Author Topic: My daughter's finances(she's a minor)--investment ideas for inheritance  (Read 12553 times)

frugalmom

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My parents had a pretty interesting estate plan which I just learned about.  One half their assets were split amongst their children of which there are many.  The other half were split by the grandchildren.  In an odd bit of fate there is only one grandchild.  It is my daughter, and I'm the youngest in my late 30's.  My daughter is a toddler and will receive $275-$305K within the next few months, depending on some final selling prices of assets. They are both deceased, so this is not hypothetical. 

I too will be receiving an inheritance of approximately $40K- completely unrelated.

I am new to this forum, but not to the idea.  I am excellent at managing money and living WAY below my means.  I am not so good about investing.  I tend to throw the extra money in a savings account and wait for my husband (two paid off houses later, our primary and a rental).  That plan is not working for us. The quest for some knowledge has let me to this forum. 

So here's what I need.  A plan to invest my daughter's money (which I may duplicate with ours) that allows growth with some risk protection.  The first time she will need to withdraw any money is for college in approximately 15 years.  My first thought is to the throw the money in Vanguard and let it ride, but I may need to have a fuduciary or bank to satisfy the judge (long story). Tell me your thoughts....

In this instance tell me your opinions on a fee only adviser charging 1%.  If I go with such an adviser should I try for a flat fee? 

I am literally open to all ideas, and looking forward to learning from you all.

I will need to report in to the judge annually with an account statement--so no buying copper pennies and stashing them for the metal value. 

nereo

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In this instance tell me your opinions on a fee only adviser charging 1%.  If I go with such an adviser should I try for a flat fee? 

Regarding the financial advisor, I think seeing one is a good idea, but find one that charges a set hourly fee, NOT a %. $200 to meet with someone for an hour might seem steep, but it's far less than you'd pay to have him/her manage a $300k, and it eliminates potential conflicts of interest.

As for investment vehicles, with a 15 year time line I would recommend an index fund. Historically, over 15 year periods the SP500 has outplaced inflation about 98% of the time, and has returned about 9% annually on average.  I can't comment much on tax questions regarding an estate, but a 529 should help the college portion from being taxed.

With 300k on the line and a very young daughter (age 3?) it's entirely possible she can be FIRE in her early 20s with a modest lifestyle, and never really have to hold down a 9-5.  This may or may not be something you find attractive, but that's the reality of it from what you described.


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Wow - that is a crazy inheritance situation.

Couple of suggestions. I'd see about putting the money in a trust so she isn't just getting a huge amount of money on her 18th birthday - that is a recipe for disaster, as most 18 year olds aren't equipped to manage that kind of money. You may need to see a lawyer about whether you can set this up for her - and maybe have it so she can withdraw money but only with approval until she reaches a specific age (25? 30?) to gain control of the whole thing. I have no idea if you'd be allowed to do this however if the will stipulated that she inherits outright, since you'd only be able to control things while she's a minor... so definitely check into that aspect.

Otherwise, I'd recommend reading JL Collins' stock series to get a greater understanding of how investing works:

http://jlcollinsnh.com/stock-series/

And read how he would recommend his own daughter set up her investments - and keep in mind he's writing about a child that was in her early 20s, so with your daughter being a toddler, she has a much longer time horizon to make up for any market volatility. Keep in mind that you'd not be pulling out the full amount of what was invested for her college. She'll likely have well over doubled what it is now, if not more. There's a good chance that she could pay for college just from the growth, and still have more money to pretty much do whatever she wanted if it is allowed to grow and just skim off the growth to fund her schooling, downpayments and whatever.

http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

But one of the biggest things to make sure you work on is teach her how to be financially responsible and smart with her money and investing. So that means you'll have to start learning about the investing as well. The investing and managing money side didn't come easy for me either. I had the frugal living and saving down cold, but no one ever taught me about turning the whole "working for your money" thing into "your money working for you" passive income/investing. So do try to learn how all of that works NOW (the links above are wonderful) so you and your daughter will be in awesome shape for the future!

And so sorry for your loss - but what a wonderful gift your parents have left you and your family!

frugledoc

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Finally a sensible inheritance plan.

I never understood why parents leave all their assets to their children who have more than enough money already and just minimal amounts to the grandchildren, assuming it will be dripped down.

Out of interest, did any of your siblings moan about the only grandchild getting half?

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I never understood why parents leave all their assets to their children who have more than enough money already and just minimal amounts to the grandchildren, assuming it will be dripped down.
My dear departed grandmother did something similar, although she certainly wasn't uber-wealthy and it sounds like there were more benefitiaries in our family than with frugalmoms.  She also split the estate giving half to her children (there were three, so each got 1/6th of the total) and half to her grandchildren (there are 6 of us, so each of us got 1/12th of the total if I'm remembering the math correctly). Interestingly, I believe the 'wealth effect" was far greater for the 6 grandchildren than the 3 children, even though we got half as much.  It helped me not take out loans for an entire semester :-)

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If it is possible I too would have the money given to her in increments, paying for college as needed, giving out a certain amount when she is old enough to buy a home and then the rest when she turns 30, is just an example.

That is an incredible amount of money for such a little girl, huge blessing! Can you put some of it in a retirement plan? So that she is set even if she messes up later or marries someone that takes her money? try to protect her from things you may not be thinking about now, and I agree with PP teach her all about money and how to handle large amounts.

A friend from HS inherited 10k upon graduation, her dad took her to a car lot and she bought a car with all of it, ugh, she quickly regretted that, and it makes me mad her dad helped her do it??

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So here's what I need.  A plan to invest my daughter's money (which I may duplicate with ours) that allows growth with some risk protection.  The first time she will need to withdraw any money is for college in approximately 15 years.  My first thought is to the throw the money in Vanguard and let it ride, but I may need to have a fuduciary or bank to satisfy the judge (long story). Tell me your thoughts....

