Is this a crazy idea?

[The Rodent]

Hypothetically speaking.............

How much money would a private investor give me now to become the sole heir of our (DW and I) estate when we pass?

We have no children and don't have a single philanthropic bone in our bodies. We would like to spend down every dime before we die, but we all know that's not really possible. We would just hate to leave a large sum "on the table".

All my spending models (dynamic spending, 4% models, etc), indicate significant amounts of money left after 25 years. That should capture the interest of a private investor.

To get the discussion rolling let's start with these hypotheticals:
DW and I are 65 years old
Net worth $3,000,000 includes investment portfolio of $2,300,000 (mostly mutual funds)
Annual income $60,000 (social security, pension)
Mortgage will be paid off in 22 months (~$40k)
Already took a lump sum pension distribution
FIRE'd ourselves about 10 years ago

That should be enough to get some discussion started. Look forward to hearing comments or questions needed to make a decision.

 

[niven]

Just to be the heir? Nothing. What if you decided to spend it all before you died? What if you had huge medical expenses? What if none of that happened, but you died in an accident that was your fault and injured many people who would sue the estate?

 

[ExFlyBoy5]

Interesting hypothetical. I would guess that a savvy private investor won't give you nearly as much as you would like (as in ZERO). It would be fraught with all sorts of issues, which I am sure lots of folks smarter than me will chime in on shortly!

 

[Cap_Scarlet]

I'm confused. why would you need someone to effectively 'buy you out' now when you have so much in easily accessible funds?

 

[Nemo2]

I'd write you a check for $500k, get you to sign the papers, (once your net worth has been verified), and give the nod to a hit man as I walk out the door.

 

[braumeister]

If you made the offer public, I suspect a private investor would make you an offer you couldn't refuse. He would even send his associates, Guido and Nunzio, over to your home to handle the arrangements.

More seriously, have you ever heard of this sort of arrangement? I haven't.

 

[DJRR]

If you already have too much money, why would you sell your expected remainder to get even more money?

Similar concept to a viatical, but without a 3rd party to provide a guaranteed payout it is hard to value.

Maybe there is a non revocable trust instrument that can pay you a defined income and leave the balance to another beneficiary? You would lose control over the principal and your income would be limited. Investor would assume some investment risk for a fee/discount on the expected balance. Then you have the guaranteed income and a lower cash amount.

How are you better off than before? How is it better than buying an annuity from an established insurance company?

 

[The Rodent]

Just to be the heir? Nothing. What if you decided to spend it all before you died? What if you had huge medical expenses? What if none of that happened, but you died in an accident that was your fault and injured many people who would sue the estate?

Since it's a hypothetical, let's assume I'm not out to fleece the investor and contract language could be written to prevent "excessive" spending. Your other points could be valid but that's part of investment risk. What's the likelihood of special events happening?

 

[REWahoo]

Is this a crazy idea?

Yes

 

[The Rodent]

I'd write you a check for $500k, get you to sign the papers, (once your net worth has been verified), and give the nod to a hit man as I walk out the door.

Yup, that would worry me to!!

 

[The Rodent]

If you already have too much money, why would you sell your expected remainder to get even more money?

Similar concept to a viatical, but without a 3rd party to provide a guaranteed payout it is hard to value.

Maybe there is a non revocable trust instrument that can pay you a defined income and leave the balance to another beneficiary? You would lose control over the principal and your income would be limited. Investor would assume some investment risk for a fee/discount on the expected balance. Then you have the guaranteed income and a lower cash amount.

How are you better off than before? How is it better than buying an annuity from an established insurance company?

Interesting perspective.
Would it change the dynamic if I wanted the money to purchase an absolute dream home in a dream location? Now the investors money is part of my estate as property that can appreciate.

The only people benefiting from annuities are insurance companies. I'm not looking for a guaranteed source of income in case of market crashes. I'm betting WITH the insurance companies and not paying the fees.

 

[Gill]

Although you seem to dismiss an immediate annuity, this really is what fits your definition. The insurance company is agreeing to pay you a certain amount but, rather in a lump sum, it is paying it to you in the form of an annuity. If you put your entire estate in a SPIA, the insurance company is in effect paying you the annuity in return for becoming the sole beneficiary of your estate.
Bruce

 

[niven]

Since it's a hypothetical, let's assume I'm not out to fleece the investor and contract language could be written to prevent "excessive" spending. Your other points could be valid but that's part of investment risk. What's the likelihood of special events happening?

I don't know of any way a contract could prevent you from spending your own money. Now if it was put in a trust of some kind and you couldn't spend it, that might be different. But that's not what you proposed. Like the others, I still don't see the point either. Most would think it's a con.

