Answer to New Millionaire’s Problem Won’t Be Cheap, but It’ll Be Worth It
Q: I am one week away from selling a second-generation family business and receiving far more money than I’ve ever had the pleasure to manage (approximately $4.5 million net). I will be working for the company that has acquired our business, so I don’t need any of the proceeds of the sale right away. (I am 47 years old.) Could you give some suggestions as to how to properly invest and manage such a sum? P.S.: I enjoy your comments to people trying to “use” the system or to get away with something less than ethical.
A: I see. You’re getting $4.5 million and you want some free advice? Talk about being used. . . .
Seriously, you need more than the little advice a newspaper columnist can give you. Don’t be embarrassed about being clueless--few of us would know exactly how to handle that much moola, beyond having one heck of a binge at Nordstrom or Newport Beach Yacht Sales, or whatever your retail outlet of choice might be.
Even if you did think you knew what you were doing, I’m not so sure it would be a good idea to do it all on your own. Having a second set of eyes to look over your financial choices--someone who isn’t intimidated by seven-figure checks--would be invaluable, and could prevent you from making some stupid mistakes. You are in a position to have an accountant, a lawyer and a planner--each of whom might be helpful in evaluating the others.
The good news is that there are lots of smart, skilled financial planners out there who are dying to help you.
You have the kind of money that attracts the best of the best--fee-only financial planners who make their bread and butter by managing big wads of cash. Poorer folks have to contend with commission-based salespeople trying to sell them annuities.
You get to have top-flight personalized advice, a tailor-made portfolio and goodies such as tax advice and estate planning from people who know what they’re doing.
They won’t come cheap. Expect to pay around 1% of your assets a year. That $45,000 may seem like a lot now, but trust me, you could blow a lot more than that with one bad investment call.
You’ll want to interview several candidates before you decide to hire one. You can get a list of fee-only planners from the National Assn. of Personal Financial Advisors at https://wwwnapfa.org or by calling (888) FEE-ONLY. If you have rich friends, chat them up about who manages their money. Also check out the information The Times has about choosing financial planners, at https://www.latimes.com/finplan (it’s free--you’ll like that).
A Naming You Can Live With
Q: Years ago we made out a living trust naming as successor trustee a somewhat distant relative. She is in a related field of work and could do the job satisfactorily. My son is now old enough to do the job, however, and I was thinking of relieving her of the work and naming him as successor trustee. But I hear that it is not a good idea to do that because of possible conflicts with siblings. Everything is spelled out in the living trust document, so I don’t see how it could not go smoothly. What is your experience in these matters?
A: That sound you hear is a chorus of estate-planning attorneys chuckling ruefully.
No living trust--no estate plan, for that matter--can cover every contingency. The well-drafted ones cover the most likely occurrences and most of the less likely ones, but things can and sometimes do go awry.
That doesn’t mean you shouldn’t name your son, especially if he’s willing to do the job. Many people do name an adult child to oversee the distribution of their estates after they die, and the successor trustee’s job is usually pretty straightforward.
But problems can arise, particularly if your son winds up managing money for any length of time, rather than just distributing it. That can happen if one parent dies and the other becomes incapacitated, for example, or if you’ve set up trusts for minor children that he would be required to administer.
Managing money can be tough, and it could make your son the convenient target of any disgruntled heir who doesn’t like the way you’ve divvied up your estate or who doesn’t trust him to do a good job. Estate-planning attorneys can regale you for hours with stories of trustees who have been threatened, assaulted, ostracized and slandered by family members. That’s why some families prefer to use a trusted friend, family solicitor or other outsider because that person won’t have to face the rest of the heirs over the table every Thanksgiving.
If you’re sure that your son can manage the responsibility, and that he is willing, and that the sibs will behave, at least name an alternate successor trustee and give him the option of opting out should the job prove too burdensome.
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Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
