Nephew inheriting over $500K

O

Outby7

Dryer sheet wannabe
Joined
Aug 21, 2005
Messages
15
Hello all,

It's been awhile since I last posted but regularly browse this excellent site.
Hoping for insights from folks here about this situation:

My 17 year-old nephew will be inheriting over 500k in three months. He is about to start college this fall. He is aware that he will be receiving a large sum but his mom has not yet shared with him the exact dollar amount (though she has shared it with me).

He will not be getting any financial support from mom as the inheritance will take care of all college expenses. He also wants to live on his own and wants to live in an apartment after freshman year.

I would like to have a conversation with him about investing this large sum. I thought about having an ER type of conversation but realized very quickly that this will be a combination of both financial (have previously talked to him about the power of compound interest) and emotional topics (thinking long term when he is more concerned about girlfriends, cars and hunting). Interesting though that he actually has quite a bit of money saved up from his part time jobs. Another thing - he intends to join the ROTC program while in college.

Any advice in getting this conversation started would be appreciated.

Thanks!
 
At that age we all feel invincible. I would have someone he admired deliver some subtle but timely messaging. Perhaps a book recommendation here, a FIRECalc there, an ER forum or MMM if that is his thing but get him somewhat thinking about the consequences of squandering.

Remind him how life can be without. Then show him where to water the grass.

He should have more money next year than last, if not, he has a spending problem lol..
 
Only fools rush in

My advice is to let someone else start the conversation. Wait until you are asked.

Once invited, then you're free to chime in with your perspective. Since this is your nephew, not your son, you probably should allow his own parents to bat first.
 
I would at MOST talk to his mom about getting this setup in a trust where he doesn't just get a lump sum at 18. Maybe something that pays him enough for school and expenses per year, but keeps most of it until he is 25 or so.

Other than that, stay out of it unless asked. Odds of this being a disaster are very high if you get a sudden half mill at 17/18.
 
Aerides said:
I would at MOST talk to his mom about getting this setup in a trust where he doesn't just get a lump sum at 18. Maybe something that pays him enough for school and expenses per year, but keeps most of it until he is 25 or so.

Other than that, stay out of it unless asked. Odds of this being a disaster are very high if you get a sudden half mill at 17/18.
Click to expand...

Based on the OP's post I would guess it is too late to make a trust happen. I'm guessing that the event that created the inheritance has already happened. I see this as more a heads up for those who don't control distributions enough. I could be wrong.
 
Aerides said:
I would at MOST talk to his mom about getting this setup in a trust where he doesn't just get a lump sum at 18. Maybe something that pays him enough for school and expenses per year, but keeps most of it until he is 25 or so.

Other than that, stay out of it unless asked. Odds of this being a disaster are very high if you get a sudden half mill at 17/18.
Click to expand...

+1
 
IANAL

I'm not certain the Mom can put the money in a trust, since it's not legally hers, but her son's. I think at most she can set up a custodial account that she can manage until he becomes of legal age. At the age of majority, the money has to be turned over to her son without any encumbrances.

The last thing I'd do is tell others, even family (no offense to the OP intended), that my child inherited such a large sum of money. I'd also teach my child to keep it quiet.
 
gwraigty said:
The last thing I'd do is tell others, even family (no offense to the OP intended), that my child inherited such a large sum of money. I'd also teach my child to keep it quiet.
Click to expand...

The bolding is mine. Yes, by all means have his mom do whatever she can to persuade him to keep quiet about it. The gold diggers of every age and gender will be after him in force if they learn of this.
 
Outby7 said:
Hello all,

It's been awhile since I last posted but regularly browse this excellent site.
Hoping for insights from folks here about this situation:

My 17 year-old nephew will be inheriting over 500k in three months. He is about to start college this fall. He is aware that he will be receiving a large sum but his mom has not yet shared with him the exact dollar amount (though she has shared it with me).

He will not be getting any financial support from mom as the inheritance will take care of all college expenses. He also wants to live on his own and wants to live in an apartment after freshman year.

I would like to have a conversation with him about investing this large sum. I thought about having an ER type of conversation but realized very quickly that this will be a combination of both financial (have previously talked to him about the power of compound interest) and emotional topics (thinking long term when he is more concerned about girlfriends, cars and hunting). Interesting though that he actually has quite a bit of money saved up from his part time jobs. Another thing - he intends to join the ROTC program while in college.

Any advice in getting this conversation started would be appreciated.

Thanks!
Click to expand...