In this instance tell me your opinions on a fee only adviser charging 1%.  If I go with such an adviser should I try for a flat fee? 

I am literally open to all ideas, and looking forward to learning from you all.

I will need to report in to the judge annually with an account statement--so no buying copper pennies and stashing them for the metal value.
You could ask a fee-only financial advisor to give you a plan based in Vanguard funds.  (Not "fee based" or "assets under management" but "fee only".)  One goal would be college and the other goal would be a an annual stipend to start at her age of maturity-- 18 or 21 or whatever the grandparents' will requires.

The judge doesn't have enough spare time to care about how you do it, as long as you do it in a manner that could be construed as "fiduciary".  A fee-only plan with Vanguard funds satisfies those requirements.

I've been filing conservator reports (for my Dad) with the Denver probate court for the last two years.  Your court may have a professional conservator or CFP review your plan (and your annual reports) just to make sure that you're sticking to the plan (or at least filing an amended plan).  Those reports take a surprisingly long time to generate (to make sure all the numbers end up in the right boxes and add up correctly) and your probate court may be inclined to redesign the form every year or two... just to keep you on your toes.

I'm sorry that this happened through inheritance, but you're building a legacy.  I guess you can stop saving for your daughter's college fund (if you were doing that in the first place) and this might jumpstart your own FI plan.  She'll certainly understand why you're learning so much about managing money.

I worry about affluenza.  I'd appreciate if if you'd keep us posted on how you deal with that for your daughter's sake.

phred

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Form an LLC for your daughter with you as trustee.  Use the LLC to become a limited partner in a large apartment complex in a college town.  Investigate the general partner as to trustworthiness.  For more information search out your city or county real estate investment club and join it.

frugalmom

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Well.  I'm back.  I think I figured out a solution.

As I understand it going it alone with a Vanguard account is not going to happen.  My husband is not for it and doesn't think the judge will buy into the plan either.

Instead, we found a fiduciary group that is fee only.  We are trying to get them to provide a reduced flat fee arrangement. 

Since I don't have to fund a college fund, instead I am more than willing to pick up the tab for the annual fee.  By getting some sort of an arrangement in place with a flat fee I can better plan going forward. 

Typically the charge 1% of assets under management.  I think we are nearing a solution with a reduced fee arrangement.

Judge happy, husband happy, and should be way better than sitting in a savings account for the next 18 years. 

Rural

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Well.  I'm back.  I think I figured out a solution.

As I understand it going it alone with a Vanguard account is not going to happen.  My husband is not for it and doesn't think the judge will buy into the plan either.


I thought the inheritance was from your parents rather than his?

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #10 on: April 10, 2014, 01:54:08 PM »
So here's what I need.  A plan to invest my daughter's money (which I may duplicate with ours) that allows growth with some risk protection.  The first time she will need to withdraw any money is for college in approximately 15 years.  My first thought is to the throw the money in Vanguard and let it ride, but I may need to have a fuduciary or bank to satisfy the judge (long story). Tell me your thoughts....

In this instance tell me your opinions on a fee only adviser charging 1%.  If I go with such an adviser should I try for a flat fee? 

I am literally open to all ideas, and looking forward to learning from you all.

I will need to report in to the judge annually with an account statement--so no buying copper pennies and stashing them for the metal value.
You could ask a fee-only financial advisor to give you a plan based in Vanguard funds.  (Not "fee based" or "assets under management" but "fee only".)  One goal would be college and the other goal would be a an annual stipend to start at her age of maturity-- 18 or 21 or whatever the grandparents' will requires.

The judge doesn't have enough spare time to care about how you do it, as long as you do it in a manner that could be construed as "fiduciary".  A fee-only plan with Vanguard funds satisfies those requirements.

I've been filing conservator reports (for my Dad) with the Denver probate court for the last two years.  Your court may have a professional conservator or CFP review your plan (and your annual reports) just to make sure that you're sticking to the plan (or at least filing an amended plan).  Those reports take a surprisingly long time to generate (to make sure all the numbers end up in the right boxes and add up correctly) and your probate court may be inclined to redesign the form every year or two... just to keep you on your toes.

I'm sorry that this happened through inheritance, but you're building a legacy.  I guess you can stop saving for your daughter's college fund (if you were doing that in the first place) and this might jumpstart your own FI plan.  She'll certainly understand why you're learning so much about managing money.

I worry about affluenza.  I'd appreciate if if you'd keep us posted on how you deal with that for your daughter's sake.

I'm not worried about affluenza.  I grew up with parents who had a fair bit of money.  My mothers was inherited (her parents came from nothing), yet she worked until childcare was no longer working.  My father came from less than nothing, and had a good bit of money.  I think the earliest lessons in life I learned about money were typical immigrant mentalities.  You only borrow money for property.  I also got a very good understanding of need vs want.  Not that I was deprived.  I had many of the norms of growing up, but never had excesses. My parents and I would spend money when needed to buy quality, but we are by no means trendy.  I am also good about taking care of possessions to get the full life from the product.  At the same time, I never worried about where my next meal was coming from.  Basically my family has a history of being cheapo's

Another way to combat affluenza, is to limit TV.  I grew up with limited viewing of TV.  I do the same with my daughter.  The TV my daughter does watch is commercial-free and limited.  We can't get free network TV and are too cheap for cable.  We do have a netflix subscription, a really good public library, and a dozen or so videos for her.  Not that she doesn't sometimes want stuff, but at least now she's more interested in playing because we have limited her marketing.

