Nephew inheriting over $500K

[Major Tom]

This is classic IMO:
How I failed my daughter and a simple path to wealth

This is great Chris. Good, broad guidelines and, if it's all somebody did, they could do an awful lot worse. The only major omission I can think of is not talking of the differences between before and after tax investments but, then again, he's trying to keep it simple.

I'm going to bookmark this.

 

[joeea]

Speaking only to the men here, guys, how many of you would have saved and invested the money at age 18?

I never had much money at 18.

But I saved pretty much everything I made, because I always knew I'd be paying for my own college education, car, etc. That was always my nature, and still is.

I didn't know anything about investing back then - just savings accounts and CDs. I wish I'd had some investable assets. I'd have found a way to educate myself financially.

 

[Ready2Go]

Since he is inheriting the money, I would advise him to honor the person that left him the money. Meaning, spend it in a way that would make that person proud.

Hopefully, that doesn’t mean beer and strippers.

 

[nvestysly]

WOW! $500k?! That's some amazing money at that age. His parents need to have some serious talks about this situation. This amount of money is life-changing. It's like winning the lottery. Most people never have this opportunity.

There are many ways to "skin this cat" but my suggestion is live off the dividends and interest using some form of SWR that's suitable for his age and allow the principle to grow, grow, grow. I don't think you have to use up any of the principle. For that matter, if the inheritance is coming to him a stocks, securities he'll have the benefit of the step-up in basis.

You can attend college and incur very little expenses if done in a frugal manner. There's nothing wrong with community college for two years, state school for the following two years, have a job or two during school to make ends meet and end up having way more money than anyone else in his circle of peers.

I go back to things I've learned along the way... Money gives you options. It takes money to make money. A penny saved is the same as two pennies earned.

This situation is the proverbial "eat your cake and have it too." I would urge him to consider all possible options and find a way to live comfortably as a college student and be set for life after college. He probably wants a career and that's fine - I wanted one too. But when the new wears off the career and the day-to-day grind is taking it's toll this amount of principle will have grown so he (and his future family) can have a significant impact to society by volunteering and doing whatever good things they choose in their community.

 

[audreyh1]

Since he is inheriting the money, I would advise him to honor the person that left him the money. Meaning, spend it in a way that would make that person proud.

Hopefully, that doesn’t mean beer and strippers.

It’s not an inheritance, it’s an insurance payout as compensation for his father dying when he was nine.

 

[bclover]

Lol , my son would have installed a poll in the middle of the living room and desperately try to convince me that"cinnamon " is a tutor just doing this to get through school.

 

[pb4uski]

I like the idea of sitting down with him and doing a cash flow projection for the next 4 years of college to determine how much should be invested in liquid and safe funds (my suggestion would be Vanguard Prime MM which currently pays 2%) and then invest the rest in Total Stock/Total International Stock and set up a conservative monthly auto-withdrawal.

Also... go over the numbers of the impact of the 2% management fee and whatever ER are in what the FA would recommend vs just plunking it in Vanguard at 0.10% or so.

If he doesn't seem to be getting it... perhaps steer him to stories of others who have blown windfalls with a message of those who do not learn from history are destined to repeat it.

Beyond that, if he blows it then he blows it and nothing you can do.

 

[ncbill]

My 17-year-old nephew will be inheriting over 500k in three months. He is about to start college this fall.

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...

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.

From what I've read online most ROTC scholarships are awarded at the individual schools to those students already enrolled or committed to attending.

One piece of advice you can give is that he could save a big chunk of that inheritance by pursuing a 3-year ROTC scholarship once on campus and enrolled in ROTC.

My youngest is heading off to a private ($$$) university this fall thanks to the above, plus a generous financial aid package this year (bringing the cost down to the equivalent of an in-state public school)

 

[Outby7]

Receiving some good input from this thread... He is pursuing the 3 year ROTC route so that should result in more savings. I agree that how I approach the discussion will be critical to his listening and taking some of my advice. My expectations are modest. If I can at least convince him to save some of the money for retirement, I will consider that a win. He has already stated that he doesn't see a need to use the large sum for investing in his retirement. Still, he does have a Roth IRA started this year so we will see.

There are moments when he is logical and exhibits clear thinking and then he surprises us with some of his actions. He decided that one of his first purchases will be a motorcycle. Nevermind that he already has a nice sporty car ( ten years old and bought used a year ago). He rationalizes by saying it is better on gas mileage. It's upsetting many in the family as his father died in a motorcyle accident which resulted in the insurance payout. The teenage mind is a fascinating thing!

