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Investing from the Grave - Plans for Wealth Management if You Suddenly Die


tripleoptician
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I've been building up more financial acumen over the last 5 years and transitioned my family finances away from a traditional financial planner/mutual fund model. After a recent high speed car accident (luckily no injury), I realized there is substantial "key man risk" for my family's wealth management. I have a will established and a Corporation/Trust model with my wife/kids structured as beneficiaries, but the lack of financial planning/investment management if I were to die is a massive area of risk.

My wife has learned enough from me to understand basic savings principles, investing for the long run and not to panic with short term market volatility. Despite this, there would be a huge knowledge gap for her to continue with our current structure. I'm curious if other board members that are managing their whole family financial picture have a plan for what they would tell there spouse to do if they were to die and if they have structured this in a written will? I'm worried she would be stuck finding a financial planner that may not act in their best interest and incur substantial commissions/fees to slow portfolio growth over the years.

 

Some of my initial thoughts and questions:

 

1. Investment Management - my initial instinct would be to advise her to put a substantial portion of our wealth into a few trusted Canadian funds ( Chou Funds, MPIC, Vertex) and  diversified holding/ Insurance companies (Fairfax, Berkshire,Markel). Would everyone trust those companies as a 30-40 yr holding period with no available reevaluation over that whole period?

The alternative would be to create a diversified passive index portfolio (especially if one of the selected holdings chooses to wind down or the manager leaves).

 

I would create general guidelines about 3-4% drawdowns/year during retirement +\- a general rebalancing guideline as she moves from portfolio growth to portfolio preservation later in life. I figure I can't be too restrictive to prohibit any typical bad mistakes, because the number of unknown permutations are too great to cover all possible events.

Any other thoughts or suggestions?

 

2. Financial Planning - beyond advising my wife regarding how much to save, budgeting etc , she would have no idea about tax planning, registered vehicles vs investing in the corp and paying down mortgage vs. Increasing investment portfolios dependent on current market environment/interest rates.

I see the only option is to educate my wife as much as possible and advise her to pay for a fee based financial planner to help with general planning but not investment selection.

I could create a financial fiduciary like a trusted friend with reasonable finance knowledge to be a final say before any change is made, but maybe this is too restrictive?

 

3. Tax planning - I think that my accountants have a pretty good idea how the current structure is creating an efficient tax plan and I can't see them straying far from current advice given there is no real financial incentive for them to change it drastically.

Anything anyone would worry about here?

 

Thanks in advance and I hope this sparks some interesting discussion....

 

 

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Very good thread. Been thinking about this also.

Top on my list: find a good fee-only cfp (need to interview some people) and find good value shop (that doesn't over charge or try to grow aum to the detriment of current clients).

 

 

Do you think it is necessary to create guidelines in a will to act as a fiduciary from the grave or do you just plan to pass on your plan verbally to your spouse?

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I've been thinking about a similar problem; has anybody stored a list with accounts / passwords for all your online brokerage accounts somewhere? I have quite a few of them, very easy to forget one or two. I'm thinking about depositing this information at the bank / notary.

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I've been thinking about a similar problem; has anybody stored a list with accounts / passwords for all your online brokerage accounts somewhere? I have quite a few of them, very easy to forget one or two. I'm thinking about depositing this information at the bank / notary.

 

Writser, for all your accounts and passwords I would recommend an app/website I've been using the past years to securely store all my passwords and important information. It's called "SecureSafe". What's great about it is the option to add a beneficiary so that if something happens to you, all your information will be passed on to the beneficiary. You can leave them instructions as well.

 

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I have been thinking about this topic lately as well.  Being an emerging fund manager myself, I immediately started thinking "which one of my fund manager friends would I entrust my million dollar life insurance payout with?"  Unlike most people, I regularly talk to a dozen of young managers.  We swap ideas and we have a feel for each other's "blow up risk, runway, expected returns, marketing prowess, etc"  I believe the most important factor in the decision is how ethical the manager are.  Has the manager exhibited behavior or made comments that forces you to reassess your perception of his/her ethics?  Blow up risk is the next most important factor.  40% CAGR is meaningless if there's a potential -90% year because the manager utilizes leverage or has certain cognitive biases that he/she doesn't realize or even worse refuses to realize.  I think a humble fund manager is important as well.  Someone who knows that they don't know enough yet.   

 

I believe my solution would be to allocate capital to 4-5 of my fund manager friends.  I believe that those 4-5 fund managers over time will beat the S&P and the larger fund managers.  I believe that I can safely entrust 1 of them to be the trustee/advisor on how to re-allocate capital as these 4-5 fund manager will eventually have different % returns over time and the portfolio will likely have to be re-balanced in 3, 5, 10 years.  Regarding financial planning, I would never let my wife work with a financial advisor alone.  I would definitely have my best friend or my brother act as a in between of my wife and the financial advisor.  I have enough experience with financial advisors to know that they are driven by transactions and pitch their own products.  As a 21 year old intern, I knew that financial advisors did not have the best interest of the clients.  Their advise revolves around how much fee can I generate from this product and what bps of the AUM can I generate from placing the assets with "insert big bank" internal hedge fund etc.  I am not saying that financial advisors are bad people, but when your commission is driven by the products that you sell, you tend to sell the product with the highest commission.   

 

The last thing that I would mention would be that I seriously need to increase the notional on my term insurance.  Living in New York, I would imagine that a $3-5mm figure would be needed to buy a house without a mortgage and have enough left over to grow over time while taking small withdrawals when needed.

 

 

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I have a friend who manages a fund, I told my wife to call him up.  He would be able to manage my portfolio plus life insurance proceeds.

 

My wife has zero interest in investing, she doesn't love risk, and we have kids.  I could care less if she beats the market when I'm gone, I care that she has money to pay for the things she needs.  A safe and cheap (low expenses) portfolio that generates income to live on is probably the best for her.

 

As for passwords I'm not sure if it's necessary.  As long as all of the accounts and brokerages are identified a death certificate is all that should be needed to release the money to beneficiaries.  And if accounts are forgotten they will eventually be turned over to unclaimed funds and can be retrieved through the state.

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I would seriously consider WEB's plan in certain situations.

 

Do you mean to give it all away or have I missed something?

 

http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

 

Brief discussion of his general instructions for investment of the corpus of his testamentary trust FBO Astrid is near the end of the article/ in the letter.

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I would seriously consider WEB's plan in certain situations.

 

Do you mean to give it all away or have I missed something?

 

http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

 

Brief discussion of his general instructions for investment of the corpus of his testamentary trust FBO Astrid is near the end of the article/ in the letter.

 

Ahh, thank you! Seems I missed/forgot that part of the letter.

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