Finally, the other way to fight affluenza, is frankly we don't plan on telling her.  If/When we tell her is going to be dependent upon the type of person she becomes.  If she's a 16 year old drug addict, she's not going to know.  I'm not going to literally hand her the money to kill herself.  If she's an exceptional 17 year old with an opportunity to attend Stanford or a state school and she's weighing the cost of student loans, well then mommy might have to spill the beans that she can afford Stanford.  If she's just an average student with no direction, state school will be ok.

The last bit of this is something you all will probably find amusing.  We'd like to have a second child.  From our perspective that means we have to match the amount of money she received, so no child is treated better or worse.  Ultimately it will be fine, but it wasn't exactly part of our short term planning.  Of course I may not be able to have the second child, but if I can we will be creating a matching gift. On that note, I need to get back to my coupons.....

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #11 on: April 10, 2014, 01:54:43 PM »
Well.  I'm back.  I think I figured out a solution.

As I understand it going it alone with a Vanguard account is not going to happen.  My husband is not for it and doesn't think the judge will buy into the plan either.


I thought the inheritance was from your parents rather than his?

The money is from my parents, but we share decision making for our child

Rural

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #12 on: April 10, 2014, 02:06:58 PM »
Well.  I'm back.  I think I figured out a solution.

As I understand it going it alone with a Vanguard account is not going to happen.  My husband is not for it and doesn't think the judge will buy into the plan either.


I thought the inheritance was from your parents rather than his?

The money is from my parents, but we share decision making for our child


Makes sense. Just as long as you're happy with the decision. It just never hurts to point out that it is yours to make, since we can't know if you'd realized that until you say so. Didn't mean to offend.

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #13 on: April 10, 2014, 02:23:20 PM »
Well.  I'm back.  I think I figured out a solution.

As I understand it going it alone with a Vanguard account is not going to happen.  My husband is not for it and doesn't think the judge will buy into the plan either.


I thought the inheritance was from your parents rather than his?

The money is from my parents, but we share decision making for our child


Makes sense. Just as long as you're happy with the decision. It just never hurts to point out that it is yours to make, since we can't know if you'd realized that until you say so. Didn't mean to offend.

NO offense taken.  Husband and I are trying to really grow our mustaches, and that means NO divorce :)

We work together really well, he's just crazy busy at work and with some of his own family issues. 

As long as the fee structure works out like we arranged, I will be happy.  While I am very confident in Vanguard, I also have a great love of DFA funds.  Using this advisor will allow access to the DFA book and hopefully keep our daughter's realized tax rate to as little as possible.  If I have to pay a small annual fee, and am able to capture more upside potential in the value proposition it will probably be wash.  With the added bonus of having a professional's input and a judge panties from getting in a bunch.

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #14 on: April 10, 2014, 02:55:22 PM »
Well.  I'm back.  I think I figured out a solution.

As I understand it going it alone with a Vanguard account is not going to happen.  My husband is not for it and doesn't think the judge will buy into the plan either.

Instead, we found a fiduciary group that is fee only.  We are trying to get them to provide a reduced flat fee arrangement. 

Since I don't have to fund a college fund, instead I am more than willing to pick up the tab for the annual fee.  By getting some sort of an arrangement in place with a flat fee I can better plan going forward. 

Typically the charge 1% of assets under management.  I think we are nearing a solution with a reduced fee arrangement.

Judge happy, husband happy, and should be way better than sitting in a savings account for the next 18 years.

What's the name of the group you are looking at?  There is a lot of murk around planning still, and the bad ones are trying to mimic what the good ones are doing by charging the same way.

Ultimately, how they charge is much less relevant to how they perform, and there is nothing wrong with AUM models.  I could agree that pure Fee per hour planning can offer a clean fiduciary path in most cases, but it isn't the only route.  I think the biggest lack with per hour planning is lack of relationship, but if you are in a large windfall situation then perhaps such as transactional approach would be the right fit for you.  When evaluating a planner you might want to look at:

If fee only are they a member of NAPFA?
Do they hold the CFP or CPA-PFS designation?
Scan through the ADV pt2 for total assets to get a feel for the 'success' of the firm.

The biggest 'gotcha' is a firm who claims to be Fee Based, the CFP board is fighting to ban the use of this as it is deceptive.  You should watch out for firms that use loose terminology, and you can confirm if they are truly fee based by asking if they will receive a commission from the sale of any products, a fee only firm can't even sell you life insurance as it comes with commission.

PS I forget the amount now, but I think Vanguard will actually offer a 'concierge service' it may be from about $250K AUM and is worth a look too.  This may not be as comprehensive as a plan, but will provide help for your asset allocations.

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #15 on: August 22, 2016, 10:31:51 PM »
An Update.....

So...there was some confusion as to my parents estate.  One portion was life insurance--which we had to fight to get released from the insurance company.  That was the money I was originally asking about.  It had my daughter listed as 1/2 owner.  Her share amounted to $331K.  It is managed by an investment firm.  They are fiduciaries and are charging 1/2 of 1 percent in fees.  It has been bumpy but they are doing ok and the judge is happy!  This money is not in trust, and unfortunately generates just enough trading income which means I can not deduct my daughter on my taxes...which could become a future problem. It will also be available to her at 18. 

The BIG news is that I also discovered my daughter was the sole heir to the proceeds of a family trust.  Many decades ago my parents set up this trust when they inherited money.  They set it up to skip my generation.  As the only grandchild my daughter received the full amount.  It is just over $500K.  It will be managed by a professional trustee as required.  Unfortunately my Dad left no option for anyone else to manage. 
The good thing is that this money does not affect my daughter's tax situation.  Also she will not fully receive the funds until she is 30, yet they are very good about allowing me to provide input on the investment strategy.

