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Hi All,

First time posting but I've been browsing the forum for quite a while.

In a nutshell... My father recently passed away and he had a life insurance policy for myself and my two siblings in the amount of $850,000. This policy will be split unequally among the three of us, my brother will be receiving $600,000 and the remaining $250k will be split between my sister and I. Both me and my sister are fairly well established. However, my brother does not work, and quite frankly has had a pretty difficult time in life. In the past he was a serious drug user (street and prescription), has moved homes about 15-20 times in the past 10 years, has no education, and very little financial sense. That said, he has cleaned up his act quite a bit lately, is still addicted to prescription medication but is weening off, and generally has become much more stable in his life, and mindful about the importance of his future. I should also note that I believe that if he applies himself he can definitely make something of his life, there's no reason he can't go back to school, work, etc if he wants to.

My concern, however, is that giving this amount of money to someone in his position seems to be a dangerous proposition. He could literally make 2 or 3 bad financial decisions and that money will be gone. I look at this money as a second chance in life for him and really do not want to see him squander it.

My simple advice to him is that upon receiving the cheque that he park the money in the bank and leave it until he attains some basic financial education. Money sitting in a chequing account or basic savings account gaining little interest is likely a much safer option than making a rash decision to move it somewhere else and then losing because he didn't know what he was doing. I encouraged him to take a course or two on personal finance and gradually build up some fundamental knowledge of money and finance.

Other than the above can you guys make any additional suggestions on what he might do with the money in the short term or share any similar stories? Keep in mind this is a fairly unique case and I think that super safe investments and time spent learning are going to be invaluable for him. Any advice or tip would be really appreciated. Thanks!
 

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What is his age? Does he have a family/beneficiaries?
I ask because I know of a somewhat similar situation although no where near that sum - if anything (parents still living). Age is 62 and although not optimum, I will be trying to convince them of a single life annuity for the steady living income.
In your case I would never put all of it into an annuity but perhaps $100k or so depending on other sources of income and monthly expenses.
 

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I've been dealing with similar people for a long time. Unfortunately, in many cases, such a windfall pushes them back into a destructive lifestyle. They can't handle the "good fortune" and thus sabotage themselves. That being said, there are a few who do manage to keep on the proper path.

Regardless, you can try to help, but ultimately the choices reside with your brother, don't be surprised or mad if things don't work out well.

That being said, making the money illiquid is a good way to ensure it can't be squandered. Putting it into things that generate income but can't be easily sold may be the best option. There are, of course, always says to screw it up, but this would probably be my first choice. Remove the temptation and ability to spend it.
 

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There is no way to protect a man from himself. One can put the money into annuity or GICs or whatever but if he really wants a quick fix, any valueable asset can be sold at a discount or borrowed against, however illiquid.

Which is why I would recommend he puts that risk aside and simply does what is best based on his risk tolerance, financial experience and age. Reading a basic education book could be helpful, eg the value of simple.
 

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I tend to agree that this 37 yr old will ultimately do as he wishes. That said, I would try to convince him to put $500k into a 5 year GIC ladder, which might help to at least stretch out the money for 5-7 years. Then take the other $100k cash and put it toward living expenses and learning a trade. There is surely some skill that the 37 yr old has acumen for and for which family (the OP and sister) can help encourage him to stick with it. Most sizeable cities have good trade schools and students of all ages participate to get a new lease on life.
 

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I can't believe I'm saying this but financial optima is found between the interface of behaviour and goals. Hence a 2% MER RRSP MAY be the financial optimal solution depending on the person being considered.

If he's settled in a specific location and it's not Vancouver or Toronto consider buying a house outright. That'll lock the money away for a while or at last make it seem much less available.
 

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I'm sorry for your loss.

Non-redeemable GICs can really help here to lock up the money for a bit and release it more slowly. I lock up my own money in GICs all the time, and I've never regretted it.

