Author Topic: Suddenly my MIL's Investor? Advice needed!  (Read 2040 times)

mrsm180

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Suddenly my MIL's Investor? Advice needed!
« on: July 28, 2019, 09:09:49 PM »
My mother in law is inheriting somewhere between $400,000 and $1,000,000 in about six months. Her goal is to have a steady guaranteed income for life. She is mentally disabled and has asked me to handle her investment accounts. I'm flattered, but out of my depth; while I am on the lean FIRE path, I'm extremely early into my journey with a net worth of $30k.
What I'm considering investment-wise is splitting her money 40% US mutual funds, 40% international, and 20% treasury bonds. Then we would use the 4% safe withdrawal rate once a year into a savings account, which would be transferred to her checking account in weekly installments.

I'm interested in feedback on this strategy, but I'm losing sleep over legal aspects. One option we've discussed is keeping all the accounts in her name and having a signed agreement that I am allowed to manage her accounts, but I wonder if setting up a discretionary trust is worth the hassle? I'm also not sure how to minimize her taxes, both on the initial inheritance and the yearly gains; I use my Roth IRA religiously but that experience is unhelpful in this huge lump sum situation.
I'm sure there are a hundred things I don't even realize I haven't considered yet and want to be prepared; I still have time to do plenty of research. MIL is not interested in hiring a professional to handle her money (that was my first suggestion). Thanks in advance for any help/suggestions!

(Edit to clarify: MIL is 50, we're late 20s.)
« Last Edit: July 28, 2019, 09:27:06 PM by mrsm180 »

reeshau

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #1 on: July 29, 2019, 02:55:52 AM »
I empathize that it's one thing to plan *your* future, and quite another to plan someone else's.  These are the kind of questions that I think it's worth asking a professional fee-only CFP for help making a plan:  it will confirm your plan, answer your questions, and provide legal cover.  They can also advise further who else you need to help.

You say she is mentally disabled.  Does she already have a guardian and/or a conservator?  My stepdad had a TBI, and my Mom plays this roles, without a large cash disbursement to trigger them.  Ask your current professional support people if they know a fee-only CFP who works with disability care.  My apologies if this windfall has come from the demise of the guardian, but then you have these roles to fill, also.

Having said this, I think you really do need to step back before diving into asset allocations.  I assume your MIL will be needing an income immediately?  How much will she need annually?  If she is starting at 50, then you may be planning for a 40 year lifespan, rather than the 30 years that the 4% rule is based on.  And you are probably facing more-than-typical medical care costs; this alone is a specialist question, and won't likely be answered adequately on an internet forum.  Even more complex would be if she is getting government assistance to help her currently; her new wealth may disqualify her from some programs--it may actually be optimal (to stretch that word) to spend it down quickly and have that safety net back.

Good luck with your situation; money of this type should be a major blessing.  But given your MIL's situation, there can also be a lot of pitfalls.

2Cent

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #2 on: July 29, 2019, 03:00:38 AM »
Maybe not to handle the money, but at least get some help to set things up. It's a lot of money and you will easily earn back the fee in tax savings and other things. Being cheap here is penny wise.

davisgang90

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #3 on: July 29, 2019, 05:02:02 AM »
Probably worth consulting with a special needs attorney as well.  If she gets any benefits from her disability, like SSI, she can lose those benefits if the money isn't handled properly.  She may need (or may already have) a special needs trust.

Once again, as others have said, spend a little money upfront to ensure you have a solid plan from a tax/benefit/income stream point of view to set her right.

mrsm180

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #4 on: July 31, 2019, 03:20:14 PM »
Appreciate your replies! :) Meeting a fee based CFP is definitely something we should do as a family to catch any mistakes; my intent was to have a plan in place first so they have something to critique as I've heard that will save me a lot of money, but maybe I'm overthinking that and should involve him/her sooner. It's also encouraging to see 3/3 suggestions for professional help, we mustachians are very DIY so if y'all say I need a pro, I definitely do and don't need to feel dumb for seeking a CFP!