So....since she is now 5.25 years of age---here is the biggest change.  My husband and I are divorcing; and he lost his fabulous corporate career.  Daughter started school last week and I am now going out to look for work.  Her Dad has been unemployed nearly a year and to date has not found anything "to his standards".  Since I am now 100% certain my daughter will be an only child, I am going to try and fully fund her undergraduate education myself--leaving her inherited money to fully set up her life.  Since she is going to be growing up with a single mom who likely will have a low wage career to allow as much time with my daughter as possible.  I doubt there is any risk of affluenza. 

Of course, going back to work is going to be a big and interesting change. 

marty998

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #16 on: August 23, 2016, 01:40:40 AM »
Wow... big changes over 18 months... one of your earlier posts was quite adamantly expressing "no divorce".

Can I ask a question?

What happens if your other siblings have children? Would there be an obligation to share a portion of the grandchild's money with them? Or is the slate now wiped completely clean and all the money belongs to her?

30 is a sensible age to inherit the trust - your daughter will be old enough to have had a career/working life, and hopefully made and learned from some mistakes and built some good money habits along the way.

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #17 on: August 23, 2016, 04:38:22 AM »
Husband and I are trying to really grow our mustaches, and that means NO divorce :)

My husband and I are divorcing

I didn't realize this was an old post, and thought these two were days apart!

Sorry to hear about the divorce.  =/

Your daughter is 5, and owns approximately $850,000 (331k + "just over 500k").  This will grow, by the time she's an adult, to multiple millions.

Given that...
I am going to try and fully fund her undergraduate education myself

Why?

You're (about to be) a single mom, taking care of a kid, while still trying to provide for your own retirement/FIRE.

This isn't even a case of take care of your own parachute first, then hers.. she has her parachute taken care of, by your generous parents, and it's a golden one.  Funding her undergrad education yourself?  I don't see why.

The 331k (plus growth) will be available at 18 to pay for all of college and then some.  The 500k (plus growth) will be available at 30 to fund FIRE.

The best thing you can do is teach her fiscal responsibility, so that the money DOES set her up for life, and that she doesn't blow through it.  The best way is by setting an example.  Be frugal, teach her about good money choices.  I'm torn about when to tell her about the inheritance, but that'll be something to carefully consider.

Good luck!

I hope the divorce goes amicably, and you move to a much happier state after.  :)
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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #18 on: August 23, 2016, 05:33:29 AM »
Husband and I are trying to really grow our mustaches, and that means NO divorce :)

My husband and I are divorcing

I didn't realize this was an old post, and thought these two were days apart!

Sorry to hear about the divorce.  =/

Your daughter is 5, and owns approximately $850,000 (331k + "just over 500k").  This will grow, by the time she's an adult, to multiple millions.

Given that...
I am going to try and fully fund her undergraduate education myself

Why?

You're (about to be) a single mom, taking care of a kid, while still trying to provide for your own retirement/FIRE.

This isn't even a case of take care of your own parachute first, then hers.. she has her parachute taken care of, by your generous parents, and it's a golden one.  Funding her undergrad education yourself?  I don't see why.

The 331k (plus growth) will be available at 18 to pay for all of college and then some.  The 500k (plus growth) will be available at 30 to fund FIRE.

The best thing you can do is teach her fiscal responsibility, so that the money DOES set her up for life, and that she doesn't blow through it.  The best way is by setting an example.  Be frugal, teach her about good money choices.  I'm torn about when to tell her about the inheritance, but that'll be something to carefully consider.

Good luck!

I hope the divorce goes amicably, and you move to a much happier state after.  :)

Also very sorry to hear about your divorce. I know what that is like, single dad to a 3yo here.

I agree with Arebelspy. Don't put too much pressure on yourself! I know that probably sounds like crazy talk. But I've done the same as a separated parent. You can hung up pretty quick thinking about the impacts on your small child. It consumes you, as does the pain of the separation. You worry immensely on how your terrible failure will negatively impact your child, and try and compensate for it.

But. Your child needs you! Make sure you look after yourself. Its SO important. Think about your future. Your child needs you forever, as an adult too. If you are careful now, you could be FIREd by the time she grows up. You'll still be around to support her. If you are FIREd you can do that so much better.

You are already awesome at being frugal and saving money, and avoiding Affluenza, as good as anyone on here. Your daughter will no doubt inherit this from you :-) With that amount of money to cover College and more, she'll be super ok. 500k in 25 years time, sheesh.

There are lots of threads on here about runaway nesteggs. Its far, far more common than not that people don't outspend their retirement. Putting extra money into your daughter now, just magnifies that more.

Think of it another way. Who knows what your daughters adult life will be. But she might grow up to be a Mum too. (sorry, non American English ;-)). If you work on your own FIRE, you can be around to be a grandmother as much as possible. Your parents, although they only had one grandchild, no doubt knew the immense joy of this.

Of course its your decision. But make sure you look after yourself :-)


Dee18

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #19 on: August 23, 2016, 06:28:31 AM »
I'm sorry for your losses.  If possible, I would not tell your daughter about her future inheritance.  My daughter is an only grandchild and when my dad died my sister told my then 11 year old daughter she was going to be a rich girl. My daughter is smart and a good student, but being told she would be rich definitely affected her world view, and not in a good way.  Fortunately, the inheritance won't pass until my mother's death, who is amazingly strong at 93.  In the intervening years my daughter has learned a lot about money.  The best lessons came from my making her get a part time job at 16.  That has led to her valuing a dollar. I raised my daughter as a single mom and it has been a wonderful two decades.  Enjoy every minute of it.  She'll be in college before you know it!

Freedomin5

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #20 on: August 23, 2016, 06:42:34 AM »

The best thing you can do is teach her fiscal responsibility, so that the money DOES set her up for life, and that she doesn't blow through it.  The best way is by setting an example.  Be frugal, teach her about good money choices.  I'm torn about when to tell her about the inheritance, but that'll be something to carefully consider.

