Nick and Caroline are 44 and 39 years old respectively. They have two sons, Jason, age 15 and Daniel, age 11. Nick’s mother, a widow in her mid 70s, recently passed away. Nick’s father had died 12 years ago and left his mother well off. Nick never imagined just how well off she was; Nick and his older sister will split an estate worth eight million dollars, after paying large federal and state estate tax bills. Without a doubt, this changes everything for Nick and Caroline.
Challenge:
- What should Nick do with the money he receives?
- How should Nick structure his affairs to minimize taxes on his and Caroline’s estate?
- What does this mean for the family’s future?
Financial Issues:
- How should they invest their share of the inheritance — four million dollars?
- Can Nick and Caroline afford to leave their jobs and retire now?
- Can they live on this money for the rest of their lives?
- How do they ensure their children have money for college and won’t spend it on something else?
Lifestyle Issues:
- Nick has a good job as a plant manager for an electronics company. He likes his job, but always wanted to write a novel. Should he just leave the job and pursue his dream?
- Caroline makes good money as a real estate agent, even in the recent downturn. She enjoys her work and doesn’t want to retire. She thinks they should buy a bigger home and invest in rental property or a vacation home.
- Jason is more of an athlete than a scholar. He’s not enthusiastic about college even though his parents want him to go. Daniel is much more academic and wants to go to an Ivy League school if accepted. How do their parents plan for Jason and Daniel’s future?
Solutions:
- Nick and Caroline need to take some time to get used to the idea of having money before they make any major decisions.
- WrapManager does an Envision consultation to help them see their future in terms of goals.
- We run a number of Envision scenarios to help them get a sense of what life would be like if they made different sets of choices.
- We help them understand their level of comfort with risk and demonstrate how their new circumstances may have influenced that level.
- We ensure they stay liquid enough to make the real estate purchases they want if they decide to do so.
- We establish college funds for both boys. We set up a 529 plan for Daniel, but simply segregate some money for Jason since he is closer to college age and may decide not to attend.
- We invest the remaining proceeds in a diversified portfolio consistent with their risk comfort.
- We work with an attorney to help them create an estate plan that protects their assets from estate tax and ensures their children’s future.
This case study represents hypothetical situations as examples only. Accordingly, no client or prospective client should assume that solutions presented (or any component thereof) serve as the receipt of, or a substitute for, personalized advice from WrapManager, or any other investment professional.