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  #1  
Old 11-18-2014, 12:16 PM
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What to do with an inheritance?

Although I rarely talk to other passengers on an airplane except for a greeting ("hi" or "hello") to the person sitting next to me, someone on the plane told me of an inheritance a few weeks ago. What would you do with an inheritance of, say, $10M?

I thought of several possibilities, the most intriguing being #2...

1. Various combinations of giving it away, spending it, sharing it with relatives, etc.

and

2. trying to start a family legacy where the younger generation is strongly urged to spend at most 0.5 to 1% per year. At that rate, it is possible to preserve the money. I read that if you spend 3-4% of your retirement nest egg, you will eventually deplete it. However, if you spend 1%, it will likely last forever.

So $10M results in a yearly spending budget of $50,000-$100,000. If you have two kids, that's $25-50k each. If they "borrow" some to buy a house, they should replenish it eventually. They also have to account that they would be hit with estate tax so they must invest wisely and/or don't take out the 0.5-1% every year.
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  #2  
Old 11-18-2014, 12:28 PM
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1. Find a creative CPA to avoid Uncle Sam.
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Old 11-18-2014, 12:44 PM
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you pay about 20% tax on any withdrawals.
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  #4  
Old 11-18-2014, 01:24 PM
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Originally Posted by Dave 330i View Post
you pay about 20% tax on any withdrawals.
This, I was thinking about. Estate tax is 40%. Some states add more to that. However, there is an exemption, sort of a base amount that isn't subject to that. The federal exemption is roughly $5M but some states are as low as $1M.

Also figure that you can probably double your money every 10-15 years if you invest wisely.

Furthermore, the younger generation probably lives 30 years longer than the previous since the parents are often 30 when then have kids. Actually, that shows that having children at 18 hurts family wealth since at age 18, you have little money and your assets will grow only about 18 years between your death and your children's death. So poverty creates poverty.

So $10M will grow to $40-80M in 30 years. Estate tax will cut that to $28-52M. If there are two kids, then that's $14-26M each. $26M will barely or not keep up with inflation, meaning that only if you invest wisely, will your money last. The danger is that each generation will cut the pie more and more, even if each generation only has two children.

What the end result of all this mumbling? If you get $10M and want it to last many generations, you have to invest wisely and you can maybe take out only about $50,000 per year. This is why lottery winners go bankrupt. If they win $10M, there's no way they will spend $50,000 per year.

Last edited by Dave 20T; 11-18-2014 at 01:26 PM.
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  #5  
Old 11-18-2014, 01:30 PM
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Quote:
Originally Posted by Paul335i View Post
1. Find a creative CPA to avoid Uncle Sam.
Not possible. If you get rid of your citzenship, you have to pay taxes as if you died. That wasn't the case before. However, if you have a child born in Singapore, then they can avoid the high estate taxes in the U.S. when they die. The problem is that Singapore is a small country. It would be like if San Diego were a country and the rest of the country was a foreign country.
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  #6  
Old 11-18-2014, 01:32 PM
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The main thing I got out of that conversation wasn't tax strategy but the idea of preserving a family legacy. Roughly consume what you earn and use the family legacy as sort of a fail safe family bank. It would sort of be like a family safety net or private/family Medicaid and food stamps program.
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  #7  
Old 11-18-2014, 01:39 PM
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I would recommend that he does not get married to a lady with US citizenship.
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  #8  
Old 11-18-2014, 02:09 PM
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You're thinking of a Utopian solution. Somewhere along the line, someone will become selfish and realize that with some creative maneuvering they can take the majority from the rest and then it will be gone.

That said, you're on the right track of limiting yearly draw from it. If you don't, you end with a Paris Hilton that doesn't know the value of a dollar and throws the nest egg away.

So, the real question here to protect the nest egg is not financial - that is easily deduced with formulas and return assumptions. What needs to be determined is how to control access and prevent people from taking more than is sustainable. With creative legal maneuvers, that's more of a psychological question than anything else.
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  #9  
Old 11-18-2014, 02:45 PM
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For creative ideas---

http://www.bloomberg.com/news/2012-0...y-to-kids.html

This is a pretty slick way to move big amounts of cash to the family.
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  #10  
Old 11-18-2014, 03:06 PM
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Originally Posted by Dave 330i View Post
you pay about 20% tax on any withdrawals.
Where did you come up with this?
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  #11  
Old 11-18-2014, 05:12 PM
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Quote:
Originally Posted by E36 Phantom View Post
You're thinking of a Utopian solution. Somewhere along the line, someone will become selfish and realize that with some creative maneuvering they can take the majority from the rest and then it will be gone.

That said, you're on the right track of limiting yearly draw from it. If you don't, you end with a Paris Hilton that doesn't know the value of a dollar and throws the nest egg away.

So, the real question here to protect the nest egg is not financial - that is easily deduced with formulas and return assumptions. What needs to be determined is how to control access and prevent people from taking more than is sustainable. With creative legal maneuvers, that's more of a psychological question than anything else.
This thread is interesting to me because it got me to thinking along the lines of a family legacy. The scale or magnitude may be different but the theory is the same. The above quote is good food for thought.

