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Mother-in-law, Sister-in-law investing


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It's been suggested by a fellow member that we should have a topic on Mother-in-law and Sister-in-law investing.

 

My initial advice. Do not under any circumstances run money for your mother-in-law. There's more gray when it comes to your sister-in-law, but I'd say you should err on the side of caution and stay away from that as well.  ;)

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This extends to every friend and family member. I refuse to invest for them.

Maybe. I have had a great experience running money for my friends. I'm also very open with what I do and what they should expect. Also depends on the friend and compatibility for this sort of thing. We all have an array of friends some are more serious and analytical and some are less so but are great to hang out with on a Friday night. Choose the right fit when accepting which ones you invest for.

 

Another personal anecdote is that I have twin sisters. One I've invested money for for years. She's done great and is very happy and we have a very good relationship regarding investments. The other I refuse to invest a penny for. It's all related to fit and attitudes. But still..... don't touch the mother-in-law's money.  8)

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Agreed with regards to all!

 

In years past friends would come to my house & some would notice my bookshelf & start asking questions & I would enthusiastically discuss investing (the ones whose eyes would immediately start glazing over, I'd hand a short list of Vanguard index funds & that'd be that) but I never found anyone with the temperament to match my advice (it was all; "what do you think about xxx, they do something medical or technical & my guy says it's gonna double in less than a year blah, blah, blah...) & there was no convincing them otherwise so I moved all books about finance from the public areas to the shelves in my office.

 

At work; crewmembers see me reading & occasionally the same thing happens with almost 100% glazed over eye syndrome so it's all good there!

 

The only family member I have success with is my sister.

 

She's finally onboard after she bought Alcoa around $15 & watched it drop 50% & ADM at $55 or $60 (I forget...) both of which she bought without knowing the first thing about either business.

 

My Mom fixates on tax consequences & won't listen to a word regarding a large concentration of ATT (over 50%) so now I mention it about once a year when she asks for advice which she promptly ignores.

 

I think that's a big reason I love being here (you guys enjoy talking about businesses & the reality of investing) and of course, I learn a lot from everyone here...

 

Almost forgot to add; had a mother in law before & don't plan on having another (blissfully single!)

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This extends to every friend and family member. I refuse to invest for them.

 

I was asked to invest my MILs money just about a year ago (shes 83 now).  I gave it alot of thought and decided not to.  They are 4 siblings, and none of them gets investing to the level I need them to understand.  I did intervene and not let them reinvest it in GICs and CSBs.  They (she) chose to disburse a good chunk to the siblings and grand children. 

 

The problem is that all that cash sitting in bank accounts makes her a sitting duck for the bank sales people.  And they are aggressive.  They call her up, after we gave them explicit instructions to back off.  Talk about a conflict of interest.  I hold RY stock. 

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I guess I'm the exception here but I manage 100% of the life savings of both my Mother in Law and Father in Law.  FIL is the bigger pain, as he can find fault in virtually any company (he is extremely liberal politically) and will then forget the 'ground rules' and request a divestment of a particular security.  I kindly remind him that he did not sign up for a collaborative process and there would be no hard feelings if he would like to switch investment managers.  He always shuts up at that point until the next time he conveniently forgets the ground rules.  But he's had a stroke and I give him a pass on that kind of stuff.  They asked me take over management of their savings for years before I agreed to take them on.  Ultimately it was to save them from bad results and bad advisors.  I took over just before the pre-financial crisis peak.

 

Over time, as the market presented the opportunity, their portfolios have migrated to 80-90% Berkshire Hathaway stock - which they both seem extremely pleased with for a number of reasons.  It has been very tax efficient for their taxable savings and the purchases have been at low enough P/B ratios to provide exceptional downside protection and returns that have exceeded the index.  Berkshire also helps them avoid panic in deep market corrections and I think they enjoy pointing at train cars that pass.

 

The Mother in Law has been one of the best clients in that she is 100% pleased with her results, trusts me to make appropriate decisions for them, and doesn't wish to meddle outside of requesting some cash every once in a while.  It helps that she has become quite wealthy over time.