^ This. She doesn't need MORE money (which is what you would be giving her by funding her education). She needs to learn how to manage her money and to become a contributing member of society even with money. Many people I work with come into an inheritance or financial windfall and have no idea what to do with it because they didn't have much money growing up. Or some of them are good at managing small amounts of money, but over-estimate how far a million dollars actually goes and ends up over-spending. The ones that did well knew that their parents were wealthy but still chose to live frugal lives.

So when she is older/more mature, you may want to gently plant the idea that she will be coming into some money when she's older, and start discussions on how to manage large amounts of money. I'm speaking from personal experience here. My siblings and I are set to inherit a hefty sum. Our parents made us aware of this in our 20s (though not the exact amount), and lately (~5 years later) our dinner conversations have revolved around financial stewardship (we were recently told just how much we would likely inherit), and we've been discussing how we want to use that money to serve others/improve the world/pursue our dreams/etc. It's been helpful to have this time to wrap our minds around just how much money we will be working with. When your daughter is older, she may also appreciate this preparation time, rather than just being dumped with several million dollars and told to manage it. Personally, I have found it to be a daunting just thinking about managing the inheritance, but I've appreciated this graduated method of increasing responsibility for the family finances.

FrugalFan

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #21 on: August 23, 2016, 06:48:31 AM »
I'm sorry about the loss of your parents and your divorce. But I agree with the others here. Your daughter is now set for life. You do not need to save any money for her. You need to take care of your own future and enjoy your time together while she is young.

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #22 on: August 23, 2016, 07:38:15 AM »

Can I ask a question?

What happens if your other siblings have children? Would there be an obligation to share a portion of the grandchild's money with them? Or is the slate now wiped completely clean and all the money belongs to her?


The parents who died were my father and his very long term girlfriend. I am the only child of my father.  No one else will inherit the money under the trust. My daughter is the only qualified beneficiary.

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #23 on: August 23, 2016, 07:58:30 AM »
I'm sorry for your losses.  If possible, I would not tell your daughter about her future inheritance.  My daughter is an only grandchild and when my dad died my sister told my then 11 year old daughter she was going to be a rich girl. My daughter is smart and a good student, but being told she would be rich definitely affected her world view, and not in a good way.  Fortunately, the inheritance won't pass until my mother's death, who is amazingly strong at 93.  In the intervening years my daughter has learned a lot about money.  The best lessons came from my making her get a part time job at 16.  That has led to her valuing a dollar. I raised my daughter as a single mom and it has been a wonderful two decades.  Enjoy every minute of it.  She'll be in college before you know it!

My soon to be ex agree on very little, however we agree she will know nothing about her $$. 

To end the "I wants" I started giving her an allowance of $2 a week this summer.  Now if she wants to buy anything she needs to use her own money.  To get her allowance she needs to keep her room picked up, sort her laundry into baskets,  plus wipe down the baseboards--a job she loves!  Who knows?

The only way I would "raid" or spend any of the money she has inherited is if she had a medical need. 

caracarn

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #24 on: August 23, 2016, 08:02:25 AM »
I'm sorry for your losses.  If possible, I would not tell your daughter about her future inheritance.  My daughter is an only grandchild and when my dad died my sister told my then 11 year old daughter she was going to be a rich girl. My daughter is smart and a good student, but being told she would be rich definitely affected her world view, and not in a good way.  Fortunately, the inheritance won't pass until my mother's death, who is amazingly strong at 93.  In the intervening years my daughter has learned a lot about money.  The best lessons came from my making her get a part time job at 16.  That has led to her valuing a dollar. I raised my daughter as a single mom and it has been a wonderful two decades.  Enjoy every minute of it.  She'll be in college before you know it!

My soon to be ex agree on very little, however we agree she will know nothing about her $$. 

To end the "I wants" I started giving her an allowance of $2 a week this summer.  Now if she wants to buy anything she needs to use her own money.  To get her allowance she needs to keep her room picked up, sort her laundry into baskets,  plus wipe down the baseboards--a job she loves!  Who knows?

The only way I would "raid" or spend any of the money she has inherited is if she had a medical need.

Great little book to teach kids money management, First National Bank of Dad.  Used it with my kids for the last 15+ years and they have all grown up with a pretty good head on their shoulders for money.  Very simple concept but very effective with the "I wants" and learning.

Jrr85

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #25 on: August 23, 2016, 08:29:46 AM »
My soon to be ex agree on very little, however we agree she will know nothing about her $$. 

I would seriously reconsider this.  First, I doubt you can realistically keep her in the dark after she turns 18 (or 21 depending on the jurisdiction).  That $331k (which will likely be at or north of 1M by then) is going to be hers at that point, and the judge isn't going to let you just hide it from her.  Dropping what will likely be in the neighborhood of $1M on her at age 18 or 21 without doing a lot of training before hand is a recipe for disaster. 

I don't know how much of the details I would give her when, but I would definitely start teaching values in the context of money early. 

I will say that my spouse has significant experience with trusts and "trust fund babies" and she always says the person that did it the best gave his kids money early with no restrictions and his justification was that he'd much rather them have some (which was apparently still enough to set them for life while still a relatively small portion of the estate) while he was around to guide them so that when he was gone, they would know how to handle money.  He eventually passed with them still fairly young, and they have apparently had zero negative impacts from having so much money so young.  Very well liked, pretty frugal, keep themselves busy even if they don't do a typical 8-5 job.  I assume that if they hadn't done well early on, he would have possibly changed how the rest of the money was handled.  You don't have that option so will have to make sure she is mature enough to handle a $1M at age 18 (or 21).