Reeshau and Davis, you're both right for pointing out medical concerns. I should fill in some additional details about her situation; her mental disability is military service related. She's 40% disabled per the VA which entitles her to about $850/month and free VA healthcare for life. She is purchasing a small condo within walking distance of the VA clinic to cover her living situation, the $400k-$1m range is after the cost of securing a roof. Currently she only draws on her VA disability income and healthcare which is not income based, no government assistance of any sort otherwise. If she does in the future need government assistance a "discretionary trust" is likely our best bet, as payments from that do not legally count as "income," so perhaps it's worth the headache to set one up.

NorCal

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #5 on: July 31, 2019, 03:31:03 PM »
I agree with the advice to see a professional in this situation.  Be sure the tax aspects of inheritance are covered as well as trusts, power of attorney, etc.

There's absolutely nothing wrong with your asset allocation ideas.  Very mustachian.

Given the mental health issues, I'd also encourage you to think outside conventional mustachian wisdom.  If I was managing money for my parents, I would consider a simple annuity.  While it won't provide the expected return of stock market investments, it will protect against longevity risk and market risk.  There's also lower risk of elder abuse (it's harder to convince someone to cash out an annuity than a stock market investment), and it's easier to budget from (in this demographic).

I'm not saying an annuity is the right answer, but I would at least take a look.

Loren Ver

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #6 on: July 31, 2019, 03:33:18 PM »
I have no advice to add, I just wanted to say I am so glad your MIL has someone trustworthy to help her in this.  Looking through threads of how people have to hide their plans or money from family because the family will bleed them dry, makes me extra glad to see a shining ray of hope. 




seemsright

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #7 on: July 31, 2019, 05:12:03 PM »
I think you are going to need a few different professionals to help you get this all in order. Yes it will be a huge pain in the ass in the mean time...but with the right tools in place you wont have much work to do. I just went through POA with my FIL and because it was 'just' financial it was not hard to get in our state. But...it is becoming a issue from the federal level (we are trying to get him SS). Medical POA is a different story. He did not want to pay for a Lawyer. He still may get to pay for one.

I am not sure what types of professionals you will need in the long run. But a Lawyer that can help with Elder law might just be the place to start.

What ever you do...do not cheap out on this one. Trying to deal with a cheap FIL is making our life very complicated.

 

reeshau

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #8 on: August 01, 2019, 03:21:41 AM »
Appreciate your replies! :) Meeting a fee based CFP is definitely something we should do as a family to catch any mistakes; my intent was to have a plan in place first so they have something to critique as I've heard that will save me a lot of money, but maybe I'm overthinking that and should involve him/her sooner.

Actual investments shouldn't take long at all.  In fact, keep your portfolio to yourself, and see what they recommend without any leading from you.  If they start with variable annuities or load mutual funds, you know it's the wrong person!  I went to a CFP shortly before the birth of my son, and he had a whole package ready to convince me to index.  Bingo!

The real work of a CFP is to distill your goals in such a way that they are concise, make sense to you, and are actionable.  (i.e. not merely wishes, or contradictory)  If that is done right, whatever the action plan is should become obvious and straightforward.  Considering elder care will make this somewhat more complicated, which is why to look for someone with experience in this, and possibly more specialized help.

Catbert

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #9 on: August 01, 2019, 01:53:23 PM »
On the Federal level receiving an "inheritance" won't cause any tax to the recipient UNLESS the "inheritance" is in the form of a traditional IRA/401k/TSP or equivalent.  For normal cash/mutual funds/bonds/etc. it's a clean slate.  As money is taken out and dividends earned taxes will be owed. 

If part of the money is in IRA/401k/TSP or other retirement accounts there are a lot of rules about takes it out and paying taxes.

It's possible some states tax inheritances IDK.

frugaliknowit

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Re: Suddenly my MIL's Investor? Advice needed!
« Reply #10 on: August 01, 2019, 02:05:54 PM »
I would advise against being her investment advisor.  Paul Merrimen (Paulmerrimen.com), whom I trust is an advocate of using DFA (Dimensional Fund Advisors).  You should both interview a few of them.

80% in stocks is too stock heavy, especially for the withdrawal phase.