Author Topic: Investing an Inheritance for Steady Income Support  (Read 1441 times)

art642

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Investing an Inheritance for Steady Income Support
« on: March 10, 2017, 12:07:34 PM »
Greetings, all,

My brother's mother-in-law just died, and they are sorting out lots of details right now related to the will, estate, etc. One main thing they are trying to figure out that we'd love your advice on:

The mother-in-law has been financially supporting her youngest daughter (Kay, early 20's) recently to the tune of about $500–1,000 a month. Kay is not great with money, and needs ongoing support. Rather than taking her inheritance money as a lump sum, which she may be tempted to spend unwisely, Kay is interested in investing it, so that she can have a monthly income from it to help support her. My brother has been looking into options for her and discovered the Vanguard Managed Payout Fund (https://investor.vanguard.com/mutual-funds/managed-payout/#/). He thinks it’s a good candidate for what to do with her inheritance money. This fund provides regular monthly payouts, calculated for a 4% annual distribution rate.

They will have between $200–300,000 to invest for her, which should equate to ≈$600–925/mo. for her in terms of income.

What do you think? Is this a good option? Can you think of others that they ought to consider? The more automated it is, the better, I suspect.

Thanks for your help and wisdom!
Art

CheapskateWife

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Re: Investing an Inheritance for Steady Income Support
« Reply #1 on: March 10, 2017, 12:33:15 PM »
I don't have any suggestions, just took a look at the fund and the management fee is on the high end for Vanguard.  Could the same thing be accomplished with VTSAX in a brokerage account and a regular sale programmed? 

If she is nervous about having enough discipline to leave it alone, could it be held in a joint account so she would need another family member's permission to withdraw more than her allotted 4%? Or does that become contentious?

art642

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Re: Investing an Inheritance for Steady Income Support
« Reply #2 on: March 10, 2017, 02:35:21 PM »
I don't have any suggestions, just took a look at the fund and the management fee is on the high end for Vanguard.  Could the same thing be accomplished with VTSAX in a brokerage account and a regular sale programmed? 

If she is nervous about having enough discipline to leave it alone, could it be held in a joint account so she would need another family member's permission to withdraw more than her allotted 4%? Or does that become contentious?

Good thoughts. Thanks! Yes, I think both she and my brother are nervous that she might not have the discipline to leave it alone. And yes, I think they are worried that it might be contentious if, say, my brother has to manage it for her and write her a check every month. But I will FWD him these thoughts. Thank you!

ChpBstrd

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Re: Investing an Inheritance for Steady Income Support
« Reply #3 on: March 10, 2017, 03:09:43 PM »
This may be a question of brokerage mechanics rather than investment choices. For example, if a brokerage was willing to direct deposit / ACH dividends to the beneficiary's checking account, it would be out of sight, out of mind.

There are many investment products that will do something like this for a fee - annuities being the worst, and a Vanguard income fund perhaps being among the best. There's always a cost involved to pay these "helpers" to smooth out or automate an income stream. Or protect the principle from a spendthrift owner with restrictions on trades or withdraws!

The bigger question, which is probably outside the scope of your control or concern, is why a person in their 20's needs support from a trust fund? It doesn't sound like there is any disability involved. Wouldn't this be the right stage of life to accumulate and compound (e.g. dividend reinvestment in IRA's) rather than to spend proceeds?

Maybe if Kay understood that she was potentially a 8-12 years from being a FIRE millionaire, she would become better with money like many of the people here have done.

SwordGuy

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Re: Investing an Inheritance for Steady Income Support
« Reply #4 on: March 10, 2017, 05:57:13 PM »
The data in The Millionaire Next Door clearly shows that young people who are over-helped will do less well than those who are not.   

Handing someone who is bad with money an extra $12,000 a year is just an invitation to be bad handling $12,000+ more dollars.  Don't re-inforce weakness.

I suggest putting it someplace she can't get to it at all for at least 10 years, and letting her go cold-turkey to get her act together.


Spork

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Re: Investing an Inheritance for Steady Income Support
« Reply #5 on: March 10, 2017, 06:52:06 PM »
The data in The Millionaire Next Door clearly shows that young people who are over-helped will do less well than those who are not.   

Handing someone who is bad with money an extra $12,000 a year is just an invitation to be bad handling $12,000+ more dollars.  Don't re-inforce weakness.

I suggest putting it someplace she can't get to it at all for at least 10 years, and letting her go cold-turkey to get her act together.

Having multiple familial life experiences to support this: I totally agree.

I am, however, not sure how legal this is.  If the money was left to her with no strings attached, I am not sure what the legality is of waltzing in and attaching strings.  She's legally an adult.  It may be appropriate (but unfortunate) to give her the money and have her make her own decisions.  Advice is not illegal... so reasonable advice is encouraged!

I'd be happy to hear I am wrong here.

Financial.Velociraptor

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Re: Investing an Inheritance for Steady Income Support
« Reply #6 on: March 10, 2017, 07:12:48 PM »
You should also look into Single Premium Income Annuities (SPIA).  These are contracts with an insurance company to pay a specified benefit over time for a single upfront payment.

art642

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Re: Investing an Inheritance for Steady Income Support
« Reply #7 on: March 11, 2017, 02:11:00 AM »
The data in The Millionaire Next Door clearly shows that young people who are over-helped will do less well than those who are not.   

Handing someone who is bad with money an extra $12,000 a year is just an invitation to be bad handling $12,000+ more dollars.  Don't re-inforce weakness.

I suggest putting it someplace she can't get to it at all for at least 10 years, and letting her go cold-turkey to get her act together.

I appreciate this advice, but it will be her money, legally, once everything shakes out. Sounds like she's asked my brother to help her get set up well, so that she can make wise decisions with it moving forward. I think it was a mature request for help on her part. There are some other factors at play, as well (she's going through a divorce, has only recently graduated from college, has some medical issues, is an "artsy" type in her early career with not a lot of income, etc.).

art642

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Re: Investing an Inheritance for Steady Income Support
« Reply #8 on: March 11, 2017, 02:12:02 AM »
You should also look into Single Premium Income Annuities (SPIA).  These are contracts with an insurance company to pay a specified benefit over time for a single upfront payment.

Thanks for this tip! It sounds like it might cost more than some of the other options, but will definitely look into it!