 

[Aerides]

tbh i don't think I'd even say the word "retirement" to a 17 year old. Rather, encourage saving for slightly more immediate milestones, but still down the road stuff, like buying a home, starting a family, flexibility to change careers later if he wants, stability, etc.

The point isn't to get him to make the right decision now for when he's 50, but to at least be smart enough to keep most of the money, even do well with it, until he's maybe 30, when he has a more adult perspective.

 

[Outby7]

Agree. I won’t be using the “R” word but something along the line with planning for the future. Hard for most teens to visualize retirement —-though when I was 18 , like some folks here, I was already thinking about how to fund my retirement.

 

[Scrapr]

There are moments when he is logical and exhibits clear thinking and then he surprises us with some of his actions. He decided that one of his first purchases will be a motorcycle. Nevermind that he already has a nice sporty car ( ten years old and bought used a year ago). He rationalizes by saying it is better on gas mileage. It's upsetting many in the family as his father died in a motorcyle accident which resulted in the insurance payout. The teenage mind is a fascinating thing!

ruh roh George.

 

[Friendish Friends]

De-lurking to add that he might feel comfortable with support meant for people his age. So many books and articles are about getting the money, but not how to make the most of it once you have it.


I found Resource Generation when I was a bit too old for it, but reading the book helped me start my journey. Also, it may help him see that 500k is pennies compared to some folks!


https://resourcegeneration.org/

https://resourcegeneration.org/chec...-your-privilege-and-use-it-for-social-change/


There are a couple good episodes on wealth on this podcast as well:
https://www.npr.org/podcasts/458929318/death-sex-money?t=1533290789663



Having inherited money fairly young, I didn't struggle with financial advice as much as how to adjust to a life that was so different from my peers, and Rich Kids of Instagram isn't the best image of young wealth!



Will go write an official post to introduce myself....

 

[morriss003]

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.

Good advice. If he were my nephew I might congratulate him on his good fortune and encourage him to take some basic accounting courses, while reminding him that he'll have to learn how not to let the government take a significant amount of his investment income.

 

[Kim451]

I'd say 'hey, check out these blogs!' and send him ones like https://www.themoneyhabit.org/ or bumfuzzle.com....

 

[Outby7]

A quick update. I heard from my SIL that the nephew has decided to drop out of college and ROTC. Can't say I did not see this coming. Inheriting $500k at 18 years old certainly does something to one's motivation.

Reason for dropping out was he did not like "college and army rules." The poor report card probably had something to do with it as well. Still, he likes the college life enough to rent an apartment near the campus and take on a minimum wage job.

 

[Dtail]

A quick update. I heard from my SIL that the nephew has decided to drop out of college and ROTC. Can't say I did not see this coming. Inheriting $500k at 18 years old certainly does something to one's motivation.

Reason for dropping out was he did not like "college and army rules." The poor report card probably had something to do with it as well. Still, he likes the college life enough to rent an apartment near the campus and take on a minimum wage job.

Try to explain to him that 500k if not invested and spent wisely could be an issue down the road.

 

[GrayHare]

"You are young and life is long,
and there is time to kill today.

"And then, one day, you find,
ten years have got behind you.

"No one told you when to run,
you missed the starting gun."

 

[ponyboy]

Everyone always seems to have the right answers when it comes to other peoples money.

If you want to blame anyone, blame the person who gave him all the money up front. They were too dumb to set it up so he would only receive x.xx amount per year. Its not the kids fault.

This is on a much smaller scale but it reminds me years ago when you kept seeing justin beiber in the news. When he was taking a leak in a bucket and it was recorded. Yeah...dude was like 25 years old and had a couple hundred million dollars by then. IMO he was handling it extremely well. How many people do you know at any age could handle being insanely rich without going off the deep end or raging (drugs, partying, sex) from time to time.

 

[Jerry1]

It is definitely the fault of those who gave him that much money. DW wants to limit how much our grown adult daughters get and they’re both over 30. I tell her that I’m not going to try to regulate from the grave. However, if we were going to give money directly to our grand children, it would have age restrictions. The most I’d give someone this age is enough for a nice car and an annual amount for school and school would be a requirement to get the money. After 21 to maybe as high as 25, I’d just release the money and RIP. You can only do so much.

 

[Amethyst]

He will do what he will do.

My Dad used to use himself as a cautionary tale to his kids. He went from having a very stingy father, to inheriting a significant sum at age 23. The equivalent of $1 Million in today's dollars. He blew it all in three years on partying and cars (he loved cars more than anything in the world). Ended up divorced and broke. He credited meeting our Mom for helping him turn it around, but he never again had much money.

 

[Teacher Terry]

When our kids were young we had payments structured by age with the last amount at 40. We are still alive so didn’t matter)