What to do when inheriting a large sum of money (C$2M+) - Page 2
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Thread: What to do when inheriting a large sum of money (C$2M+)

  1. #11
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    $2M is not an infinite sum, in pension terms. You have 40 years to fund and you're talking about helping your children a bit.

    If it were me, I'd look at spreading it across a GIC ladder on the immediate term. You could buy four GICs with terms of 1, 2, 3, 4 years, all for $500K, and then study what you are going to do with the money. A year of study would not be too much. It sounds like you are boot-strapping your investment knowledge. Be patient with yourself.

    Be cautious of money managers. You will end up buying investments that pay them the most commission. I would encourage you to take your time, study the options, and carefully consider how you are going to approach the future.

    Most of all, remember this: You are not rich, but you have enough money to live comfortably as long as you don't mis-step too badly.


  2. #12
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    Quote Originally Posted by OnlyMyOpinion View Post
    James, are you ok? No headache or fever I hope.
    My statement was carefully made. Living off steady withdrawals (dividends or whatever) from a stock index like XIU is perfectly sustainable forever at low withdrawal rates. The number I posted in my reply was a 2.3% withdrawal scheme. That is absolutely at a sustainable level. However as you increase the withdrawal amount the sustainability drops and your start requiring a less volatile portfolio -- like a balanced fund. It starts to become essential.

    My seemingly feverish comment to "just put it in XIU" was rooted in monte carlo simulations, which you can try on this web site. Simply put in 1,500,000 and enter 35,000 (my suggestion) for the initial withdrawal. Choose "developed markets" as the stock class, and specify 50 years.

    You'll see that 35k has 80% probability of success and 25th percentile is 1.8M result
    Now try 40k and probability of success drops to 76%, and 25th percentile is 178k (almost depleted)
    Finally try 45k and probability of success is 70%, with 25th percentile at $0 (depleted)

    That's a critical factor ... how MUCH you're withdrawing. 2.3% out of XIU is infinitely sustainable. 2.7% out of XIU gets a bit uncertain. 3.0% out of XIU starts to look unsustainable.

  3. #13
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    I want to revise some of the advice I gave. At first I said that Government of Canada bonds are an option for where to initially put the $2M. They are fine for this, however they require some expertise to trade. I think this is too dangerous for a new investor to try... the broker could really screw you on your purchase.

    Here's my advice on where you can initially put 2M or more in cash you receive, safely:

    1. XSB - the iShares short term bonds, buy or sell up to $500k/day
    2. HISA (high interest savings account) vehicles, up to 4 issuers x 100k CDIC each
    3. GICs, as many issuers as you want x 100k CDIC each

    If going down this route, you should shop around the discount brokerages and check at each one: how many HISA (options do they have, what is their GIC selection like, and can you buy the GICs online
    Last edited by james4beach; 2017-03-23 at 12:56 PM.

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  5. #14
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    Quote Originally Posted by Riverdale DIY View Post
    Something in the range of C$1.75-2M ... I recognize that counting on an inheritance is never really a wise retirement/investment strategy.

    wondering if the benefactor in this case is still alive?

    it sounds as if he or she is still amongst us mortal beings here on earth

    if so, there are powerful social taboos against anticipating an inheritance, at least not to this incredibly detailed extent


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  6. #15
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    Quote Originally Posted by humble_pie View Post
    wondering if the benefactor in this case is still alive?

    it sounds as if he or she is still amongst us mortal beings here on earth

    if so, there are powerful social taboos against anticipating an inheritance, at least not to this incredibly detailed extent
    .
    I guess it depends, if this person is on their death bed, mortally ill and the OP knows that they are going to inherit 2 million dollars, within a short period of time, I don't think there is anything wrong with having a plan in place for that likely eventuality.

    I know when I've had ill family members their was a lot of conversation at the time (led by them) over wills and insurance and stuff. It's hard to not think about when they sit you down to go over that kind of stuff.

  7. #16
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    Invest it in blue chip dividend paying stocks with an emphasis on stocks that regularly raise their dividends.

    You will have $80k per year in dividends, which will increase each year to more than cover inflation. Any capital appreciation will be a bonus.

    If you enjoy your job, then carry on working. If you don't, then do something else.

  8. #17
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    Thank you everybody for your input. It has given me plenty to think about and look into in greater detail.

    Just to answer a couple of side question that did come up:

    a) I recognize many people do move to Toronto (or other big cities) to work, then sell up and move during retirement. I’m sure this is to free-up the typically large equity built up in their primary (tax-free) residence. This obviously would be a huge boost to their retirement portfolio. However, we specifically moved to Toronto to get out of the suburbs and into a vibrant and relatively clean and safe, city that has un-endless opportunities for just about any activity we want to do.

