# What to do when inheriting a large sum of money (C$2M+)



## Riverdale DIY (Mar 20, 2017)

I am aware that Rule #1 of a large inheritance is do NOTHING right away to avoid stupid decisions etc.. Obviously sitting down with a financial planner is also of the utmost importance, especially due to our unsophisticated investment knowledge, but I wanted to start getting a feel for things. 

Something in the range of C$1.75-2M. It is comprised primarily of two UK properties which I have no intention nor desire to keep. This amount is after the 40% UK inheritance tax comes off the top. An additional C$500K would be added to the mix, in two ~C$250K chunks at various times in the next 10-15 years. I recognize that counting on an inheritance is never really a wise retirement/investment strategy. However, due to existing circumstances, including diligent estate planning by family, plus numerous factual conversations with everybody involved, the surprises are greatly reduced for when that time comes. As such, I’m in a rather unique situation that I have yet to see discussed in “normal” retirement/inheritance/investing conversations. Essentially, a fortunate position of being very “asset rich” but relatively cash poor, with exactly enough for day to day living, and living with essentially zero debt. 

Current situation:

Aged 50, earning $35K/year and wife earns $10K/year
Company pension worth approx. $1500/mth at age 65
No other retirement income beyond OAS/CPP.
No RESP or TFSA’s
Approx. $55K in unused RSP contribution room.
Mortgage free house in Toronto, worth approximately C$1M
No other significant assets.
No debt other than a $5K used car loan ($250/mth for 2.5 years).
Three kids, 19, 15, and 11. The eldest currently runs his own small business in a partnership.

No current plans for retirement but would be happy to retire almost immediately if financially practical. As a family we have been happy living a very frugal lifestyle (no pricey annual vacations, no new fancy cars, no meals out, all second hand clothes) and that is likely to continue. Having said that, there is some pent up demand for travel and adventure but it wouldn’t be excessively extravagant or particularly frequent. More along the lines of a week long cottage rental here and there etc. Also, there is a “wish list” for our home, but not a $400+K gut-job renovation. Something in the region of $150K would more than cover what’s required. 

There are no plans to “downsize” our home in the future as we age. We intentionally purchased a small home in the perfect neighbourhood. Even though at times it has been a tad too small for us all, it was done with an eye to the future. This has kept the operating expenses low and we won’t need to move to a smaller home later in life.

As far as investing in real estate, we would be unlikely to want to become landlords. However, a modest cottage in Muskoka, for personal use or perhaps a second property in Toronto for our child to live in, at a reduced rent perhaps with a roommate, would be something to consider.

Although the money may well be in two separate cheques, a number of weeks./months apart. Since deposits are only CDIC insured up to C$100K, depositing a lump sum of $1M+ in a single account is a little never wracking. Albeit, safer in a Canadian bank that most places, but still. There is the immediate practical concern of exactly WHAT do you do in the immediate moment after receiving the cheque? 

And once that initial hurdle is crossed, then what….


----------



## james4beach (Nov 15, 2012)

Welcome to the forum. I can help answer your first question. You are correct that CDIC only insures up to 100K of deposits (per issuer name). In the following I am assuming we are not worried about tax efficiency of this temporary money parking. Let's say you are going to receive 2M.

Your best option is probably to convert the cash to securities in a discount brokerages. Create an account at one of the big bank discount brokerages. Only go with the big banks. Here are some sensible things you can buy with the large amounts of cash, intended for short term storage:

*1. Short term bonds govt bonds*, backed by the Government of Canada. For example through TD Direct Investing, you can buy the Government of Canada bond with coupon 1.5% maturing Sept 2017. You can buy up to 1M of this at the moment and it would cost you 1,006,844. If you leave it to maturity, on September 1 you'd be paid out 1,007,500. Although it yields very little, this is safe storage of cash that is fully backed by the government. Note however if you sell before maturity you will lose about $3,000 due to the bid/ask spread (on 1M).

*2. XSB - the iShares short term bond fund*. This is a good place to park cash but it does fluctuate in price a bit so there is a mild risk of loss over the short term. Over a period of 1-2 years there is virtually no risk of loss. Because of the high volume and liquidity you could probably put 500K here in a day. Split over two days and you can definitely store 1M in XSB. Even on a low volume day it trades about 4M worth, so one day's purchases of 500K are only 13% of the day's volume.

