.intuit.ca/tips/canada-inheritance-tax-laws-information-463

True. I thought he meant that was his share, but you`re right!

Dee

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Re: The windfall of all windfalls
« Reply #24 on: May 12, 2018, 09:29:53 PM »
For the general outline of legalities about inheritances upon divorce, see: https://www.legalline.ca/legal-answers/gifts-inheritances-and-other-excluded-property/. N.B. it looks like there is a difference between receiving the inheritance *before* the marriage and *during* the marriage. For the general outline of legalities upon break-up of a common law relationship, see https://www.legalline.ca/legal-answers/property-rights-in-common-law-break-ups/. There do remain some differences between being common law spouses and being married spouses, primarily related to treatment of the matrimonial home and to the availability of equalization of property on divorce. And to the treatment of one's property on death where a person doesn't have a will.  So, some things to think about in terms of how you will treat your inheritance during your marriage and upon your death (i.e. do you want it going to your wife or do you want it going to another descendant of the family member you inherited from? Make sure it will go where you want it to by having a will).

Linda_Norway

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Re: The windfall of all windfalls
« Reply #25 on: May 16, 2018, 04:21:45 AM »
I know it might make sense financially to pay off your fiance's debt, but in doing so you take away the opportunity for her to do it herself - an achievement she can be proud of.
Also, the sting of paying interest on debt is a powerful motivator to not get into debt again.
Just my 2 cents.

+1

It might make her feel dependent on you in an embarrassing way. If she doesn't feel uncomfortable about it, all the worse and she might expect you to cover for her again later.

If I were you I would keep this amount officially out of the marriage. Her debt should also be kept out of the marriage. She can pay it off at her own terms.

Prairie Stash

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Re: The windfall of all windfalls
« Reply #26 on: May 16, 2018, 10:50:21 AM »
Step one: Max out TFSA
Step Two: An entirely separate investment account that you never add money to again. Call the account "Inheritance" and make it clear that all money is 100% the result of the inheritance. This step is important, it has to be a seperate account.
Step three: Do not pay off another persons debt until marriage. Do not use the inheritance for this purpose ever. Pay off the debt from your regular paycheques.
Step 4: Do not buy a house with the proceeds, just save up like you otherwise would have.


Inheritance is tricky when it comes to marriage. If the money is comingled it becomes joint property. If the money is kept 100% separate, it remains out of a divorce. The rules are very strict and clear, as soon as you buy joint property, its no longer separate and you lose 50%. There is no wiggle room, but its also very simple to accomplish. If you use it for buying a house, half of that money is no longer yours the moment its done. Instead, just ignore the money entirely and also stop saving out of your paycheques and divert that cash towards a house.

I wish you well in marriage, truly. This is just information for you to work with.

The dividends and gains from the account will be comingled, only the initial principle is seperate. If you set yourself up with a dividend producing fund, use the dividends to pay off joint bills.

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #27 on: May 16, 2018, 11:23:14 AM »
@Prairie Stash Thanks so much for the info. Its really helpful

jezebel

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Re: The windfall of all windfalls
« Reply #28 on: May 16, 2018, 12:24:56 PM »
I know it might make sense financially to pay off your fiance's debt, but in doing so you take away the opportunity for her to do it herself - an achievement she can be proud of.
Also, the sting of paying interest on debt is a powerful motivator to not get into debt again.
Just my 2 cents.

+1

It might make her feel dependent on you in an embarrassing way. If she doesn't feel uncomfortable about it, all the worse and she might expect you to cover for her again later.

If I were you I would keep this amount officially out of the marriage. Her debt should also be kept out of the marriage. She can pay it off at her own terms.

I know that a lot of people consider this to be the safest financial decision, but wow, that's cold.  I've been married over 10 years and we've helped each other pay off our student loan debt.  I would be happy to have enough money to clear my spouse's debt and he would do the same for me, neither of us being all the worse for it. 

If you can't trust a person not to run up a 25K debt again, you should not be marrying him or her to begin with.   The inheritance is substantial enough, though, that I would find out how to keep from officially becoming "joint" property for a while.

