Author Topic: My son received $110k settlement from his fathers death.  (Read 2306 times)

bicnat

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My son received $110k settlement from his fathers death.
« on: November 16, 2021, 06:37:55 PM »
Actually he received $220,000 but after lawyer and court fees, buying some desperately needed things ( like a computer), and putting 40k away an annuity to pay out when heís 25 we have 110k left. Iíve  never handled this much cash before and Iím trying to do right by my son. The only thing Iíve been doing with it was putting $400 a month into a 529. Would love some advice on what I should possibly be looking for with investing this for him. Part of this is also suppose to be going to daily living expenses. Thanks every body. 

FYI heís 9 years old if that helps.

calimom

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Re: My son received $110k settlement from his fathers death.
« Reply #1 on: November 16, 2021, 07:01:47 PM »
Sorry to hear about your family's loss. Are you in the US? Do you receive Social Security Survivors' benefits for him? If so, those can be used for daily living expenses, my husband was killed in an accident when my kids were young.

Tell us more - are there any stipulations on the money? It seems that you can use it for higher education. And putting the bulk of it in a trust that he can't touch until 25 or so seems like a good idea.

bicnat

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Re: My son received $110k settlement from his fathers death.
« Reply #2 on: November 16, 2021, 07:48:45 PM »
Yes we do get social security which is around $700. And we do use that for his day to day. And thereís not really any stipulations on the money, just as long as itís used exclusively for his benefit we can spend it how we see fit.

Smokystache

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Re: My son received $110k settlement from his fathers death.
« Reply #3 on: November 17, 2021, 11:07:53 AM »
I'm sorry you're both dealing with this loss.

I know others will come along with more specifics, but I'd have a portion of it set aside that you can access reasonably easily and then over the next few years, try to find a way where he can get some "earned income". Then you/he can take some of the saved money (up to $6000/year or the amount he earned that year, whichever is lower) and contribute to his own Roth IRA. That can be an amazing way to get a great start on his retirement funding before he even turns 18.

Let say he works for another family member in their business (or a summer job or 2) and they pay him $2,000 for the year. He can take either his earnings or money from the settlement (doesn't matter where it comes from), and contribute to the Roth. Let's say by age 17, he has a total earned income of $15,000 over the years. Put that in a ROTH IRA calculator https://www.dinkytown.net/java/roth-ira-calculator.html and assume it averages 8% and at age 70 it will have grown to almost $900,000 (with usual disclaimers that it won't have the same purchasing power in 50+ years, etc.)

MrThatsDifferent

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Re: My son received $110k settlement from his fathers death.
« Reply #4 on: November 17, 2021, 01:24:48 PM »
How horrible for you both to experience that loss. Sending massive hugs to you both.

I would probably split that money between a 529 and some type of investment vehicle. Knowing me, Iíd probably keep $10-15k in CDís or something that I could gift him when he turns either 18 or 21 so he could do anything he wants with, like travel the world or a deposit on a home. Iíd never tell him about the gift but Iíd have a card and say, your Dad would want you to do something extraordinary. Otherwise Iíd lock all the other money away so it couldnít be spent easily and it can grow well and purposefully.

peabody58

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Re: My son received $110k settlement from his fathers death.
« Reply #5 on: November 17, 2021, 05:11:30 PM »
Open a Vanguard Account in a safe fund.  They can help recommend what fund(s) to put it in.

Archipelago

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Re: My son received $110k settlement from his fathers death.
« Reply #6 on: November 17, 2021, 06:01:37 PM »
I can't afford much advice but I just want to say I'm sorry for your loss.

Chris Pascale

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Re: My son received $110k settlement from his fathers death.
« Reply #7 on: November 17, 2021, 07:44:47 PM »
Excellent purchase with the computer.

I think there are some really great lessons to set up here - the kind that money can buy.

First, how about music lessons? He will benefit long-term even if he only does it for a year. If he's in school band/orchestra, he'll leap far ahead of his classmates. My 12-year-old recent said, "it's nice to flex in orchestra."

Consider using $3,000 for a family vacation. Frankly, you have all been through a lot. It doesn't have to be fancy - I'm talking about a hotel with a pool and free breakfast (if you can get a suite where he can have his own TV, it'll really make it cool). Add in something you've never done before, like skiing (purchase an hour lesson so he can kill it on the bunny slope) and it'll make for some incredible memories.

When he gets his license, it would be highly appropriate for there to be $5,000 waiting to assist him in the purchase of a car that he adds $2,000 toward.

To convert a portion into long-term savings, when he starts working at age 14, send however much he makes to a Roth IRA, converting these very-available funds into something that will be waiting for him when he's 60.

After college, perhaps he'll have funds left over to get himself an apartment if an opportunity in another city presents itself.

lutorm

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Re: My son received $110k settlement from his fathers death.
« Reply #8 on: November 17, 2021, 08:08:52 PM »
That sounds like a sad situation, but as far as the money goes it's no different from any other savings.

If you're wanting to save for college, I'm not sure there's any reason to not immediately dump the total amount you think you will need into an index fund in the 529. If I understand correctly, an amount above $15k will count towards your lifetime maximum of tax free giving limit of $11 million, but if you don't plan on giving away more than that in your lifetime that wouldn't be a factor.