*3. HISA (high interest savings account) vehicles*. See this info page from TD, but all big banks have these. These are purchased using mutual fund codes but they are CDIC insured deposits, up to 100K. Here's what's interesting though. There are multiple fund codes for the different issuers. You can buy 100K each of TDB8150, TDB8155, TDB8157, TDB8159. This will let you have 400K of CDIC insured deposits, yielding 0.75% each. And they are totally liquid -- you can remove the cash any time with no fees.

Here's what I might do if I was going to receive 2M and wanted to keep it safe. I'd put 1M in the Sept 1 government bond. I'd put 400K into four CDIC insured savings account vehicles. And finally I'd put 600K into XSB, recognizing that there is some price fluctuation with this one. (Even if XSB does decline in price, just wait a few more months and it will bounce back ... it is virtually guaranteed to have a positive return once the time span reaches 3 years).

Storing 2M of cash has never been easier! I'm very conservative and I would not lose sleep with the above arrangement.


----------



## james4beach (Nov 15, 2012)

I forgot another option, and all these 4 options I'm listing can be done within a single discount brokerage

*4. GICs*. If you're willing to lock money into GICs (some of which are as short as 3 months I think), you can put even more money into CDIC insured GICs. You can look at their inventory and buy GICs from different banks. e.g. put 100K into an RBC GIC, another 100K into a Manulife one, etc. I'm sure you could easily find a handful of issuers and put 100K into each.


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... *3. HISA (high interest savings account) vehicles*. See this info page from TD, but all big banks have these ...
> This will let you have 400K of CDIC insured deposits, yielding 0.75% each. And they are totally liquid -- you can remove the cash any time with no fees.



Where one doesn't mind another account login as well as keeping track of it, there's online banks such as PCF, Tangerine or EQ bank.




james4beach said:


> I forgot another option, and all these 4 options I'm listing can be done within a single discount brokerage
> 
> *4. GICs*. If you're willing to lock money into GICs (some of which are as short as 3 months I think), you can put even more money into CDIC insured GICs. You can look at their inventory and buy GICs from different banks. e.g. put 100K into an RBC GIC, another 100K into a Manulife one, etc. I'm sure you could easily find a handful of issuers and put 100K into each.


I've seen at my broker in the past, in addition to the usual 1, 2, 3, 4, 5, 6, 7 & 10 year GICs, short term GICs. Ranges have been 0-59 days, 60-89 days, 90-119 days, 120-179 days, 180-269 days and 270-364 days. I believe I have also seen cashable GICs as well.


Cheers


----------



## twa2w (Mar 5, 2016)

I assume the testator in this case is still alive and of sound mind and living in the UK. 
If this is the case, there may be some mechanisms they can employ to save you money. Not sure if you or they would want to pursue them, or if, based on the amounts, they would be worthwhile.
An off shore testator can set up trusts that can help you avoid some taxes on this money.
This might depend on the nature of the property in the UK and whether there are other beneficiaries and where they are located. And of course how willing and able the testator is to set it up.
If you want to explore this, I would talk to one of the large trust companies, either TDCanada Trust or Royal Trust and ask to speak with a trust officer familiar with off shore trusts. Explain your situation and they should be able to explain the mechanics of this and the process and costs.
Cheers
J


----------



## CalgaryPotato (Mar 7, 2015)

What is your goal with the 2 million dollars? I mean, by the sounds of it, you live on well under $40K per year and have no major plans to increase your expenses. Which, after your pensions, CPP & OAS. You don't need much of that money at all. 

It sounds like your primary goal is to help your children with that money/leave it for them. So I guess you need to think about how you want to do that. Do you want to help them with their initial home prices (which are overwhelming in Toronto) or would you prefer to give it to them later in life? Keep in mind that between you and your spouse you may have another 40 years until you are leaving your own inheritance.

Also, you seem very set on staying in Toronto, can I ask why? Toronto is a very expensive city that most people move to just to make more money. Since you aren't working, why do you want to live in an expensive but tiny house?


----------



## james4beach (Nov 15, 2012)

Eclectic12 said:


> I've seen at my broker in the past, in addition to the usual 1, 2, 3, 4, 5, 6, 7 & 10 year GICs, short term GICs. Ranges have been 0-59 days, 60-89 days, 90-119 days, 120-179 days, 180-269 days and 270-364 days. I believe I have also seen cashable GICs as well.


You're right. At Scotia iTrade I see a collection of 6 month GICs and also cashable GICs. Add in the multi issuer HISA names and you can probably comfortably do 1.5M with CDIC insurance which is pretty amazing within one account.

Going back to the OP ... who as I understand, has not received an inheritance yet but is thinking ahead...