 

I guess with in-laws, you take them on a case-by-case basis.  I manage every penny of my own Mother's savings as well and she's been a very problem-free client as well.  Lucky with temperament I guess.

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My MIL has an adviser at Edward Jones who she is thrilled with. When she mentions the funds her adviser has her in, heavily loaded, I just have to bite my tongue.

 

My MIL contributes her required IRA distribution at the end of each year to charity, which is wonderful. But she does it for the wrong reason. She thinks giving X dollars reduces the taxes she pays by X dollars, which is her motivation--not giving the government the money. I tried to explain it to her and quickly learned never to talk about anything financial with her.

 

I would like to hear the conversations she has with her "adviser."

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My MIL has an adviser at Edward Jones who she is thrilled with. When she mentions the funds her adviser has her in, heavily loaded, I just have to bite my tongue.

 

My MIL contributes her required IRA distribution at the end of each year to charity, which is wonderful. But she does it for the wrong reason. She thinks giving X dollars reduces the taxes she pays by X dollars, which is her motivation--not giving the government the money. I tried to explain it to her and quickly learned never to talk about anything financial with her.

 

I would like to hear the conversations she has with her "adviser."

 

Is the Edward Jones advisor younger than your MIL and good looking?  That might explain it.

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Our 'we' is two partnerships; one limited to very close family friends, & one limited to very close family.

 

I am the MD of both those very private partnerships, and they are both structured as Canadian investment LLPs & regulated accordingly. Funds can be contributed, but not prematurely drawn out - except under a majority vote. It is 'forever' capital subject to a maximum cap, above which surplus capital must be returned within 6 months of year-end, on a pro-rated basis. As MD, I'm paid $C 1.00/year.

 

The family partnership is multi-generational, & multi-national; it exists to create family opportunities, tax efficiency is a secondary consideration, and it follows the fairly standard practices of many African and Indian family businesses. The friends of family partnership functions the same way as any other limited partnership.

 

The expectation is that everyone does their own thing, & has zero involvement in the day-to-day partnership decisions.

The only exceptions are significant related party transactions, which require a majority vote. 

 

Otherwise investing for/alongside family is generally a bad idea.

 

SD

   

 

 

 

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My MIL has an adviser at Edward Jones who she is thrilled with. When she mentions the funds her adviser has her in, heavily loaded, I just have to bite my tongue.

 

My MIL contributes her required IRA distribution at the end of each year to charity, which is wonderful. But she does it for the wrong reason. She thinks giving X dollars reduces the taxes she pays by X dollars, which is her motivation--not giving the government the money. I tried to explain it to her and quickly learned never to talk about anything financial with her.

 

I would like to hear the conversations she has with her "adviser."

 

Is the Edward Jones advisor younger than your MIL and good looking?  That might explain it.

 

That would make sense, but the advisor is a she in her sixties.

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  • 3 weeks later...

Question:

 

How do you make money on the day you die?

 

Answer:

 

You die on a day, when the markets are in a short term [on the day] upward trend.

 

[Other feasible answers may be right].

 

- - - o 0 o - - -

 

Back in July 2012, when we were on vacation in Rome, we got a call from the nice neighbour of the "MIL" ["MIL" then living in her own house north of Copenhagen, called "MIL" because I'm not married to the Lady of the House]. The neighbour had found her on her patio, collapsed because of the severe heat at that time, and she had not been drinking enough.]

 

After beeing stabilized over a longer hopital period, the Lady of the House decided it was time for "MIL" to move to a nursing home in the area, at least just for a period.

 

Time went on, and over time it became clear, that "MIL" was actually fading in a way, that it would not be the right solution for her to move back to her own house again.

 

In the late spring of 2013 I presented a calculation for the Lady of the House, that her mother would go broke [run out of cash] within three years, because of double housing costs, if not her house was sold.