MustacheAnxiety

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Re: The windfall of all windfalls
« Reply #29 on: May 16, 2018, 02:09:10 PM »
What I am thinking right now is to take a trip ($5k ish), pay off my fiances debt (25K), house down payment ($25k). Lock the rest away in investments between maxing out our TFSA and using taxable accounts. Thoughts?

That sounds pretty responsible.

5K for a vacation sounds like a lovely way to celebrate a life and generous gift.

pay off my fiances debt (25K):  Assuming this is school debt and not a car loan or a bunch of credit card debt, this sounds very generous and like a great idea.  I know it isn't the advice you asked for but if this is 25K of consumer debt, I would want to see my fiance turn his or her financial life around and pay it off independently before marriage. 

house down payment ($25k): Just make sure you are buying a house because you want a house and all the expense and responsibility of a house is worth it in exchange for the benefits of having your own little kingdom where you mostly call the shots.  I was very happy to rent a cheap apartment in my 20s and have the freedom to move and extra time because I did not have to worry about maintenance or a yard.  Just make sure you are buying a house because it makes sense for you and not because you suddenly have the down payment and it feels like the responsible thing to do.

Dicey

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Re: The windfall of all windfalls
« Reply #30 on: May 16, 2018, 03:38:21 PM »
Step one: Max out TFSA
Step Two: An entirely separate investment account that you never add money to again. Call the account "Inheritance" and make it clear that all money is 100% the result of the inheritance. This step is important, it has to be a seperate account.
Step three: Do not pay off another persons debt until marriage. Do not use the inheritance for this purpose ever. Pay off the debt from your regular paycheques.
Step 4: Do not buy a house with the proceeds, just save up like you otherwise would have.


Inheritance is tricky when it comes to marriage. If the money is comingled it becomes joint property. If the money is kept 100% separate, it remains out of a divorce. The rules are very strict and clear, as soon as you buy joint property, its no longer separate and you lose 50%. There is no wiggle room, but its also very simple to accomplish. If you use it for buying a house, half of that money is no longer yours the moment its done. Instead, just ignore the money entirely and also stop saving out of your paycheques and divert that cash towards a house.

I wish you well in marriage, truly. This is just information for you to work with.

The dividends and gains from the account will be comingled, only the initial principle is seperate. If you set yourself up with a dividend producing fund, use the dividends to pay off joint bills.
This is wonderful advice!

MarciaB

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Re: The windfall of all windfalls
« Reply #31 on: May 16, 2018, 05:17:01 PM »
I know it might make sense financially to pay off your fiance's debt, but in doing so you take away the opportunity for her to do it herself - an achievement she can be proud of.
Also, the sting of paying interest on debt is a powerful motivator to not get into debt again.
Just my 2 cents.

+1

It might make her feel dependent on you in an embarrassing way. If she doesn't feel uncomfortable about it, all the worse and she might expect you to cover for her again later.

If I were you I would keep this amount officially out of the marriage. Her debt should also be kept out of the marriage. She can pay it off at her own terms.

Yup. Another vote for this from me. +1

FINate

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Re: The windfall of all windfalls
« Reply #32 on: May 16, 2018, 06:14:20 PM »
I know it might make sense financially to pay off your fiance's debt, but in doing so you take away the opportunity for her to do it herself - an achievement she can be proud of.
Also, the sting of paying interest on debt is a powerful motivator to not get into debt again.
Just my 2 cents.

+1

It might make her feel dependent on you in an embarrassing way. If she doesn't feel uncomfortable about it, all the worse and she might expect you to cover for her again later.

If I were you I would keep this amount officially out of the marriage. Her debt should also be kept out of the marriage. She can pay it off at her own terms.

I know that a lot of people consider this to be the safest financial decision, but wow, that's cold.  I've been married over 10 years and we've helped each other pay off our student loan debt.  I would be happy to have enough money to clear my spouse's debt and he would do the same for me, neither of us being all the worse for it. 

If you can't trust a person not to run up a 25K debt again, you should not be marrying him or her to begin with.   The inheritance is substantial enough, though, that I would find out how to keep from officially becoming "joint" property for a while.