Whatever you don't need for college, open a taxable brokerage account and put it into an index fund there. Then forget about the money. When he starts working he'll be at an excellent starting point for his own FIRE journey.

This presumes you don't need the money for expenses, of course.

Chrissy

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Re: My son received $110k settlement from his fathers death.
« Reply #9 on: November 22, 2021, 09:27:47 AM »
How much do you think you'll need to draw every year from the $110k to cover his expenses?  You have a maximum of $12.2k/yr or $1k/mo to get him to age 18.  If you're trying to get him to age 25, you have a maximum of $6.9k/yr or $573/mo.

It's hard to answer your question without knowing how much he needs from this money, and for how long.

Sandi_k

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Re: My son received $110k settlement from his fathers death.
« Reply #10 on: November 22, 2021, 09:34:41 AM »
That sounds like a sad situation, but as far as the money goes it's no different from any other savings.

If you're wanting to save for college, I'm not sure there's any reason to not immediately dump the total amount you think you will need into an index fund in the 529. If I understand correctly, an amount above $15k will count towards your lifetime maximum of tax free giving limit of $11 million, but if you don't plan on giving away more than that in your lifetime that wouldn't be a factor.


I think this is wrong in two ways.

First, her SON received the settlement. So it's not HER money, so the gift tax rules do not apply.

Secondly, she can "superfund" the 529, with 5 years of $15k per year contributions. This is what I would do in 2022 - the new tax year. Then the Social Security income, and the remaining $35k ($110k minus $75k for the superfunded 529) can be spent as needed.

https://www.savingforcollege.com/article/10-rules-for-superfunding-a-529-plan

lhamo

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Re: My son received $110k settlement from his fathers death.
« Reply #11 on: November 23, 2021, 05:54:45 PM »
I'm sorry your family has had to deal with this.

I hope this isn't too rude or intrusive, but can you explain a bit more about why you set up the annuity for him?  Was that something required by the settlement?  Because it seems a bit odd to me and I'm wondering if maybe someone had a vested interest in getting you to direct some of the money in that way.  Annuities have their place but they often have high fees and management charges and are hard to get out of.

My father died of natural causes (heart attack) when I was 15 and my mom put the amount of social security benefits she didn't need into an account for me to use toward college.  This was back in the '80s before 529s were a thing. Anyway, it was an incredible blessing and one of the things (besides scholarships and always working 20-30 hours a week) that enabled me to get  my education debt free.   

alittlelife

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Re: My son received $110k settlement from his fathers death.
« Reply #12 on: December 08, 2021, 07:10:53 PM »
I am so sorry for your loss.

I wanted to suggest using I Bonds for money you want to keep easily available. They are currently paying 7% interest. The rate resets every 6 months. You can learn more about them here. You are limited to contributing $10k/yr. I would suggest creating a TreasuryDirect account for your son and buying $10k now and another $10k in January. After one year has passed, this money will be easily available. Anything you expect to need in the next year would need to be held separately.

I think there have been some great suggestions already shared here. Funding a Roth IRA for your son once he has earned income is an excellent idea. And of course using some of this money to fund things that might not otherwise be in the budget, like helping him buy a car, paying for music classes or if he has a different interest, whatever other classes/gear/materials allow him to pursue that. Perhaps taking a vacation right now is what you need. If it feeds your soul, do it. Investing in your well-being and in family bonding at this difficult time could be the best thing you do.

All within reason of course. The bulk of the money Iím assuming you want to invest for his future, which is why you came to this forum. It seems like there are two questions here, how to use this money on your son now while heís young, to support his growth and development, and how to invest the money for his future. The first question really only you can answer. Youíre the expert on your son. But Iím happy to weigh in on the second question.

Since your son is 9, money being put aside for his future will be invested for about 10 years (or more) which to me says you should be investing in the stock market (even more so since you already bought an annuity). I would split that money between a US total stock market fund (like VTSAX) and an international stock market fund (like VTIAX). From my reading, anywhere between 20-40% international seems like the way to go.

Iíd probably put a chunk of this money into his 529 Ė depending on your circumstances. By that I mean, how much are the tax benefits of a 529 worth for you? if you have a 0% capital gains rate, then not nearly as much as for someone with a 23.8% rate, plus 10% state and local taxes on top. Balance that against the risk of paying penalties if you son doesn't have enough qualified education expenses. Remember that the Kiddie Tax will apply if your son has unearned income (such as from a taxable brokerage account) of more than $2300. Above that amount, your marginal tax rate will be used.

According to this, as long as your son's unearned income plus half of his social security benefit is under $25,000 his social security survivor's benefit isn't taxed.

If you put $50k into a taxable account at Vanguard, $35k in VTSAX and $15k in VTIAX, going by recent yields it would throw off dividends of ~$800/yr, which keeps you safely within the $1150 exemption for dependents for 2021, and no tax would be owed at all. This scenario even leaves a little room for capital gains harvesting if you wanted to get into that.

Best of luck with however you decide to handle it. I donít know you, but just by coming here with these questions, I know youíre an amazing parent trying to do whatís best for your son under difficult circumstances.
« Last Edit: December 08, 2021, 07:33:18 PM by alittlelife »

Dicey

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Re: My son received $110k settlement from his fathers death.
« Reply #13 on: January 08, 2022, 02:23:00 PM »
Paging @bicnat. Have you reached any decisions?