 

The house was put on the market in the middle of 2013, and was sold late in 2013. After backing out of some mutual funds positions and a small stock positions, and redeeming "frozen" real etate taxes in the house - for I don't know how many years - it was many - "MIL" ended up with a quite large cash pile, and no debt, in a rented small appartment at the nursing home.

 

The Lady of the House has been managing the finances of her mother for quite some years under a general power of attorney, which contained some conditions to be complied with all time the power of attorney beeing in effect. Maximun capital allocation to securities 50 percent - blue chip stocks and bonds only.

 

In the process of liquidating the assets of "MIL" the Lady of the House started to asking me questions about what to do with all this cash, and I intentionally posponed my answer with "one hurdle at a time". When all the cash finally was in "MIL"'s account with Danske Bank, I asked for a couple a weeks to think things trough.

 

One evening [in December 2013, if I remember correctly]  I finally "opened the ball" with a short discussion ... - and she [the Lady of the House] was totally apalled by my overall explanation: " I will strip her - rip her off - for nearly about everything, except her clothes, her jewelery, and furniture and paintings at the nursing home, beside a certain sum, which she will keep, and the most part of that you  will invest in stocks."

 

It turned out not to be the right way to start this proposal - short term, but over some time the Lady of the House left me space for some elaboration :

 

[Please note: Here in Denmark, we have an inheritance tax of 15 percent of net worth above about DKK 0.5 M for a married couple - when the first spouse desease, you can defer the inheritance tax for the first spouse deseased. The husband of the "MIL" deseased about 22 years ago.]

 

Here is what has happened since the end of 2013:

 

1. Some money was send to the two kids of the Lady of the House [or more precisely: directly to the creditors of the two kids of the Lady of the House, with one condition attached to each kid: "Don't ever indebt your self again in this way - always ask here first [, or...]" [Thereby skipping one generational haircut of 15 percent].[ Here in Denmark, you can give about DKK 60 K pr. year to the next generations without tax implications.]

2. A lawyer was asked in the end of 2013 to set up an interest free on demand note between the Lady of the House and "MIL", and material part of the cash of "MIL" was transferred to the Lady of House, and it was put as high interest rate deposit at the Danish branch of Santander Consumer Bank AS, the Danish branch of the Norwegian SAN SCF sub - later also some of those funds placed at Bank Norwegian AS [banking sub of NOFI.OS]. [Thereby avoidning 15 percent inheritance tax on the return of these funds].

3. Based on the balance sheet of "MIL" I have calculated net worth of "MIL" at the end of 2013, and have set aside the figure in DKK for inheritance tax for her on a separate high interest account at Santander Consumer Bank AS.

4. A percentace of the net worth of "MIL" after inheritance tax was allocated to stock investment by the Lady of the House, ref, the geral power of attorney [max. 50 percent] - it ended up about 35%, which was placed at a high interest account at the SAN SCF sub, and was gradually invested in stocks over a three year average in at her brokerage account.

4. These calculations left me with a liquidity stub, to cover her crisis fund and costs connected to her death [liquidating the small rest of her assets] and funeral. The surplus above the calculation went to an on demand account at the Norwegian SAN SCF sub and Bank Norwegian.

5. All interests at the accounts of the Lady of House and "MIL" have been allocated into stock investments at the end of every year.

 

- - - o 0 o - - -

 

My "MIL" passed away in the morning of 2nd January, at the age of 99 years - 26th February she would have turned the corner of 100 years. This - if you think about it - very conservative - arrangement - has turned out well - the net worth of my "MIL" declining year by year well below tax free gifts to decendants, and adjusted for Danish inflation.

 

- - - o 0 o - - -

 

The Lady of the House is the only decendant after her parents. This is what makes this situation quite simple to navigate, based on the existing general power of attorney.

 

- - - o 0 o - - -

 

The "funny" thing is [here without going into details], at that time exactly the same proces took place over time with regard to my own father - with a totally parallel proces, running over the same time time span - the difference only beeing that I have three siblings instead of zero, thereby giving the opportunity reduce Danish inheritance taxes 4 four times faster compared to if there is only one descendant.

