Multi-Generational Investing & Finance

[target2019]

This is a question about taking money from a fund that I'll call, for lack of more knowledge, Multi generational investing fund MGIF.

I know there have been books written about "keeping wealth in the family" and so on. Have to look around for one that provides a reasonable plan and rules for continuing to do this. But until I can informally establish a plan...

If a loan of 15K was made from the MGSF, how would you pick a reasonable interest rate and terms for re-payment to the MGSF?

My first guess is 2.0% for 4 years. Bankrate lists 4 year loans for 1.9-2.25%.

Off to do some research. Thanks for your help.

[RE2Boys]

For the IRS to consider this a loan rather than a gift, you need to charge at least the Applicable Federal Rates.


More discussion and info at:
Family Loans: Does The IRS Care If I Lend My Kids Money? - TaxAct Blog
https://www.law.cornell.edu/uscode/text/26/7872
https://apps.irs.gov/app/picklist/li...eralRates.html

[target2019]

Quote:

Originally Posted by RE2Boys For the IRS to consider this a loan rather than a gift, you need to charge at least the Applicable Federal Rates. More discussion and info at: Family Loans: Does The IRS Care If I Lend My Kids Money? - TaxAct Blog https://www.law.cornell.edu/uscode/text/26/7872 https://apps.irs.gov/app/picklist/li...eralRates.html

This is not a loan. We withdrew money from our own account.

In the future, this could apply, though.

Thanks for posting.

[RE2Boys]

Quote:

Originally Posted by target2019 If a loan of 15K was made from the MGSF, how would you pick a reasonable interest rate and terms for re-payment to the MGSF? Off to do some research. Thanks for your help.

Not a loan
If all this is your own money that you set aside for a purpose but you intend to invade it, you can play all the paper games you wish at whatever interest rate you want. Personally I'd use the lowest interest rate I have it invested in, if I didn't raid it, what would be my likely investment....CD or MM?

[YeahNo]

I'm lost. You have money in an account set aside for passing on to heirs. You need some cash so you transfer money out of one of your accounts and into another one of your accounts. I don't understand what the role that any sort of interest rate paid to yourself is here.

[Hermit]

I have some money set aside in what I think is a similar situation. It has been committed to my favorite charity when they need it for a building project which will not be for the next four years. In four years I plan to use RMD (via QCD) money to move the committed money to the charity. In the mean time, I could use some cash to pay for completing construction on my house. My only other source of additional income is taking the cash from tax deferred accounts which would have nasty tax consequences. Here is my plan:

With the approval of the head of the charity, I will loan myself half the funds set aside for the charity and keep the other half in the current account which I will call the first account. When I pay the funds back, I will place the payments into a separate second account and when that separate account is equal to the half that is in the first account, I will combine the accounts. This will all be done to keep the funds originally set aside whole by assuring the rate of return is maintained.

[marko]

I don't see a connection between 'keeping money in the family' and the loan.

Multi Generational wealth is usually a matter of cash preservation, cash management (distributions to heirs, now and later), trusts and, mostly, tax and estate issues.

"Keeping money in the family" is often a euphemism for the game of keeping it away from the estate tax man.

[Meadbh]

If you have to raid the cookie jar, then you have put too much money in there in the first place.

[target2019]

Quote:

Originally Posted by marko I don't see a connection between 'keeping money in the family' and the loan. Multi Generational wealth is usually a matter of cash preservation, cash management (distributions to heirs, now and later), trusts and, mostly, tax and estate issues. "Keeping money in the family" is often a euphemism for the game of keeping it away from the estate tax man.

No euphesims in use. After reading more, I think the concept is more like a family bank. It seems that this concept goes in many directions. Some use it to teach the kids. Some use it to establish a trust. And I'm sure some use it to avoid estate taxes, euphemistically speaking.

Since I'm no expert, I'm just tossing some ideas around.

[target2019]

Quote:

Originally Posted by Meadbh If you have to raid the cookie jar, then you have put too much money in there in the first place.

That will be the motto on the front of this piggy bank.

I think you've hit upon something. Namely, there is too much cash, it sits there, and does nothing but lose buying power.