    We are also in Toronto proper, and not some far flung, essentially suburban, corner of the city (Which to me have all the big-city cons with non of the pros). Thus, exceptionally walkable, and also a great place to “grow old”, given our almost immediate proximity to all the health and other supporting services required. It is also a great place, with huge potential for our children to explore and thrive in. Yes, this does mean they’ll likely be living at home longer due to prohibitive costs of getting out on their own. Since we are in an exceptionally fortunate financial position, if we are careful, we won’t need to unlock the equity we have in this house and can stay exactly where we want to be. City living is not for everybody, but we wouldn’t be any place else.

    The noted renovations are not required, the house is more than liveable in it’s current state. But most home-owners has a list of things they’d like to do/change, we are no different in that regard. Although, our list is likely more frugal and less grandiose than most.

    b) As far as planning on how to spend your relative’s money while they’re still alive (which they are)…This conversation has been entirely started and continues to be led by the benefactor. Neither of us has any real experience with investing or managing large sums of money. Our combined wealth is predominantly related to well-timed (albeit lucky) increases in real estate values. Thus, it hasn’t required much active management over the years. We speak regularly about the future, and there’s no sense pretending it won’t happen. It may not happen tomorrow, but it is going to someday. Advance planning, even rudimentary, can only be a good thing. We don’t go around bragging about it, just have open and honest, frank discussions in private.

    c) I am aware of the ability to create a “granny trust” while the UK based benefactor is still alive. However, and I’m sure this may shock some of you but that adds a layer of complexity neither of us are willing to undertake. We both have experience with a complex estate involving five different countries, all legal, to minimize taxes. The effort and complexity, and administrative costs involved made any net tax savings in that scenario seem highly dubious.

    Here’s the part that may really horrify some of you…neither of us (benefactor or me) actually minds paying taxes. Obviously not massively high taxes and/or as much as we possibly can, but taxes are a sign of success. At what ever income-level you’re paying them, they mean either you have a job or you’re earning an income from investments etc.. They fund an inordinate of things that are supportive of society in general and allow more of us to live the enviable Canadian lifestyle we enjoy. Could the Government could do better with the money we pay them? Absolutely, but that’s another whole other conversation. I’m happy to pay a share. The legal tax avoidance strategies can become rather all consuming, leaving little time to actually enjoy the life you’ve work so hard to create.

    Thanks again for your suggestions.

  9. #18
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    One of the kindest things your benefactor could do is 'declutter', liquidate, sell off excess real estate, etc. and make their estate as 'clean' and straight forward as possible for the executor and remaining family. Not sure if that sort of discussion with them is possible.

    I'm two weeks into cleaning up a property for selling that at first glance seemed pretty quick & easy - turns out there's a lot more work than I expected.

  10. #19
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    Oh yes, absolutely. She has been on a HUGE purge/organize/simplify mission. My step-father passed away four years ago and that has helped focus her (our) mind. She is also intensely aware that my "life" is in Canada (whereas she is UK based) and does not want to be a burden and also create as little disruption as possible. Excellent advice, thank you.

    Quote Originally Posted by OnlyMyOpinion View Post
    One of the kindest things your benefactor could do is 'declutter', liquidate, sell off excess real estate, etc. and make their estate as 'clean' and straight forward as possible for the executor and remaining family. Not sure if that sort of discussion with them is possible.

    I'm two weeks into cleaning up a property for selling that at first glance seemed pretty quick & easy - turns out there's a lot more work than I expected.

  11. #20
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    First of all, no matter what you do you should check your plan with an accountant. Pay the accountant well.

    Second, stay far away from banks for advice. Their goal is always to take a share of your cash, probably by spinning you some yarn about "managing your money". They will convince you they can do it better than you, and that's why you pay them so many fees. Most of those advisors have three week courses as their qualifications.

    Third, read simple yet powerful books by experienced economists and professors. There are many easy reads. I'd start with The Little Book on Common Sense Investing and The Essential Retirement Guide: A Contrarians Perspective. I would say you don't need any more than that.

    After all that my guess is you'll put 50% into a short term Canadian bond index, 25% into a Canadian Market ETF, and 25% into a Global Equities ETF. You can withdraw 3-4% for the rest of your life and never worry about inflation. You will be wealthy and safe by virtually anyone's standards.

    Again, do NOT ask a bank for advice.


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