They aren't married. There is no actual legal commitment until the "I dos" and papers are filed and the marriage legally recorded. An engagement is not guaranteed, and I've seen my share of couples break it off before sealing the deal - all thought this was unimaginable until it wasn't. I don't think it's cold to hold off until after marriage, and even then I would make sure the inheritance is shielded for at least a few years.

Besides, it sounds like there's already a plan/agreement in place for her to pay off the debt herself before marriage. That's a good plan, and yes, it will be a good experience for her and a show good faith effort to contributing to their joint finances.

I'm very much in the camp of not letting the windfall change your life plans, at least for a few years, which includes paying off debts for other people. Just invest it for now, let it grow, and don't think about it at least until the marriage is better established.

jezebel

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Re: The windfall of all windfalls
« Reply #33 on: May 16, 2018, 08:47:31 PM »
I know it might make sense financially to pay off your fiance's debt, but in doing so you take away the opportunity for her to do it herself - an achievement she can be proud of.
Also, the sting of paying interest on debt is a powerful motivator to not get into debt again.
Just my 2 cents.

+1

It might make her feel dependent on you in an embarrassing way. If she doesn't feel uncomfortable about it, all the worse and she might expect you to cover for her again later.

If I were you I would keep this amount officially out of the marriage. Her debt should also be kept out of the marriage. She can pay it off at her own terms.

I know that a lot of people consider this to be the safest financial decision, but wow, that's cold.  I've been married over 10 years and we've helped each other pay off our student loan debt.  I would be happy to have enough money to clear my spouse's debt and he would do the same for me, neither of us being all the worse for it. 

If you can't trust a person not to run up a 25K debt again, you should not be marrying him or her to begin with.   The inheritance is substantial enough, though, that I would find out how to keep from officially becoming "joint" property for a while.

They aren't married. There is no actual legal commitment until the "I dos" and papers are filed and the marriage legally recorded. An engagement is not guaranteed, and I've seen my share of couples break it off before sealing the deal - all thought this was unimaginable until it wasn't. I don't think it's cold to hold off until after marriage, and even then I would make sure the inheritance is shielded for at least a few years.

Besides, it sounds like there's already a plan/agreement in place for her to pay off the debt herself before marriage. That's a good plan, and yes, it will be a good experience for her and a show good faith effort to contributing to their joint finances.

I'm very much in the camp of not letting the windfall change your life plans, at least for a few years, which includes paying off debts for other people. Just invest it for now, let it grow, and don't think about it at least until the marriage is better established.

I wasn't referring to a pre-marriage payoff, I was referring to the post about having the wife keeping her debt to herself during the marriage as a lesson to her.  I disagreed with that take for the reasons I mentioned. 

Mr Mark

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Re: The windfall of all windfalls
« Reply #34 on: May 17, 2018, 03:42:20 AM »
Consider talking to a lawyer before getting married about what happens to that inheritance if your marriage doesn't work out.  I know nothing about Canadian law.  In the US, it varies by state.  In some states, if you keep it separate, in just your name, and don't spend it on marital things, it won't be split in a divorce.  In other states, you need a pre-nup to accomplish that.  In my state it's really up to the discretion of the judge looking at a whole host of factors.  In yet other states, inheritance is always given to the person who received it.  If you want to make sure it always stays yours, even if you spend some of it on your marriage (house for both of you, her debt, car for both of you, whatever) you might consider a prenup.

+1

While no-one gets married expecting to divorce, the fact is a significant % of people do get divorced. With such a large sum, getting some good legal advice is sensible.

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #35 on: May 17, 2018, 06:37:23 AM »
Thanks for all the advice it's really appreciated. It seems to me like people fall into one of two camps. Camp one is shield it and protect yourself, let her pay off her debt, it's her not yours. The other half days pay it off. I think it's more a marriage philosophy then a financial one

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RichMoose

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Re: The windfall of all windfalls
« Reply #36 on: May 17, 2018, 12:17:32 PM »
Step one: Max out TFSA
Step Two: An entirely separate investment account that you never add money to again. Call the account "Inheritance" and make it clear that all money is 100% the result of the inheritance. This step is important, it has to be a seperate account.
Step three: Do not pay off another persons debt until marriage. Do not use the inheritance for this purpose ever. Pay off the debt from your regular paycheques.
Step 4: Do not buy a house with the proceeds, just save up like you otherwise would have.