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Originally Posted by stylinexpat View Post
I would recommend that he does not get married to a lady with US citizenship.
This, I have serious questions about. In the U.S., if one spouse, say the husband dies, all the money can go to the wife tax free. When she dies, then it may be subject to estate tax if the estate is of a certain size or larger.

With a foreign spouse, this is not true. The whole estate is subject to a 40% estate tax except something like $60,000 (I don't know the exact amount because it doesn't apply to me). There are some kinds of trusts that can delay this but not too much. Of course, the foreign spouse can then take the money out of the U.S. where future generations are not subject to U.S. estate tax.

The big question about change of citizenship or another country's citizenship is that few countries are alternatives to the U.S. The few that are don't have better tax laws.
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  #12  
Old 11-18-2014, 06:30 PM
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Originally Posted by Dave 20T View Post
In the U.S., if one spouse, say the husband dies, all the money can go to the wife tax free. When she dies, then it may be subject to estate tax if the estate is of a certain size or larger.
So if the wife remarries and then dies, does the estate transfer tax free to the new husband who is free to remarry and to continue the cycle indefinitely? This would be a way to avoid the death tax. I wonder if Uncle Sam has thought of this?

We don't have any kids, but we have 17 relatives currently listed in our Will with each one receiving an equal share. So there's no plan for a trust in our our future, unless one of us is widowed and remarries...
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  #13  
Old 11-18-2014, 06:52 PM
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I had a big inheritance a few years ago. I gave about 15% of it away, 10% to my mom's friend who helped me take care of her when she was sick. (She later won $100k in Fantasy Five.) I did that by selling her my mom's house, taking back mortgages, and forgiving one of them gradually to stay under the gift tax threshold. The other 5% is going to my mom's favorite niece, gradually again to avoid the gift tax.

I eventually replaced a worn out BMW (115k miles) with a new one. I also cut back to part-time at work until I can retire with a pension and medical coverage. Without the inheritance, I'd be full-time and working another four years.

I kept the remaining pile separate from our household money, except matching my wife's inheritance from years ago. We gradually filtered her inheritance into our 401(k)'s and Roth IRA's. We don't have kids and we have enough household money to support my wife if she lives to 100. So, the remainder of my inheritance will either go to my cousin or to her daughter if she turns out right.

We might upgrade to a larger house (garage), which is not really spending. The increased taxes and maintenance costs will be spending, though. If I go ****-up before my wife, my wife will have to move out, as the house would go to cuz or cuz's daughter. I don't want the future "Putzer Dynasty" house ending up as a free flop house for my wife's financially stupid friends.

The Putzer Dynasty money is invested conservatively, so it's not growing much. I do my higher-risk investing with our household money, which is ALL in our retirement accounts.

After retirement, I'm going to pursue "my idea." It will make me somewhere between $0 and $1M, and require minimal capital investment. Either way, I'll have fun for a few years doing something I love and that I'm good at. I want to be increasing our wealth (household and/or Putzer Dynasty) for the next few years.

My job sucks, so I'm getting out of it ASAP and doing something that I want to do. The sense of accomplishment (I hope) will be more valuable than what I earn.

The best way to preserve a family dynasty is to live conservatively, setting an example for your children. Teach your children to derive their self-identity and self-worth from their accomplishments and their behavior, not from their bling. Also teach them to steadily consume less than they make, thereby steadily accumulating wealth.

Paris Hilton was disinherited by her grandfather. I think that night-vision video of her ****ing a big one was the final straw. Hopefully, she has her own nest egg from her Hollywood foolishness and Hardee's commercials to take care of her when she's old and ugly(er). She does have good taste in cars, though. She used to have an E46 M3. She made the news getting out of it, short dress and sans panties. I bet a forensic team would have a field day with that M3.

Last edited by Autoputzer; 11-18-2014 at 07:10 PM.
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  #14  
Old 11-18-2014, 09:19 PM
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This is so easy.

And a standard answer for over a decade on the fest for those of us Fest veterans.














HOOKERS AND BLOW!
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  #15  
Old 11-19-2014, 06:00 AM
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Quote:
Originally Posted by dunderhi View Post
So if the wife remarries and then dies, does the estate transfer tax free to the new husband who is free to remarry and to continue the cycle indefinitely? This would be a way to avoid the death tax. I wonder if Uncle Sam has thought of this?

We don't have any kids, but we have 17 relatives currently listed in our Will with each one receiving an equal share. So there's no plan for a trust in our our future, unless one of us is widowed and remarries...
If "gay marriage" becomes the legal norm, siblings and just friends could become domestic partners and avoid estate taxes. There was recently a Supreme Court case about the surviving member of a lesbian couple wanting the spouse exemption to the estate tax. I think they won.

When we periodically redo wills, each of us has to make a list of heirs for the "double splat" clause (both spouses dying together or within a certain time). One of these times was right when iPhones came out and were really expensive. I was thinking about putting another cousin on my double splat list. But, when I saw her high school age daughter with an iPhone (I had a StarTak), I scratched them off the list.