You'll need to decide based on your relationship with your nephew and his mom (your sister I presume) whether your input is desired and whether you should provide any input to even begin with.

Since nephew has money saved for part-time jobs, perhaps he is a saver rather than a spender and has some LBYM DNA.

In any event, if you do talk with him, I think the most important things to stress are how lucky he is and how he has a unique opportunity to get a huge head start in adult life.... but that he still needs to be prudent to avoid being like the lottery winners or highly paid athletes who get a huge windfall, blow it on "things" and ultimately end up broke.

If it were my nephew, I would suggest that he put an amount sufficient to fund his tuition and room and board into Vanguard Prime MM fund (pays ~2%) and invest the remainder in 70% Total Stock and 30% Total International Stock and set up an automatic monthly withdrawal for an amount not to exceed 0.3% to provide him some spending money and then monitor and rebalance annually.

So, for example, if his education is going to cost ~$100k, put $400k in equities ($280k in Total Stock and $120k in Total International Stock) and set up an automatic withdrawal of $1,200/month for living expenses.

And whatever he does, don't let any of his buddies or girlfriend know about this windfall.
 
Outby7 said:
I would like to have a conversation with him about investing this large sum.......

Any advice in getting this conversation started would be appreciated.
Click to expand...

Big mistake. From the tone of your post, it sounds as though you're quite anxious to be involved and influential. I wouldn't do that unless invited by both your nephew and his parents.

If you must....... After your nephew is aware of his inheritance, try mentioning (briefly) a few philosophical points regarding the potential impact of the inheritance on his life and your views regarding how to make those impacts as positive as possible. (Did I mention "briefly"?) If he wants to continue the conversation and is clearly trying to draw more from you, go ahead and converse. Otherwise, zip it!

I agree with those above who mentioned that helping nephew understand that keeping his good fortune completely secret is the most important aspect of the whole thing. This would be much more important than the specifics of how it's invested IMHO. Secrecy and a CD ladder would be preferable to blabbing and a sophisticated investment portfolio.
 
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College will eat up a bunch of that money.

Not being a fan of annuities in general this might be an excellent time/strategy to purchase a single premium deferred annuity.

Also as he is only 17, the parents still have control of the asset until he turns 18.
 
pb4uski said:
And whatever he does, don't let any of his buddies or girlfriend know about this windfall.
Click to expand...

Even the nephew not knowing of it would likely be better. That's a huge sum for a 17 year old. Few people at that age would be able to still see the need to push through the difficult challenges of studying and finding a steady job.
 
GrayHare said:
Even the nephew not knowing of it would likely be better. That's a huge sum for a 17 year old. Few people at that age would be able to still see the need to push through the difficult challenges of studying and finding a steady job.
Click to expand...

When he's 18, he has the right to the money, so what would be the point of trying to keep it a secret? :facepalm:
 
I had a friend in a dorm who inherited about $30K as a freshman in college. He bought a Trans Am and a bunch of stuff...blew threw it in no time (1989). I, on the other hand, had the 'million dollar dilemma' in mind. If (back in the 1980s), every kid started with a $1MM in investments, and just lived off the earnings, they'd never have to work a day in their life! This would create unproductive, likley unhappy people, and a vast labor shortage. Anyway, just depends on the kid. You never know, it might be seed money for a startup that goes big! He'll make his choices, good or bad, advice, or not. But, I'd still give him the Millionaire Next Door book!
 
I'd be pretty teed off if I was working really hard for minimum wage at 17 only to find out at 18 I've got 1/2 million. Maybe he doesn't really want to join ROTC but feels that's the only way to get college funding, only to find out it's right there for him.

If I were the parent, I'd be setting up a plan now, probably one very similar to what pb4 laid out, and hope he follows it at 18 and beyond. Personally I'd probably let him have $25K up front to get a reliable car, but the rest sounds good.

As an aunt or uncle, I'd ask the parent if they want any advice. If they say no, that's it. If you are close to the kid, at 18, you could ask him the same thing, but I probably wouldn't butt in on a kid who doesn't really know me and probably won't appreciate where I'm coming from.
 
Outby7 said:
My 17 year-old nephew will be inheriting over 500k in three months. He is about to start college this fall. He is aware that he will be receiving a large sum but his mom has not yet shared with him the exact dollar amount (though she has shared it with me).
Click to expand...
Why hasn't his mom told him the details? How long has she known this was about to happen?