+1 this is the best advice on this entire thread.

I might add like many others, definitely talk to a lawyer and do NOT pay off your SO's loan or otherwise share with at this time. Assuming of course that this is your money, given to you by your relative, intended for your well being, get a prenup done!! Even if it's a time limited contract, such as the money and proceeds from it becomes joint property after 30 years of marriage or something like that.

As you are keenly aware, you are sitting on a massive financial windfall here that will change your life if you do the right thing. And the right thing is: invest the money wisely and pretend you never got it. By the time you are 45, your stash will be worth more than $1.5 million and you will be in FIRE country.

debbie does duncan

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Re: The windfall of all windfalls
« Reply #37 on: May 18, 2018, 08:53:25 AM »
Here is the thing. YOU are going to get the cash. If you give her any of this inheritance, even a penny it becomes half hers.....now ( and if you divorce too). Open an acct in your name only put all that cash into some investment in your name only. See a lawyer....get a will and prenup. This is your stash, your relative wanted it for you to have a better life, your kids will thank you!

Mr Mark

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Re: The windfall of all windfalls
« Reply #38 on: May 19, 2018, 03:05:24 AM »
Thanks for all the advice it's really appreciated. It seems to me like people fall into one of two camps. Camp one is shield it and protect yourself, let her pay off her debt, it's her not yours. The other half days pay it off. I think it's more a marriage philosophy then a financial one

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I disagree. You should talk to a lawyer and protect yourself but knowing you have that backup go ahead and use your wages as a couple to pay off her 25k.

I think you can get the best of both sides.

whitethunder

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Re: The windfall of all windfalls
« Reply #39 on: May 19, 2018, 04:38:09 AM »
Great to hear from financially responsible teachers. I would recommend touching 0% of the principal and celebrating using the interest. You can help pay off your fiance's/wife's debt later on if it aligns with your vision for the relationship when the principal is generating income. With this windfall, you're safe from the worries that brought most of us to this forum. Were I to receive 500k tomorrow, after losing my mind I would put the money away and focus on developing your health and marriage. I very much agree with Prairie Stash and RichMoose. Good luck!

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Re: The windfall of all windfalls
« Reply #40 on: May 19, 2018, 04:43:57 AM »
Hopefully your fiancť will have the debt paid off by the wedding.  If not,I would certainly help her pay it off, but not with this windfall. (It sounds like it is consumer debt; if it's student loan debt I might consider using the windfall to pay it off.)   I would absolutely keep the windfall a separate account, in my name only, and invest.  I would not use it to fund a house, car, etc.  Live within your income while you are young and let the money grow.  It is great to have that huge safety net.  Also, it's great to have a pension, but you may decide at 40 that you do not want to work until 50.  The windfall could give you that wonderful option of FIRE.

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #41 on: May 22, 2018, 12:57:26 PM »
Update:

We spoke as a family last week and the inheritance should shake out next June and the sum should be around $200,000 after taxes. My thoughts as of now are to do the following:

1. Max out TFSA approx 30k left in room
2. Open general taxable account and put the remainder into Wealthsimple. My current RRSP and TFSA are with them. I'm very content there and happy with the Roboadvisor fee of 0.4%. would be open to other reccomend though?
3. Take a small vacation (Under $5,000k) after my wedding.

My question is around my current savings rate (approx 40%). I won't be paying off my fiance's debt as she is taking steps to have it paid off by the wedding. Do I continue saving in a taxable account at my current rate of 40%? Or do I sit and let the 200k compound for 20 years (I am 24 now) and not touch the dividend or the principle?

Any kind of feedback/suggestion is appreciated. Cheers

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FINate

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Re: The windfall of all windfalls
« Reply #42 on: May 22, 2018, 04:18:40 PM »
RE savings rate: Why is this either/or? Why not maintain your savings rate while letting the ~200k (dividend and principle) compound?