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #26 on: August 23, 2016, 08:30:01 AM »
One thing I didn't see mentioned already is setting up a Custodial IRA for your daughter. Not sure if one of the people you are working with already have suggested it or not, but it could help offset some of the taxes and also put some money aside that your daughter will not be able to touch for a very long time.

I thought you needed "earned" income for a custodial IRA?  My daughter is 5.  All her income is investment income.  I am not interested in getting my daughter audited.  Please correct me if I am wrong.

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #27 on: August 23, 2016, 08:50:44 AM »
One thing I didn't see mentioned already is setting up a Custodial IRA for your daughter. Not sure if one of the people you are working with already have suggested it or not, but it could help offset some of the taxes and also put some money aside that your daughter will not be able to touch for a very long time.

I thought you needed "earned" income for a custodial IRA?  My daughter is 5.  All her income is investment income.  I am not interested in getting my daughter audited.  Please correct me if I am wrong.

Correct; your daughter needs earned income before she can contribute to a custodial IRA.  Probably not a good idea to have her working yet, but something worth considering as she becomes a teenager.  My parents opened a custodial IRA for me when I was 12 and had a paper route.  Taxes were a non-issue (I never came close to earning more than the standard deduction) but I learned the basics of compound interest and how every dollar I saved would generate money for the rest of my life.

Lunasol

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #28 on: August 23, 2016, 09:11:40 AM »
Anyone else read the Humans of New York story about a dad showing his kid the value of money in the form of 4 sections: save, spend, donate and invest?

This is something I would definitely want to do if/when I have kids. I thought frugalmom would find it helpful

Sorry about the divorce

http://money.cnn.com/2016/06/20/investing/humans-of-new-york-teach-kids-to-save/

mozar

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #29 on: August 23, 2016, 09:19:11 AM »
I think there are ways to tell a child that they will come into some money. If you tell her she is "rich" that does come with connotations of living like the Kardashians. But explaining, what money is, what different people do with their lives at different levels (top 5%, top 1% etc). I've known a lot of people who I would consider rich who are perfectly nice stable people, who seem to be the majority of rich people. I think the media blows affluenza out of proportion, like the media does with most things.

Axecleaver

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #30 on: August 23, 2016, 02:40:47 PM »
A fascinating situation.

FWIW, when I set up my will, I learned what would happen if my wife and I met with an untimely end before Little Axe turned 18. Our attorney would create a trust with our assets. The caregiver of the beneficiary of the trust (in your daughter's story, that's you) could petition the trust for certain living and educational expenses. The trust defines how that works, precisely, and the trustee decides if the request is compliant with the rules, and decides to fund it, or not.

Even if you don't want to make use of that today, it may be helpful for you to understand the rules should your family fall on hard times. It's tough being a single Mom, having a resource to smooth out your child's young life may be more useful to her than the money would be 50 years from now.

Make sure the trustees are not being too conservative with it at such a young age. Historical stock performance is 10% (8% after inflation) per year over 30 year periods. A 100% stock portfolio today will be worth $10.2m when she turns 30, or ~$6.2m in today's dollars.

boarder42

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #31 on: August 23, 2016, 02:58:41 PM »
even with a super conservative portfolio returning an after inflation total of 5% ... the 331k will be worth 624k at 18 in today dollars .  and the 500k will be worth ... 1.69MM in today dollars at 30.  your daughter will never have to work a day in her life should she choose not to. if you make that a more historically accurate 7% the money will be worth 910k and 2.7MM respectively ...

you should not be paying for her college at all your father has made her set for life.

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #32 on: August 23, 2016, 03:47:21 PM »
Thanks for all the replies.

I understand how the trust works and that I could petition for funds for her. I will never do so unless it is medically necessary.

Well it is true I'm a single Mom now; but for the divorce we would be FIRE, so I'm going to be in a pretty ok place. Not great, but ok. I want to pay for my daughters undergrad. I'm certain I can fund it if she goes to a moderate school. All bets are off if she's Harvard material.

With the divorce I will now need to work and will have less opportunity to travel but I should be ok. I have pretty low material "wants". Mostly I need a "regular" job for health insurance. My Obamacare is expensive and less than awesome. Plus now that my daughter is in school 6.5 hours each day, I might as well work.  I can't post stuff here 25 hours a week 😂

robartsd

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #33 on: August 23, 2016, 04:07:37 PM »
One thing I didn't see mentioned already is setting up a Custodial IRA for your daughter. Not sure if one of the people you are working with already have suggested it or not, but it could help offset some of the taxes and also put some money aside that your daughter will not be able to touch for a very long time.
IIRC, IRA contributions have to come from earned income. However, she should be able to contribute all of her gross pay up to IRA contribution limits as soon as she begins earning income (and withdrawing similar amounts from her inheritance for other uses (even the taxes on her earned income).

Frankies Girl

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #34 on: August 23, 2016, 04:19:13 PM »
Thanks for all the replies.

I understand how the trust works and that I could petition for funds for her. I will never do so unless it is medically necessary.

Well it is true I'm a single Mom now; but for the divorce we would be FIRE, so I'm going to be in a pretty ok place. Not great, but ok. I want to pay for my daughters undergrad. I'm certain I can fund it if she goes to a moderate school. All bets are off if she's Harvard material.

With the divorce I will now need to work and will have less opportunity to travel but I should be ok. I have pretty low material "wants". Mostly I need a "regular" job for health insurance. My Obamacare is expensive and less than awesome. Plus now that my daughter is in school 6.5 hours each day, I might as well work.  I can't post stuff here 25 hours a week 😂

Why? Why do you feel it necessary to fund your daughter's undergrad? She is literally richer than you, and will be able to afford a top school anywhere if she wants with her own money by the time she's old enough to go to college. It is very odd that you're insisting on funding a "moderate school" for her out of your own earnings. You should be working to ensure you are taking care of your daughter's basic health and happiness as she grows up, but your main focus for your own funds should be your own support/retirement, not your daughter's schooling, because she is set up for life unless she starts buying gold plated cars or something.