He will not be getting any financial support from mom as the inheritance will take care of all college expenses. He also wants to live on his own and wants to live in an apartment after freshman year.
Click to expand...
Does he know that mom isn't going to support his college expenses? Does he know why?

I would like to have a conversation with him about investing this large sum. I thought about having an ER type of conversation but realized very quickly that this will be a combination of both financial (have previously talked to him about the power of compound interest) and emotional topics (thinking long term when he is more concerned about girlfriends, cars and hunting). Interesting though that he actually has quite a bit of money saved up from his part time jobs. Another thing - he intends to join the ROTC program while in college.
Click to expand...
Why you? Are you a certified financial adviser?
Why not mom? Is dad around?

Have you had this sort of deep discussion with him in the past? Is this the kind of thing for which he would normally seek out your advice?

I'm trying to imagine having one of my uncles tell me what to do with my life and my money at the age of 17 as I was getting ready for college. I had one uncle repeatedly tell me "munis". I'm glad I didn't follow his advice.

Maybe you should just buy him a book.
 
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Absolutely. MYOB unless asked. And even then tread lightly.
 
gwraigty said:
When he's 18, he has the right to the money, so what would be the point of trying to keep it a secret? :facepalm:
Click to expand...

Hence my writing "would be". It's too late now. I wonder what percentage in that situation develop the skills necessary to get through life. If know of a similar situation in which the teen decided he did not need to work. He exhausted the dough during his 20s, got evicted, ended up on the streets, and died alone at a still-young age.
 
Think very carefully before you offer advice. My nieces and nephews have known for a long time that I'm the "rich" uncle, and have asked for my advice. Gave them very conservative advice about investing in some low fee mutual funds.


Then the snide remarks started, like "hey the market went up x amount but the fund you told me went up only y amount, some great advice that" and then of course when the market eventually went south got accused of losing them money.


It's really a lose lose situation in many cases.


I now keep my mouth shut and demure when asked about investing.
 
Additional details

Thanks for the response, all.
As some of you already surmised, the funds are currently in a trust and he gains access to all of the money when he turns 18. The inheritance came about as a result of an insurance payout resulting from a tragic vehicle accident where the dad lost his life. Accident happened when he was nine.

My SIL asked me to speak to him about where he should invest the money. His relationship with his mom is strained and they rarely speak. He is spending a week with us prior to moving to his dorm, as the school is near us.

Like many 17 year old before starting college, he does not lack for confidence and borders on arrogance when speaking to his elders, especially women. I don't have a close relationship with him until fairly recently when they visited us in AZ. While I don't want to be a surrogate father figure, he does pay attention when I speak about how I handle my money and retirement planning. I don't preach but speak authoritatively when talking about career planning. I was frankly surprised that he decided to enroll at a college in AZ ( they are from the Midwest).

I like the recommendations about the need to keep his inheritance a secret. He does have the LBYM DNA and will mention the MMM site to him. He rarely spends money on typical teenage things such as fast food and going out to movies. He works on his own car, does the maintenance like oil changes.

Great responses from this forum. Thank you.
 
dtbach said:
Think very carefully before you offer advice. My nieces and nephews have known for a long time that I'm the "rich" uncle, and have asked for my advice. Gave them very conservative advice about investing in some low fee mutual funds.

Then the snide remarks started, like "hey the market went up x amount but the fund you told me went up only y amount, some great advice that" and then of course when the market eventually went south got accused of losing them money.
Click to expand...

Respectfully, I don't think you gave them all the advice they needed as you didn't also tell them (maybe you did and they didn't listen) about the natural up and down nature of the market and the more subtle intricacies of how it works.

I'll go against the grain on this thread as I am also the 'rich uncle' with some clueless nephews and nieces who ask for insights. Considering the OP's situation, I definitely would advise the young man as he seems to listen to the OP.

I would tell him that 1) he's got an incredible opportunity to turn that $500K to a million before he's 30, 2) that investing is the best way to do that 3) investing involves ups and down but over the long run it goes up and 4) he needs to also be disciplined in his spending and all that implies.
His understanding item #3 is key!

I would further offer to help finding the best set of investments through professional avenues.
 
Outby7 said:
I like the recommendations about the need to keep his inheritance a secret. He does have the LBYM DNA and will mention the MMM site to him. He rarely spends money on typical teenage things such as fast food and going out to movies. He works on his own car, does the maintenance like oil changes.
Click to expand...
It's up to you, but MMM seems pretty extreme. My reaction would be, "I just inherited 1/2 million, and you want me to live like THAT? So long!"
 
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