Keep in mind this is a fairly unique case and I think that super safe investments and time spent learning are going to be invaluable for him. Any advice or tip would be really appreciated. Thanks!
I think you're right on this. Super safe investments plus education. I would lock most of it away in 5 year GICs and some of it in a "short-term bond" mutual fund since those will not experience losses. If you recommend he goes into a more typical mutual fund, even a balanced fund, it can experience losses and then he might blame you for destroying his money.
 

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I tend to agree that this 37 yr old will ultimately do as he wishes. That said, I would try to convince him to put $500k into a 5 year GIC ladder, which might help to at least stretch out the money for 5-7 years.
I wonder if he could be convinced to create a trust that only allowed $50k a year withdrawal? The rest invested in GICs and longer term debentures.
 

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^ pointless. He can borrow against this based on his $50K income.

If he wants to, he can waste it. Therefore I would assume the man will behave responsibly, help him to get educated and invest as he sees fit based on his risk profile.
 

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Perhaps you can reason with him and persuade him to set up a trust fund for himself. He would relinquish control over the $600,000 and would receive a monthly amount for the rest of his life.You should point out the dangers of him managing the money,not only the dangers of investing but the problems of his lack of responsibility.

You could help him find the trustee and set up the investment policy. Perhaps you could be the trustee.
Try to arrange a meeting for you and your sibling, him and the trustee to convince him to take the prudent path.

Maybe you could go to a judge and ask that he be declared mentally incompetent. A guardian would be appointed to look after his affairs. This is quite drastic obviously.

It is unfortunate that the will did not set up a trust fund for him.

An annuity also is a good idea.
 

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If people aren't smart enough to handle money, then they probably aren't smart enough to know how to borrow against locked in funds or break trusts.

Of course, that doesn't prevent someone from running up debt because they think they have the money available...
 

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I think your father should have divided the estate equally.

$600 000 to your brother is just asking for trouble.

@37 his old addicted buddies will become his besties and we know where that will lead.

He could do a lot of damage with $275 000 but $600 000 will probably put him right over the edge.
 

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I tend to agree that this 37 yr old will ultimately do as he wishes. That said, I would try to convince him to put $500k into a 5 year GIC ladder, which might help to at least stretch out the money for 5-7 years. Then take the other $100k cash and put it toward living expenses and learning a trade. There is surely some skill that the 37 yr old has acumen for and for which family (the OP and sister) can help encourage him to stick with it. Most sizeable cities have good trade schools and students of all ages participate to get a new lease on life.
Absolutely!
I second your idea of investing at least 500K of it in a ladder GIC.

That's what i did with far less ($50k) when I got my inheritance from my step father who died about 3 years ago.
I could have put it into savings, but the temptation of having it in savings would mean, possibly frittering some of it away. I had already maxed out my TFSA, so there wasn't any contribution room left there.

Because of my age, (68 at the time), I decided to spread it out equally, at $10k for each yearly GIC) into a 5 year locked in GIC ladder with the "do not reinvest it again after it matures each year option" because of my age.

I'm glad I did that..not only do I have my $10k initial GIC investment coming in every year at the same time,
but it also pays me monthly interest deposited into my savings. It's a safe no worry investment and even if I have to pay taxes on the interest earned, with my DTC (disability tax credit) and other dental/medical expenses..I get that tax paid back anyway,

At least, the ladder GIC will earn a lot more interest than just leaving it in a regular savings account at 0.8% interest currently.

PCF has returned 2 GICs of my 5 year GIC ladder back to me and I'm getting the 3rd one returned in January. This helps me with paying my
personal support worker leaving me with my pension income to spend on other living expenses.

This is the best investment I made back in 2014 because I still have 2/3 of that invested money in GIC (at 2.00 to 2.5% interest paid per annum for GIC year 3,4 and 5.


Because of my age now (70 going on 71, I don't want to re-invest the last one maturing in 2019 either,
but someone at age 37 , can continue to reinvest each one for another year..and another year and so on..
if the money is not immediately required. Of course that requires discipline as most people will just find some
way to spend it as it comes in..even with a safe investment like a 5 yr ladder GIC.
 
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