Friend's inheritance...

[ScrimpAndSave]

My friend is overcome with grief because her father recently passed away. His life insurance policy is over a million and it is all hers. She keeps asking me for advice - but this is way over my head. I told her that she needs a financial advisor for this biggie...I know on the Dave Ramsey website, he has listed trusted advisors...should I tell her to look there? I can't offer any financial advice (and she is not going to go crazy and spend it all...she wants to make sure it is secure)...where can I tell her to go for help?

Thank you all.

[red92s]

The trusted advisors stuff on DR's website is a good start.

I like the idea of parking inheritance money for 6 months in a CD or money market account. Immediately following the death of a family member is no time to worry about the financials if you didn't "need" the money before.

[disneysteve]

Originally Posted by red92s

The trusted advisors stuff on DR's website is a good start.

I like the idea of parking inheritance money for 6 months in a CD or money market account. Immediately following the death of a family member is no time to worry about the financials if you didn't "need" the money before.

This is good advice. Just be sure to also advise her to be mindful of the FDIC insurance limits on CDs. If she is getting $1 million, she will need to spread that out among 10 or more banks to keep the money fully insured. I know the FDIC limit was raised to 250K but don't recall the date when it reverts back to 100K. Not worth taking any chances with money like that.

Of course, an alternative is to refer her here. If she posts her overall financial picture, I think she could get perfectly good free advice on how to invest this money.

[MonkeyMama]

I agree - put it in cash in the interim. Don't do anything for at least 6 months. (Though search out a trusted advisor, of course).

She would only need 5 banks in the interim (10 would be overwhelming). The new FDIC limit does not expire until 2014. Buys her plenty of time.

[arthurb999]

How much does she have in debt?

I'd payoff any debts and park the rest for a bit. Long term, if 500K or more, I'd try to find some fixed income type securities and live off the interest

[disneysteve]

Originally Posted by arthurb999

Long term, if 500K or more, I'd try to find some fixed income type securities and live off the interest

This really depends on her age and situation. If she is older, that might be true. If she's younger, not so much as she'll need at least some growth from that money. Also depends on her income. $1 million is a lot more significant if she earns 30K than if she earns 100K.

[ScrimpAndSave]

She's very young...26...and has very little debt other than her home (around $125k). She earns around 50k.

[shultice24]

If she does end up seeking professional finance advice, by all means make sure it is someone you can SERIOUSLY trust.

The situation (20-something, grieving, sudden 7-figure inheritance) would be a heyday for financial advisors with questionable motives. The ruthless among them pray on people like that.

[disneysteve]

Originally Posted by ScrimpAndSave

She's very young...26...and has very little debt other than her home (around $125k). She earns around 50k.

This money is enough for her to be set for life if properly managed. A 5% return on $1 million would replace 100% of her current income. Invest it and let it grow for a couple of decades and she could easily retire young and live off of the income that money will generate.

[tripods68]

I'm not advising her, but here's what I would do with that kind of money without consulting FA.

1) I'll pay off mortgage first thing.

2) Open "estate trust account" under my name.

3) One third of the money will be invested in GNMA, or conservative high dividends income stream funds.

4) One-third will go to a CD laddering under FDIC insured limits.

5) One-third buy State MUNI's general obligation bonds ONLY.


The key is to be diversified in all aspect.

[shultice24]

Originally Posted by tripods68

I'm not advising her, but here's what I would do with that kind of money without consulting FA.

1) I'll pay off mortgage first thing.

2) Open "estate trust account" under my name.

3) One third of the money will be invested in GNMA, or conservative high dividends income stream funds.

4) One-third will go to a CD laddering under FDIC insured limits.

5) One-third buy State MUNI's general obligation bonds ONLY.


The key is to be diversified in all aspect.

No equities??? That's a bit too conservative for a 26-year old, imo.

[Broken Arrow]

I'm sorry to hear about your friend's loss. I hope that she can recover quickly.

Just FYI, the FDIC limit is currently $250,000 for interest-bearing accounts. So, your friend will only need 4 separate accounts to have her money federally protected.

Here's what's really interesting. Non-interesting-bearing accounts (accounts paying less than 0.5% APY) have unlimited balance protection until the end of this year.

Anyways, I agree that when you are emotionally distraught, it may not be the best time to be making all the financial decisions. Therefore, a fee-only CFP would be highly recommend at this point.

Last but certainly not the least, I heard a friend of a friend also lost her parents in an accident and suddenly became a multi-millionaire through insurance windfalls. Now, the problem is, this woman has a boyfriend whom I'm fairly certain she is using as an emotional crutch, but he's using her to get to her money. The boyfriend believes he's hit the "jackpot", has quit his job, and is planning to open some kind of DJing business using her money.