 

What I did in the end of 2013 was to "drum" for a family meeting for discussion [and desicion] - unamiously - about what to do with my fathers cash, thereby obtaining a clear and manageable mandate.

 

None of my 3 brothers now have bank debt [i'm the third in the row], and only one have a morgage, based on what has been done after that. [The difference here beeing my father is making the descisions himself, well aware, that physically disabled and old, he will kill himself, if he try to spend his money on "Wein, Weib und Gesang". [90 years old].

 

- - - o 0 o - - -

 

To me - all in all - this MIL investing thing - is all about thinking in actual terms of permanent capital.

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This extends to every friend and family member. I refuse to invest for them.

 

Same thing for me, with the notable exception of my parents. I know how bad they are with their money, so I made a deal with them that I would add on $100 for every $1000 they shove in their investment savings account with the caveats that they don't have the right to touch any of it until retirement (working on honor system) and I manage it for them. Doesnt stop them from running up credit/debt to buy junk in true blue collar fashion, but that would happen either way, so hopefully the egg I am growing for them will soften their landing a bit.

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To me - all in all - this MIL investing thing - is all about thinking in actual terms of permanent capital.

 

John, sorry to hear about your MIL.

 

It is nice that you have organized her finances and finances of your father in orderly and positive fashion.

 

If only all families had such good financial organizers.

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Thanks, Jurgis,

 

The processing of the MIL estate going forward in the coming months is now:

 

1. Stopping all running costs including the rent - already done, not much.

2. Payment for the funeral of the funds set aside for that.

3. Creating the nessesary statements for probate court and the Danish IRS.

4. Payment of the inheritance tax to the Danish IRS when statements are approved by the Danish IRS of the funds set aside for that.

5. The Lady of the House will get the note with her self as debtor as inheritance outlay, together with MIL stock portfolio, thereby eliminating the liability of the balance of the interest free note in the balance sheet of the Lady of the House.

6. The cash held by the Lady of the House coming from the proceeds of the note has so far been "not to invest - allways hold as cash"-money, they will now be investable going forward, after some plan decided by the Lady of the House.

 

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This extends to every friend and family member. I refuse to invest for them.

 

Same thing for me, with the notable exception of my parents. I know how bad they are with their money, so I made a deal with them that I would add on $100 for every $1000 they shove in their investment savings account with the caveats that they don't have the right to touch any of it until retirement (working on honor system) and I manage it for them. Doesnt stop them from running up credit/debt to buy junk in true blue collar fashion, but that would happen either way, so hopefully the egg I am growing for them will soften their landing a bit.

 

Patmo,

 

I certainly understand your position on this.

 

Bjørn Wahlroos, Chairman of Sampo Plc and Nordea AB, at a speach held at the Danish Pension institution PFA on 6th May 2015, article about the speach the same day at Børsen.dk with the headline : Europe is in deep shit and people are idiots.

 

80% are idiots

 

Now I may offend somebody. But about 80 percents of people are idiots. At least when it comes to money.The financial sector is about to move money from the 80 per cent without ideas to the 20 percent of the people who actually have ideas. The financial sector is a tunnel that takes money from idiots to people who are better with money, so everyone feel better, both idiots and the other, "said Wahlroos according Finans.dk.

 

It's actually my favorite definition of a bank!

 

For my part:

 

1. My father gave me the opportunity to get an education, thereby getting a much better life than my parents. Now, I'm there for him, because he need my assistance, advice and work. In short, it's a moral & family obligation for me. And he appreciates it. That's "fee" enough for me.

2. My brothers appreciate also what I do.

3. The Lady of the House appreciates also what I do with this for her and for her - now late - mother. During the last few years she has got an understanding of how important this is for our common future.

4. To various degrees, it has created postive changes for all family members within three generations in both families.

 

- - - o 0 o - - -

 

All in all, it's all about if what you do makes sense or not. As a CPA I know I'm not here to handle every problem/issue out there. It does make sense to me, otherwise I would not spend time and Kjoules on it.

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