I don't know anything about Wealthsimple... but the 0.4% fee is rather high. Is this total fees, or in addition to fees on top of underlying funds? For reference, Vanguard Target Date Fund 2055 (another set-it-and-forget-it option) is 0.15% whereas their Total Stock Market Admiral Shares is just 0.04%.

Lews Therin

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Re: The windfall of all windfalls
« Reply #43 on: May 23, 2018, 05:30:39 AM »
2. Open general taxable account and put the remainder into Wealthsimple. My current RRSP and TFSA are with them. I'm very content there and happy with the Roboadvisor fee of 0.4%. would be open to other reccomend though?

My question is around my current savings rate (approx 40%). I won't be paying off my fiance's debt as she is taking steps to have it paid off by the wedding. Do I continue saving in a taxable account at my current rate of 40%? Or do I sit and let the 200k compound for 20 years (I am 24 now) and not touch the dividend or the principle?

Questrade, and other discount brokers can get you at .07, .1% MER. While that doesn't seem like a large difference, at 300k we're talking about 12k (.4%)instead of 3k (1%) Yearly. That's a significant amount of money you are leaving on the table because you don't want to look at it. It could be better than working overtime to learn how to take care of your own investments.

For the SR, I'd keep investing as much as possible to give yourself the most flexibility possible, because if you start inflating your lifestyle because you are planning on the 200k in 20 years, you can always find more ways to spend money, that 200k might not be enough. On the other hand, if you continue to increase SR, your income becomes unnecessary, so you'll never get stressed by money, or work, since you can stop working at anytime soon enough.

RichMoose

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Re: The windfall of all windfalls
« Reply #44 on: May 23, 2018, 08:48:19 AM »
Update:

We spoke as a family last week and the inheritance should shake out next June and the sum should be around $200,000 after taxes. My thoughts as of now are to do the following:

1. Max out TFSA approx 30k left in room
2. Open general taxable account and put the remainder into Wealthsimple. My current RRSP and TFSA are with them. I'm very content there and happy with the Roboadvisor fee of 0.4%. would be open to other reccomend though?
3. Take a small vacation (Under $5,000k) after my wedding.

My question is around my current savings rate (approx 40%). I won't be paying off my fiance's debt as she is taking steps to have it paid off by the wedding. Do I continue saving in a taxable account at my current rate of 40%? Or do I sit and let the 200k compound for 20 years (I am 24 now) and not touch the dividend or the principle?

Maxing out your TFSA is definitely the best first step. Tax free growth for life is powerful.

I would seriously look at something other than Wealthsimple just because the fees add up significantly when compounded over 20, 30, or 40 years. One option you might consider are the new Vanguard Portfolio ETFs. You buy one ETF that does all the rebalancing for you and the fee is just 0.2%, including the underlying fees on their own products up to that amount.

I'm not sure why this lump-sum investment should have any impact on your savings rate. Make sure that every dollar you spend has absolute value and meaningful improvement to your life and save the rest. Depending on your income, you'll find yourself saving 30% or 40% or more without even thinking about it much.

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Re: The windfall of all windfalls
« Reply #45 on: May 23, 2018, 03:07:51 PM »
Update:

We spoke as a family last week and the inheritance should shake out next June and the sum should be around $200,000 after taxes. My thoughts as of now are to do the following:

1. Max out TFSA approx 30k left in room
2. Open general taxable account and put the remainder into Wealthsimple. My current RRSP and TFSA are with them. I'm very content there and happy with the Roboadvisor fee of 0.4%. would be open to other reccomend though?
3. Take a small vacation (Under $5,000k) after my wedding.

My question is around my current savings rate (approx 40%). I won't be paying off my fiance's debt as she is taking steps to have it paid off by the wedding. Do I continue saving in a taxable account at my current rate of 40%? Or do I sit and let the 200k compound for 20 years (I am 24 now) and not touch the dividend or the principle?

Any kind of feedback/suggestion is appreciated. Cheers

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Next June and your current saving is 40%...

100% of the inheritance into a seperate account, pretend this never happened (future you will thank current you). Do not add to that acount ever again, start a second taxable account for this purpose. After 10+ years of marriage, it will stop mattering, in the first few years, it protects the inheritance from an early divorce.  Mix the account with further contributions and a good lawyer will take half of it if a divorce happens (once you mix it becomes marital property, not inheritance). Use the entire inheritance to fund your retirement when you and your wife retire in 20 years, it will find her retirement too.