I've been told that they are getting married soon.

DON'T let that happen to your friend! Don't let her become the target of a lazy, gold-digging jerk. And if so, tell your friend to get a pre-nup signed first.

[tripods68]

Originally Posted by shultice24

No equities??? That's a bit too conservative for a 26-year old, imo.

That's right. It's only temporarily until i can figure it out what I really wants to do with my goals. But I want my money to be invested ultra conservative as i can today.

I figured if i'm still working at 26 years old making $50K a year. I'd still be making my regular retirement contributions (401Ks or ROTH) which will be heavily invested in stocks.

[shultice24]

Originally Posted by tripods68

That's right. It's only temporarily until i can figure it out what I really wants to do with my goals. But I want my money to be invested ultra conservative as i can today.

I figured if i'm still working at 26 years old making $50K a year. I'd still be making my regular retirement contributions (401Ks or ROTH) which will be heavily invested in stocks.

Understandable, although that kind of allocation may make one kick themself themself 20 years from now when the Dow is at 25,000. At 26, one's IRAs and 401k's aren't going to have much in them. Even if they've been maxed out for 4-5 years, that's still well less than 5% in equities.

Then again, a less-conservative allocation may make one kick themself 20 years from now when the Dow is still under 10,000.

I would submit that something like a 50/50 income/equities would be ideal for obtaining both objectives and truly being diversified. Even this is still pretty conservative for someone in their 20s.

[LivingAlmostLarge]

Do nothing but leave it in a money market savings accounts for 6 months. Give her time to grieve. I am terribly sorry for her loss.

I would NEVER do dave ramsey's financial advisors. They put you into mutual funds that have asset classes AND charge fee! Ridiculous!

I would find a reputable and reccomended FA who you pay by the hour. NOT by C shares and a 1% fee they get by putting you into mutual funds.

[tripods68]

Originally Posted by shultice24

Understandable, although that kind of allocation may make one kick themself themself 20 years from now when the Dow is at 25,000. At 26, one's IRAs and 401k's aren't going to have much in them. Even if they've been maxed out for 4-5 years, that's still well less than 5% in equities.

Then again, a less-conservative allocation may make one kick themself 20 years from now when the Dow is still under 10,000.

I would submit that something like a 50/50 income/equities would be ideal for obtaining both objectives and truly being diversified. Even this is still pretty conservative for someone in their 20s.

I am a risk-averse investor by nature when it comes to large sum. A 50 percent or $500K equity investment allocation is high risk. There are lesson to be learn in today's market. With CD laddering maturing over time you have plenty of options what to do with it. But with the kind of risk you are referring and how the market has behaved for the last year or so, I still don't have that much confidence yet.

[ScrimpAndSave]

Update:

My friend is going to buy a new $40,000 luxury car...and I guess that is fine because she has the money right? She has a really nice car that is around a year old...it is probably worth around $25,000. She asked what I thought and I just said, "I would keep your car and your usual rhythm of spending. Pay off all your debts and make sure you max our your Roth IRA every year. Then find a trusted advisor to invest the rest so you can retire early."

She doesn't have a Roth or anything...I wouldn't have given her my two cents...but she asked. I hope she makes the right decision.

[disneysteve]

Originally Posted by ScrimpAndSave

Update:

My friend is going to buy a new $40,000 luxury car...and I guess that is fine because she has the money right? She has a really nice car that is around a year old...it is probably worth around $25,000.

I'm afraid this bodes poorly for the likelihood that she will handle this money well if that's how her mind works. I hope I'm wrong but if the first thing she wants to do is blow 40K to replace a perfectly good year-old car, I'd say her priorities are out of whack. Maybe she'll make this her splurge and be responsible with the rest. One can only hope.

If she asked my opinion, I'd use an online calculator to show her how much that 40K could be worth at age 65 if she invested it instead of spending it now.

[shultice24]

Originally Posted by ScrimpAndSave

Update:

My friend is going to buy a new $40,000 luxury car...

D'oh!

[ActYourWage]

Originally Posted by ScrimpAndSave

Update:

My friend is going to buy a new $40,000 luxury car...and I guess that is fine because she has the money right? She has a really nice car that is around a year old...it is probably worth around $25,000. She asked what I thought and I just said, "I would keep your car and your usual rhythm of spending. Pay off all your debts and make sure you max our your Roth IRA every year. Then find a trusted advisor to invest the rest so you can retire early."

She doesn't have a Roth or anything...I wouldn't have given her my two cents...but she asked. I hope she makes the right decision.

If she was responsible with money, I wouldn't see this as a bad thing since she does have 1 million in cash, however, seeing how she doesn't have a Roth or any other type of retirement, I would advise strongly against buying this car...