This is very confusing that you think it is even a smart move. She literally doesn't need a dime of your money for school. She is likely better off than you and will just continue to become richer as the years go by. Don't waste your money trying to prove some weird pride thing to yourself that you can support your daughter's educational requirements... it is a poor use of your time and money. Show your daughter how a grown adult supports themselves and save well for retirement and spend wisely.
« Last Edit: August 23, 2016, 04:40:49 PM by Frankies Girl »

Lunasol

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #35 on: August 23, 2016, 04:37:17 PM »
I know it's not up to us to decide your funding your girl's schooling but I agree with frankiesgirl ^

Your daugther most probably won't need your help, is it worth your time and money if you know she'll be set up for life?

You just want to give her more than what she already has, is that gonna be a good lesson? How about teaching her other values like hard work? she could get a part time job in high school and learn herself how hard it is to get money and how lucky she is for what she has.

Embrace the circumstances and don't push/punish yourself for what she has. It's a blessing.

K-ice

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #36 on: August 23, 2016, 04:41:41 PM »

Why? Why do you feel it necessary to fund your daughter's undergrad?

I have seen something similar with a divorcing friend. She is funding children's school (RESP, the Canadian 529) while still in debt and withdrawing retirement money (Her RRSP) and paying the tax penalty. Like you, these kids will probably have university covered by grandparents if needed.

I think it is from some kind of Divorce Guilt or mama bear instinct that I must put my kids first.

No one will judge you badly if you can't afford to pay for your DD undergrad.  Teaching her to be responsible with her money and making smart money decisions is the best thing you can do.



nereo

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #37 on: August 24, 2016, 07:32:20 AM »
... just piling on re: Paying for College.

Having your daughter pay for some or all of the cost with her substantial inheritance could be the best thing for her; if she understands that it is 'her' money it's more likely that she'll be motivated to finish faster, choose an appropriate major and take college more seriously.

FWIW, my parents easily could have payed for my college out-right, but we had an 80/20 agreement where they covered 80% of my base cost (tuition, fees and boarding) and I covered the remaining 20% plus my entire food and spending budget.  It amounted to ~$6k/year for me, but I certainly viewed every semester as something that was costing me money.  I worked to get a scholarship after the first year and did a transfer year (drastically reducing my costs while actually improving my academic experience). I also chose one university over another because it cost about 30% less but was comparable in just about every other way.

Just something to chew on over the next 14 years.  Requiring her to pay even a portion of her education can be a very good thing.

Dicey

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #38 on: August 24, 2016, 10:53:38 PM »
Frankies Girl is so smart! I beseech you to listen to her wisdom.

Seriously, frugalmom, you need to put on your own oxygen mask firs!. It's probably worth paying for a round of therapy sessions to figure out why paying for her college with your retirement money is so critically important to you. Sorry, but it is kind of convoluted thinking.

frugalmom

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #39 on: August 24, 2016, 11:46:09 PM »
There have been ALOT of assumptions made about MY finances.  I don't know why it is assumed I will be living in a cardboard box, waiting tables until I'm 90 on the midnight shift at Denny's, and eating government cheese if I pay for her college?

I love that I should seek therapy because I find it important to fund my daughter's undergraduate degree.

I would like her to have the inherited money so she can go to graduate school if wanted, buy property, essentially get herself set up for multi-generational wealth building.  At some point much LATER we can have some frank discussions about money.  At 5, this is not the time.

My personal finances are in flux, due to the divorce, but I plan to post a case study once it is finished.  I will go back to work, mostly for socialization but also for health insurance.  That said, you can all rest assured--I'm 39 and while I don't have multiples of my daughter's wealth, I do have a greater net worth.  My life has certainly had some curveballs lately and my life will certainly not be luxurious, but I will be ok.  I'm good at living small and getting better at doing home repair (bah!).

charis

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #40 on: August 25, 2016, 08:32:11 AM »
There have been ALOT of assumptions made about MY finances.  I don't know why it is assumed I will be living in a cardboard box, waiting tables until I'm 90 on the midnight shift at Denny's, and eating government cheese if I pay for her college?

I love that I should seek therapy because I find it important to fund my daughter's undergraduate degree.

I would like her to have the inherited money so she can go to graduate school if wanted, buy property, essentially get herself set up for multi-generational wealth building.  At some point much LATER we can have some frank discussions about money.  At 5, this is not the time.

My personal finances are in flux, due to the divorce, but I plan to post a case study once it is finished.  I will go back to work, mostly for socialization but also for health insurance.  That said, you can all rest assured--I'm 39 and while I don't have multiples of my daughter's wealth, I do have a greater net worth.  My life has certainly had some curveballs lately and my life will certainly not be luxurious, but I will be ok.  I'm good at living small and getting better at doing home repair (bah!).

No one is even suggesting that you are poor.  People are asking WHY you feel the need to pay for something that is already MORE than paid for by the time she reaches college age.  She is already set up for college, grad school, future property buying, and multi-generational wealth, assuming that she works after getting those degrees.   Thus, this strikes people, quite understandably, as financially irrational.  If this is coming from an emotional place, fine, not every decision needs to be optimized financially (I guess).
« Last Edit: August 25, 2016, 08:44:57 AM by jezebel »

boarder42

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #41 on: August 25, 2016, 08:39:48 AM »
your daughter never has to work a day in her life with how she is setup and her children should never have to work.  and on and on the generational wealth is there if properly managed.  why even go to college. why take a typical path when she can do whatever she wants.

