Critique my Personal Finance end game
Here is my personal finance end game. Please shoot holes in it. Currently expect that by 65 I will be sitting on approximately $50M. It is 30 years away. I have two young kids currently. I plan to setup a trust which will spin off income to me and all future descendants subject to some specific rules: - Each person gets a $250k grant annually (2054 dollars, about $120k in today’s dollars), and this number increases over time adjusted for inflation - You get this grant starting at age 30 if: - Funds are available; AND - You are a direct blood descendant of me; AND - You are employed >20 hours/week; OR you have a child below the age of 18 who is not in full time childcare; OR you are married and pregnant; OR you have a college degree and supply an annual community engagement plan that describes projects in the arts or charitable/volunteer work that involves at active engagement in your community, and documented proof of this engagement annually; OR you are the principal at an LLC or corporation that has average annual revenue of at least $100k annually (not sourced from the grant. 3 year grace period that can be used one time per descendant where revenue can be less); OR a doctor has determined an inability to work due to a medical diagnosis/disability; OR you are above the age of 65 - In the event of any convicted substance abuse charge, the grant is automatically paused for a period of 5 years except that it can be used to pay for rehabilitation and therapy, or 40% of the normal payout can be forfeited to a parent or sibling who you live with during the 5 years (and who has no such convictions) The trust is administered in perpetuity by a law firm and financial manager who are contracted to ensure its perpetual survival. Assets are invested in 70% broad stock index and 30% in broad corporate bond index. Rough numbers, I figure the number of descendants doubles every 28 years, which is a 2.5% growth rate in the family tree. If I am initially paying out $750k (1 share for my wife and I and 1 share each for my two kids) then a 4% annual withdrawal rate would be: - $750k / (.04 - .025) = $50M Is this workable to last many generations? Will it screw up my descendants or allow them to live their best life? What would you change?
Doing all that work and 50M will be worth 🥜 in 40 years. Might be worth 🥜 in ten years if democrats get elected again
Pretty sure we aren’t going to see sustained 10% inflation for decades. Even if we do, the interest rates on the bonds will be even higher and the stocks will be sky high.
Most Private Wealth Management and Trust companies would advise you to remove the substance abuse provision as it becomes incredibly hard for them to administer the trust. If you are adamant in its necessitation, most firms would reject you as a client, even when it’s $50MM+ AUM.
Thanks! Any useful approaches to create incentives against being a junkie? Glad to know that I’m not totally crazy and organizations to administer this kind of thing actually exist!
I think your concerns are misdirected. Most generational wealth is wiped out by spendrift, rather than “junkies”. This is not intended to be legal or financial advice but if you are serious, speak to a Trust & Estate lawyer. They will likely suggest adding provisions that the Trust may pay out educational and healthcare needs of the beneficiaries, a fixed % payout rate of the Trust’s AUM (usually 3-3.5%) + all income generated in the trust. Find a private wealth advisory firm (BNY, BofA, JPM, etc) and name them Co-Trustee of your Trust. They will have a team of fiduciary and wealth strategists that will administer the trust and be the “bad guys” to any grandkids who think they are entitled to more assets.
Bro why do you have to be so paranoid about the future of your descendants. As long as they get a proper education / healthcare, they’re more than fine. Enjoy your life!
Wtf is your position at LM lol. You one of the SCM MPMs?
Soooo, one of the ways to keep them from becoming a junkie is to not pay them enough money that they don’t feel the need to actually apply themselves to succeed. I know several people from B school who “have jobs,” but they’re just chasing whims and not putting in the real work… instead, they’re “networking” at tech events and doing blow…. and it’s all fine because they still get paid 6 figures from their parents’ estate.
Maybe pay some money to get a professionals opinion? That just seems like the absolute basic thing you should do if you’re planning to manage $50M.
Definitely get some legal advice, because already I can tell that you are not contemplating gift or estate tax. It’s been a long time since I did tax, and I don’t remember what the threshold is for current estate taxes, but I can tell you that you’ll need to plan for that, for sure. And there’s no such thing as perpetuity, that’s why transfer taxes such as gift and estate taxes exist - the government would like to basically make sure that this gets taxed, so there are laws against trusts being able to operate in perpetuity. Ajax244 gave you some of the best advice.
Forget the complex rules. Pay for education and healthcare, that’s it.
Interesting idea - but I’m trying to fully remove the shackles from my family tree while also making sure there is an expectation of doing something with your life. The rules are to provide flexibility to interpret “doing something with your life”
No matter what rules you set up, there will be a way to game it.