Take your savings of 40% and direct that money into the TFSA and fund your trip. All I'm doing is setting up the paper trail, a good paper trail shields assets in the unlikely event of a divorce.

Why doesn't it matter as much in 10+ years? because the gains and dividends are marital property. Only the $200K is inheritance and yours. In 20 years that account will be worth $600k, $200k will belong to our fiancee, $400k to you, the difference shrinks every year and eventually becomes meaningless. In the event of divorce after 20 years you might get 60% to her 40% (of a million including yyour non-inheritance assets). Both parties benefit no mater what, with benefits increaing the longer the marriage lasts. If you never divorce, you will spend that money in your golden retirement, I hope you enjoy it (I like happy endings).

Its really only the first few years that the difference matters.

FINate

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Re: The windfall of all windfalls
« Reply #46 on: May 23, 2018, 03:17:41 PM »
I would seriously look at something other than Wealthsimple just because the fees add up significantly when compounded over 20, 30, or 40 years.

I agree. Out of curiosity I spent some time looking into Wealthsimple, which apparently is targeted at millennials (per Wikipedia). Their website is very "clean" (meaning: low information), lots of buzzwordy fluff that tries to sound smart, upbeat, cool, and easy going, but without much substance. How does their algorithm actually work? Don't tell me you do asset allocation, that's like saying a car works by moving; how asset allocation is done is what's important. But no, don't worry your pretty little head about such details.

What funds are they investing in? Difficult to find, though eventually found a list of funds for their Canadian investors (https://www.wealthsimple.com/en-ca/funds/CRBN). Could not find their US funds. I don't like the lack of transparency. Extremely difficult to determine how they perform relative to benchmarks.

To answer my question upthread, their 0.4% fee is in addition to the fees from the underlying investments (which conveniently never show up in your statements). The funds they invest in have fees in ranging from 0.05% all the way up to 0.8%! Let's be generous and assume the weighted average is better than overall average, or about 0.2% so 0.6% total. Do the math on 200k invested over 30 years, assuming about 10% annual market returns.  Simply parking it in VTSAX comes out significantly better... about half a million dollars better (200000*(1.1-0.006)^30 vs. 200000*(1.1-0.0004)^30)

They make a point to talk about how their product is "Backed by Nobel Prize-winning research" by which they mean Modern Portfolio Theory. Pardon me while I <eyeroll/> - yeah, no shit, everyone does. MPT was groundbreaking when it was described 66 years ago.

Finally, I strongly suspect the whole "roboadvisor" thing essentially involves zero robots or investing algorithms. Think about it, all software contains bugs and developers make bad changes/errors all the time. The risk to having a machine making large scale automatic investments if enormous and unnecessary. More likely, they have N number of funds (N<16 perhaps) that invest in a mix of funds to represent different risk tolerances and investment horizons. The only thing the "robot" does is periodically adjust which fund-of-funds you're in (really, the easy part), all the rest is managed like any other fund.  I just don't see the value... 0.4% on top of fees for a fund-of-funds. Really, would be better off with a Target Date Fund or buying ETFs direct.

EDIT: Found the list of US funds (ETFs): https://help.wealthsimple.com/hc/en-us/articles/115000328367-What-asset-classes-do-your-ETFs-represent-
« Last Edit: May 23, 2018, 03:48:29 PM by FINate »

robartsd

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Re: The windfall of all windfalls
« Reply #47 on: May 23, 2018, 04:37:29 PM »
The dividends and gains from the account will be comingled, only the initial principle is seperate. If you set yourself up with a dividend producing fund, use the dividends to pay off joint bills.
This is incorrect. If you create a separate account for the inherited funds, never put marital funds into the account, and keep dividends and other gains in the account, the entire account can be protected as separate property (not just the principle). Keep good records about any withdraws from this account and what they are for (for instance to pay the taxes on the gains within the account). If you choose to use withdraws from this account for joint purposes, be sure the documentation shows that only the funds withdrawn are being commingled with marital property.