I loved my StarTak. It had great reception. I'd get a signal where nobody else would. Once I got reception in the middle of a USAF bombing range. The reason for this was the extendable antenna. But, when you called Motorola's help line, the menu went something like "Welcome to Motorola Wireless help line. If you are calling about antenna repair, press 1. For all other topics, press 2..."
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Old 11-19-2014, 06:43 AM
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This is so easy.

And a standard answer for over a decade on the fest for those of us Fest veterans.














HOOKERS AND BLOW!

Lol...

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Old 11-19-2014, 06:56 AM
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Old 11-19-2014, 07:22 AM
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Originally Posted by Sportsdad View Post
This is so easy.

And a standard answer for over a decade on the fest for those of us Fest veterans.














HOOKERS AND BLOW!
Thank you, it was getting awkward thinking I was the only one that instantly thought of this.
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Old 11-19-2014, 10:14 AM
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Originally Posted by Autoputzer View Post
Paris Hilton was disinherited by her grandfather. I think that night-vision video of her ****ing a big one was the final straw. Hopefully, she has her own nest egg from her Hollywood foolishness and Hardee's commercials to take care of her when she's old and ugly(er).
Actually, the move of the Conrad Hilton estate to his charitable foundation was always in his plan before his death in 1979- before Paris Hilton was born. His son, Paris' grandfather followed in his footsteps by doing the exact same thing, pledging his fortune back to Conrad's charity. This wasn't directed at any one grandchild since the entire family is affected by the estate plan.

Immediately following the video- widely considered the brilliant marketing start to an otherwise talent-less actress and singer- Paris started the Simple Life. Since then, she used the fame to start a fragrance and accessory empire with sales over $1.5B while her net worth has soared in excess of $100M. None of this means she has a brain cell, but in fact offers a very different perspective on what family wealth can do to surround the pretty village idiot with a lot of really smart, really patient people.

If I faced a huge inheritance, I would do what the high net worth individuals do to protect my family fortune from the tax man after I die: trust-owned life insurance in the form of an ILIT or similar vehicle. But be careful. Unless something has changed, you have to have had the trust and the policy set up for 3 years before you kick the bucket.
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Old 11-19-2014, 10:55 AM
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Should I take the advice of Suze Orman who has millions of followers or a few BMW drivers in OT who know best?
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  #21  
Old 11-20-2014, 05:52 PM
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Bank it, create a living trust to hold the money, set a target for what you actually want the kids to get when you die, then spend the rest.

For those of us who don't do hookers and blow, there's always fast cars, big screen TVs, stainless steel appliances in a designer kitchen, rental properties in exotic locations that you have to visit frequently in tax-deductable maintenance vists, and of course making sure that nobody in the family has any debts.

And let's not forget the other 'Fest favorite:

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Old 11-20-2014, 09:05 PM
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I think taking out 4% is supposed to leave you pretty safe for a long while, and potentially forever, but taking 2-3% is darn near certain to last forever. If you want to be extra cautious, just withdrawing dividends should guarantee you don't outlive your savings (S&P currently at 1.8%). Monte Carlo simulations with 3% and an all-bond portfolio have lasted more than 50 years. Personally, I'm going to aim for 2%. When I get to 2% equaling my current annual spending, I'd feel comfortable retiring.

Is the $10 million the actual amount inherited or is that before Uncle Sam takes his bite? Regardless, I would probably still keep working because my work now is building businesses that I'm fairly excited to build.

As for what I'd use the money for, since I'd want to stay retired forever, I'd just use it for what I spend money on now: Give money to church, charities, and alma maters. Travel a bit. German cars. Probably the craziest thing I'd do is complete my watch collection (just 3 more to go). Continue to invest. I might be more willing to do more with real estate, although I haven't been very excited about it based on the experiences I've had thus far.
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  #23  
Old 11-20-2014, 09:24 PM
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$10m inheritance?

Buy this:





Then I would build a house 15 miles from COTA and spend the remainder of my days working part time at a job I like, doing track days, smoking cigars and drinking beer. I would have no kids, therefore I would spend my money and not feel bad about leaving nothing behind
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Old 11-21-2014, 06:35 AM
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Originally Posted by Dave 330i View Post
Should I take the advice of Suze Orman who has millions of followers or a few BMW drivers in OT who know best?
Tony Robbins once had millions of followers. Doesn't mean he knew a thing about how to run a business or life...
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  #25  
Old 11-21-2014, 07:01 AM
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Is the $10 million the actual amount inherited or is that before Uncle Sam takes his bite? Regardless, I would probably still keep working because my work now is building businesses that I'm fairly excited to build.
The federal estate tax exemption is $5M and change per person. So, a couple gets off with $10M and change. But, to do this, the first spouse who dies has to leave his/her estate to heirs other than his/her spouse. That's a hard psychological barrier to overcome, handing over control of some of your money to your kids. Inherited money usually gets spent a lot faster than earned money, and the surviving spouse has to watch it happening.

None of this applies to the Kennedy's, Clintons, Obamas, and Romneys, though. They use (or will use) trusts and lots of lawyers to get away with a lot more. Sarah Palin and her dude probably don't need a trust and lawyers yet.
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