It sounds like this inheritance could enhance your income but you won't have to draw massive amounts of money out of this. This is a really sweet position to be in. Let's say you receive 2M. Only strategy would be to split it into two piles.

Pile A (perhaps 500K). Short term needs such as big expenses you anticipate, lump sums. You can effectively leave this money in GICs and high interest savings accounts. This will grow, a bit, be super-safe and you can withdraw the amounts whenever you want.

Pile B (perhaps 1.5M). The capital. This might be appropriate for stock investments. One thing about Canadian taxes that is quite interesting is the extremely favourable treatment of "eligible dividends". If you put the 1.5M into iShares XIU for example, it will spin off at least 35K of annual income -- automatically -- for the rest of your life and without depleting the pile of capital. Additionally, that income is taxed at an extremely low rate.

One idea to ponder: *With 1.5M in XIU, you could retire and receive an automatic annual dividend from XIU and will effectively pay zero tax. With 35k income from XIU and 18k pension = 53k annual income, you will pay virtually no tax and won't even have to touch this capital.*


----------



## Karlhungus (Oct 4, 2013)

Retire. Invest in a 60% equities 40% fixed income portfolio and withdraw 3% or less of that pile and enjoy life.


----------



## redsgomarching (Mar 6, 2016)

Karlhungus said:


> Retire. Invest in a 60% equities 40% fixed income portfolio and withdraw 3% or less of that pile and enjoy life.


I was going to say something on the lines of this. Sell your depleted house in Toronto, go live your life (if your kids were old enough) 45k with a toronto property and 3 kids? Was this always the case? 

A few things;
Top up your Registered account amounts, including setting aside some for kids' RESPs. 

Even with the 2Million in inheritance (assuming all of it is going to you and this is after taxes,fees, etc) you @ a conservative return of 3.5% can net you nearly 70k per year.

another; renovations in the house, would it be absolutely necessary for you to do this? even if you wanted to sell are the renos required?
if not, sell as it is, let these rich foreigners pay you, take their money taxed free (if principal residence for entire time) and move to a cheaper area and you will have an additional sum to add. (only if you can do this i.e kids would have to transfer schools, depending on your 19 year old where he lives)

finally; it may be worth looking at speaking to a fee only planner who will help some planning strategies.

actually real finally; you need to talk to your wife about what you want to do for the remaining years of your life. personally it seems as though you have worked hard and made due and I would recommend some nice relaxing time to live your life!


----------



## OnlyMyOpinion (Sep 1, 2013)

james4beach said:


> ... One idea to ponder: With 1.5M in XIU, you could retire and receive an automatic annual dividend from XIU and will effectively pay zero tax. With 35k income from XIU ... you will pay virtually no tax and *won't even have to touch this capital.*


James, are you ok? No headache or fever I hope.:uncomfortableness:


----------



## TomB19 (Sep 24, 2015)

$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.


----------



## james4beach (Nov 15, 2012)

OnlyMyOpinion said:


> James, are you ok? No headache or fever I hope.:uncomfortableness:


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.


----------



## james4beach (Nov 15, 2012)

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


----------



## humble_pie (Jun 7, 2009)

Riverdale DIY said:


> 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


.


----------



## CalgaryPotato (Mar 7, 2015)

humble_pie said:


> 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
> 
> ...


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.


----------



## Jaberwock (Aug 22, 2012)

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.


----------



## Riverdale DIY (Mar 20, 2017)

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.


----------



## OnlyMyOpinion (Sep 1, 2013)

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.


----------



## Riverdale DIY (Mar 20, 2017)

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.



OnlyMyOpinion said:


> 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.


----------



## Dragonprotein (May 22, 2017)

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.


----------



## My Own Advisor (Sep 24, 2012)

If unclear what to do with some money, in short term, i.e., ...."there is a “wish list” for our home, but not a $400+K gut-job renovation. Something in the region of $150K would more than cover what’s required."....I would be tempted to consider the following:

1) $100K cash. Savings.
2) $400K GICs. 
3) $1M invested in XIU and/or Canadian dividend paying stocks (for tax efficient dividend income).
4) $250K invested in HDV or VYM for US dividend/distribution income.
5) $250K invested IDV or related for US dividend/distribution income from international companies. 

Cash for life and for kids' life and beyond!


----------



## olivaw (Nov 21, 2010)

Relating to a different thread, one option is to contact an insurance agent or fee-only advisor and asked them to quote a 45K annuity indexed to inflation for the next 50 years - if for no other reason than to find out what guaranteed income is really worth. 

2M is a lot of money to hold at one time but it is not a lot of money when you have to make it last for 40 or 50 years.


----------