RichMoose

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Re: The windfall of all windfalls
« Reply #48 on: May 24, 2018, 09:28:03 AM »
I would seriously look at something other than Wealthsimple just because the fees add up significantly when compounded over 20, 30, or 40 years.

I agree. Out of curiosity I spent some time looking into Wealthsimple, which apparently is targeted at millennials (per Wikipedia). Their website is very "clean" (meaning: low information), lots of buzzwordy fluff that tries to sound smart, upbeat, cool, and easy going, but without much substance. How does their algorithm actually work? Don't tell me you do asset allocation, that's like saying a car works by moving; how asset allocation is done is what's important. But no, don't worry your pretty little head about such details.

What funds are they investing in? Difficult to find, though eventually found a list of funds for their Canadian investors (https://www.wealthsimple.com/en-ca/funds/CRBN). Could not find their US funds. I don't like the lack of transparency. Extremely difficult to determine how they perform relative to benchmarks.

To answer my question upthread, their 0.4% fee is in addition to the fees from the underlying investments (which conveniently never show up in your statements). The funds they invest in have fees in ranging from 0.05% all the way up to 0.8%! Let's be generous and assume the weighted average is better than overall average, or about 0.2% so 0.6% total. Do the math on 200k invested over 30 years, assuming about 10% annual market returns.  Simply parking it in VTSAX comes out significantly better... about half a million dollars better (200000*(1.1-0.006)^30 vs. 200000*(1.1-0.0004)^30)

They make a point to talk about how their product is "Backed by Nobel Prize-winning research" by which they mean Modern Portfolio Theory. Pardon me while I <eyeroll/> - yeah, no shit, everyone does. MPT was groundbreaking when it was described 66 years ago.

Finally, I strongly suspect the whole "roboadvisor" thing essentially involves zero robots or investing algorithms. Think about it, all software contains bugs and developers make bad changes/errors all the time. The risk to having a machine making large scale automatic investments if enormous and unnecessary. More likely, they have N number of funds (N<16 perhaps) that invest in a mix of funds to represent different risk tolerances and investment horizons. The only thing the "robot" does is periodically adjust which fund-of-funds you're in (really, the easy part), all the rest is managed like any other fund.  I just don't see the value... 0.4% on top of fees for a fund-of-funds. Really, would be better off with a Target Date Fund or buying ETFs direct.

EDIT: Found the list of US funds (ETFs): https://help.wealthsimple.com/hc/en-us/articles/115000328367-What-asset-classes-do-your-ETFs-represent-
I would be careful to knock the newer platforms like Wealthsimple, Betterment, Wealthfront, etc. They are targeting younger, newer people who are almost completely unfamiliar with investing and might otherwise never invest in the stock or bond markets. I think that can be evidenced by their outsized use of social ESG funds.
The fees might be somewhat high, but they are cheaper than a financial advisor and are easily accessible at all investment levels unlike a financial advisor. Investors who use these services are paying a "I Don't Want to Educate Myself" Tax.
I think the whole robo-advisor name is simply a branding tool for a simple re-balancing formula. Not unlike "Smart Beta" being a branding tool for factor-based indexing. I suppose in today's world all it takes to lure in a unwitting young investor is to toss out words like algorithms, Nobel Prizes, and socially responsible.
Regarding a comparison to VTSAX, the OP is a Canadian and we can't access Vanguard mutual funds or use a Vanguard account. It's all ETFs up here, but the fees are getting very close to Admiral Fund fees and overall investment allocation can be mimicked pretty closely.
The problem with Wealthsimple Canada is their use of Purpose ETF products. They seem to be pretty mediocre products with high fees. Their website is also quite fluffy and not very transparent about holdings or fees without a lot of digging. Makes me wonder if the financial backers of Wealthsimple (Power Financial) also back Purpose Investments?

The Investing Hispster

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Re: The windfall of all windfalls
« Reply #49 on: May 24, 2018, 09:52:14 AM »
@RichMoose Given that you are Canadian, do you invest in Vanguard funds then? What is your investment vehicle of choice? Would love recommendations, as opposed to Wealthsimple