Do you have the latin translation handy?
Thanks for the humorous aside.

[target2019]

Quote:

Originally Posted by Hermit I have some money set aside in what I think is a similar situation. It has been committed to my favorite charity when they need it for a building project which will not be for the next four years. In four years I plan to use RMD (via QCD) money to move the committed money to the charity. In the mean time, I could use some cash to pay for completing construction on my house. My only other source of additional income is taking the cash from tax deferred accounts which would have nasty tax consequences. Here is my plan: With the approval of the head of the charity, I will loan myself half the funds set aside for the charity and keep the other half in the current account which I will call the first account. When I pay the funds back, I will place the payments into a separate second account and when that separate account is equal to the half that is in the first account, I will combine the accounts. This will all be done to keep the funds originally set aside whole by assuring the rate of return is maintained.

I have to digest this while ruling my empire from the couch tonight. It is close to what I'm thinking. With a family bank situation, the members must make their case in the form of a proposal, and it gets evaluated by the chairman.

On second read, your situation is very similar to what I'm thinking about.

[marko]

Quote:

Originally Posted by Meadbh If you have to raid the cookie jar, then you have put too much money in there in the first place.

...or not enough elsewhere.

[marko]

Quote:

Originally Posted by target2019 Do you have the latin translation handy?

Si vas praedatum crustulum , tune nimium est pecunia primum

[target2019]

Uncovered a PDF with brief outline of the concept I was trying to explain with the OP.

THE HUGHES FAMILY BANK
James E. Hughes, Jr., Esq.

http://www.jamesehughes.com/articles/FamilyBank.pdf

There is a complete book, from 2010, that can be found here and other places:

http://www.amazon.com/Family-Wealth-.../dp/157660151X

[Sunset]

I like the concept.
I gaze out towards the front of the family estate watching the peasants tending to their activities. Recently I travelled to the rear of our family mansion and looked out towards the rear of the property admiring the wild animals feasting upon the food we had set out for them.

My DW thinks I'm pretentious and she refers to it as looking out the front window at neighbors and watching out the back window at the birdfeeder.

But that is the result of marrying a commoner.

[MichaelB]

Quote:

Originally Posted by Sunset I like the concept. I gaze out towards the front of the family estate watching the peasants tending to their activities. Recently I travelled to the rear of our family mansion and looked out towards the rear of the property admiring the wild animals feasting upon the food we had set out for them. My DW thinks I'm pretentious and she refers to it as looking out the front window at neighbors and watching out the back window at the birdfeeder. But that is the result of marrying a commoner.

I'm guessing you enjoyed Downton Abbey?

[braumeister]

Quote:

Originally Posted by Sunset I gaze out towards the front of the family estate watching the peasants tending to their activities.

Quote:

"Your majesty, the peasants are revolting." "You said it, they stink on ice."

Yes, it's good to be the king!

[target2019]

Open the gate, the trumpets announce my arrival.
(Spouse presses button on garage door opener.)

[ERD50]

Quote:

Originally Posted by target2019 Open the gate, the trumpets announce my arrival. (Spouse presses button on garage door opener.)

Reminds of the Monty Python Oscar Wilde skit:

"Your Majesty, You shine out like a shaft of golden light when all around is darkness."



That was a recovery explanation from some one saying:

"Your Majesty is like a stream of bat's piss."


-ERD50

[target2019]

More than six months has passed since I brought up the Family Bank topic. I noticed older threads about this, so will need to take a look at those topics and learn.

The bank is moving along well. There is not much formality involved--spouse and I are the co-chairman, and we rule all. There are two sides to the family bank balance:

• Equity investments - about 60% of the balance
• Cash for loans - about 40%

I added an item to the charter, that we will set the lending cap to no more than 75% of available cash. Then there will always be some amount available to purchase additional equities.

1. The first loan was taken by spouse, at 1.935%. Clever spouse already pre-paid a large amount.
2. Also used the bank card to pay for a few entertainment things in Vienna. That money was reimbursed.
3. For long-term equity investing, we added positions in Schwab US Dividend Equity ETF and PGX. No brokerage fees on those.
4. For speculative gamble, placed a small wager on 21st Century Fox-A.