Axecleaver

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #42 on: August 25, 2016, 10:00:31 AM »
Quote
There have been ALOT of assumptions made about MY finances.  I don't know why it is assumed I will be living in a cardboard box, waiting tables until I'm 90 on the midnight shift at Denny's, and eating government cheese if I pay for her college?
Here's what you said in your most recent update.

Quote
My husband and I are divorcing; and he lost his fabulous corporate career.  Daughter started school last week and I am now going out to look for work.  Her Dad has been unemployed nearly a year and to date has not found anything "to his standards".
I think that is why people are having trouble interpreting your situation. You weren't specific about your current financial situation, and you said you needed to go back to work, so we all assumed you're going back to work because money is tight. Now we know you're doing just fine on your own. It sounds like you've made your mind up about how to deal with the inheritance, and were simply looking for investment advice to curate the investments for your daughter. Problem solved!

Your situation prompted me to discuss the estate plan with my wife. We've decided that once Grandkids are in the picture, we're very likely to structure our estate in the same way. We started with nothing; we got lucky and have done well. We want to set up our progeny for generational wealth. And what better way to do that, than to leave half to the second generation after us, with 50-100 years for compounding interest to have its way? We like that idea. Thanks!

pbkmaine

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #43 on: August 25, 2016, 10:23:12 AM »
Generational wealth can be a curse as well as a blessing. I grew up with wealthy kids (private school) and was a financial planner for wealthy individuals and families. Too much money can sap the initiative right out of people, because it's easier to fall back on inherited wealth than it is to make your own mark in life. I think Bill Gates and Warren Buffett, who are only leaving small amounts to the kids and grandkids, may have chosen the wiser path.

Captain FIRE

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #44 on: August 25, 2016, 10:25:23 AM »
There have been ALOT of assumptions made about MY finances.  I don't know why it is assumed I will be living in a cardboard box, waiting tables until I'm 90 on the midnight shift at Denny's, and eating government cheese if I pay for her college?

I love that I should seek therapy because I find it important to fund my daughter's undergraduate degree.

I would like her to have the inherited money so she can go to graduate school if wanted, buy property, essentially get herself set up for multi-generational wealth building.  At some point much LATER we can have some frank discussions about money.  At 5, this is not the time.

My personal finances are in flux, due to the divorce, but I plan to post a case study once it is finished.  I will go back to work, mostly for socialization but also for health insurance.  That said, you can all rest assured--I'm 39 and while I don't have multiples of my daughter's wealth, I do have a greater net worth.  My life has certainly had some curveballs lately and my life will certainly not be luxurious, but I will be ok.  I'm good at living small and getting better at doing home repair (bah!).

No one is even suggesting that you are poor.  People are asking WHY you feel the need to pay for something that is already MORE than paid for by the time she reaches college age.  She is already set up for college, grad school, future property buying, and multi-generational wealth, assuming that she works after getting those degrees.   Thus, this strikes people, quite understandably, as financially irrational.  If this is coming from an emotional place, fine, not every decision needs to be optimized financially (I guess).

If the weight of one more person adding (unwelcome?) $0.02 cents is helpful, I'll toss it in the ring.

I agree 5 is too young to have these conversations, but that doesn't mean you can't plan ahead now.  By age 18, earning 7% interest, she'll have about $2 million!  At that point, her trusts will be throwing off $140k a year, which will easily fund college without reducing the principle any (while growing it further).  It'll either pay for a home outright or pay the mortgage.  Likewise, she could pay for grad school when that point comes - but will she, if she has sufficient money to never work a day in her life after she turns 18?  $140k annual income is more than what 97% of the people in the US currently earn.  Inflation is currently negligible, but assume it's 2% and she'd still have $1.5 million at age 18.

I suspect people are questioning this decision because it's because you've discussed being "ok" but not great after the divorce and now needing to work with less opportunity to travel.  Meanwhile, your daughter is set for LIFE and as long as she's responsible with it, she can pass it down for intergenerational wealth.  If you were fully FI for your planned retirement AND had excess cash left over for college, it'd likely be less of a question.  But your daughter has her life jacket on (along with a fancy rescue boat on the horizon) and you don't yet have your life jacket fully on.

Finally - consider having her assets pay the costs of managing them.  For one reason, if you're teaching wealth management, this is part of it.  You can still cover her other needs - food, shelter, clothing, health care, entertainment - if you want out of your pocket.  That'd be how I'd do it.

Jack

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #45 on: August 25, 2016, 12:14:50 PM »
There have been ALOT of assumptions made about MY finances.  I don't know why it is assumed I will be living in a cardboard box, waiting tables until I'm 90 on the midnight shift at Denny's, and eating government cheese if I pay for her college?

I love that I should seek therapy because I find it important to fund my daughter's undergraduate degree.

Even if you're actually Bill Gates in drag, your daughter should pay for her college herself just because she can.

tweezers

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Re: My daughter's finances(she's a minor)--investment ideas for inheritance
« Reply #46 on: August 25, 2016, 01:14:26 PM »
....she is going to be growing up with a single mom who likely will have a low wage career to allow as much time with my daughter as possible.  I doubt there is any risk of affluenza. 

Of course, going back to work is going to be a big and interesting change.

This statement is why you're getting questioned on why you want to fund your daughter's education.  I don't think anyone assumes that you're going to be living in a box, but you indicated here that you'll be in a low wage job as a single mother, and in a later post that your soon-to-be ex-husband has been unemployed for >1 year.  My kids don't have a huge inheritance and I'm still focusing on my retirement over funding college.  Your financial choices are yours to make, but everyone suggesting that your daughter can pay for her own college is doing so out of concern for your best financial interest.