 

[Music Lover]

Following, as a friend of mine is in a similar dilemma...they have a successful business, no kids, no nieces or nephews, and just one aging parent between them. He confided to me that they don't have anyone to leave their money to.

However, I don't think that type of contract is a good idea.

 

[RobbieB]

I think the idea is a con

 

[The Rodent]

I don't know of any way a contract could prevent you from spending your own money. Now if it was put in a trust of some kind and you couldn't spend it, that might be different. But that's not what you proposed. Like the others, I still don't see the point either. Most would think it's a con.

Trust seems more appropriate than contract, agreed...... I'm not a lawyer. That's why I'm asking questions and soliciting feedback.

 

[The Rodent]

Although you seem to dismiss an immediate annuity, this really is what fits your definition. The insurance company is agreeing to pay you a certain amount but, rather in a lump sum, it is paying it to you in the form of an annuity. If you put your entire estate in a SPIA, the insurance company is in effect paying you the annuity in return for becoming the sole beneficiary of your estate.
Bruce

But an SPIA doesn't give me a lump sum or big chunk of money NOW. It's payments over a lifetime.

 

[The Rodent]

Following, as a friend of mine is in a similar dilemma...they have a successful business, no kids, no nieces or nephews, and just one aging parent between them. He confided to me that they don't have anyone to leave their money to.

However, I don't think that type of contract is a good idea.

I'm sure there are others in this forum in a very similar situation. Would like to hear how they plan to leverage their assets or give it to ....... (fill in the blank).

 

[Nemo2]

I might not have previously mentioned that DW & I are available for immediate adoption.

"Can I borrow the car Dad? Oh, and we'll need gas money....lots of it....wow, you're the best dad ever!")

 

[The Rodent]

I might not have previously mentioned that DW & I are available for immediate adoption.

"Can I borrow the car Dad? Oh, and we'll need gas money....lots of it....wow, you're the best dad ever!")

I've used that line also, especially when my close nonagenarian friends are complaining about their money and terrible children.

 

[rodi]

I don't understand - you have plenty of money NOW (by your own hypotheticals)... but you want more through some wack-a-doodle scheme that will have an investor incentivised to have you die sooner rather than later.. No thank you.

 

[Texas Proud]

There is no value to what you have given... as others have said, there is no value in an estate that does not have any spending limits...


NOW, if you want to add a yearly spending limit that is hard and fast.... well, you can put a value on that...


BUT, just to throw out a number.... if you do a present value of $3 million in 30 years (IOW, you still have $3 mill left) at 10% you get a present value of $172K.... and at 15% it is only $45K.... so, as someone else said, not as much as you think....

 

[calmloki]

.... you want more through some wack-a-doodle scheme that will have an investor incentivised to have you die sooner rather than later.. No thank you.

Isn't that why tontines are illegal?

https://www.washingtonpost.com/news...vings-scheme-may-be-the-future-of-retirement/

I don't really get why WaPo has them as sleazy - everybody dies - but OP's idea sounds kinda tontine like and kinda like Aids patients selling the naming of their life insurance beneficiary for Cash! Now! back a decade or more ago.

 

[The Rodent]

There is no value to what you have given... as others have said, there is no value in an estate that does not have any spending limits...


NOW, if you want to add a yearly spending limit that is hard and fast.... well, you can put a value on that...


BUT, just to throw out a number.... if you do a present value of $3 million in 30 years (IOW, you still have $3 mill left) at 10% you get a present value of $172K.... and at 15% it is only $45K.... so, as someone else said, not as much as you think....

Appreciate your thoughts. I'm not trying to sell anybody on the idea. Just looking for logical ways to assess the pro's and con's from my perspective and the perspective of an investor. Thus far, neither is looking very good from the comments received. Doesn't hurt to think out of the box.

Texas Proud --- even if I were to look at a normal life span of an additional 25 years instead of 30 in your example the 10% would only produce a present value around $275,000. However 6% would produce a present value of about $710,000 at 25 years. Did I do that right? Your comment about yearly spending limits is definitely appropriate and would have to be part of the deal in some way.

 

[The Rodent]

Isn't that why tontines are illegal?

https://www.washingtonpost.com/news...vings-scheme-may-be-the-future-of-retirement/

I don't really get why WaPo has them as sleazy - everybody dies - but OP's idea sounds kinda tontine like and kinda like Aids patients selling the naming of their life insurance beneficiary for Cash! Now! back a decade or more ago.

Informative article, never heard of tontines. Does sound like a good idea for people with no heirs. Way better than annuities.