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A distant relative of mine has decided to disperse a part of her, apparently, sizable fortune. For the present consideration she has a large IRA and what was an equally large brokerage account. After certain gifts, however, the brokerage account is much reduced in size. As nearly as I can tell, she has no interest in bothering herself with investments. Apparently someone told her of my interest in investments as I have never met her. The bottom line is that she wants me to manage this account and, as payment, I am to be able to spend the income on the account but not the principle during my lifetime. I am to have a limited power of attorney to do this management. The income from this account is around $3,000/yr now which is fine. Upon my death the account is to be divided among her, now young, great grandchildren. Actually, I would be willing to do it for nothing, although she may feel that I will work harder if I get something.

So far so good, but the RMD from the sizable IRA goes into this account which, as nearly as I can tell, is around $12,000 - $15,000/yr. Of course for tax purposes, the RMD and short-term capital gains are considered income, but is that always the case? What I mean is that I will not be managing the IRA so is the RMD for other purposes income or an infusion of capital? I think the safe thing is to just withdraw dividends and interest.

I am also a little worried about liabilities. I don't know the family well, and I have some worries that if someone in the family thinks I have not done a good enough job they will sue me. I am a conservative investor, mainly in equities from companies with long periods of increasing their dividends (GPC, 3M, PG, etc.) and more recently in preferred stocks. I would manage this account much like I would manage my own. Someone might well think I should invest more in so-called growth stocks for such young children. I have not had success in my long investing career in doing this. I will see my lawyer about this concern but have yet to do so.

brucedoe
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I am also a little worried about liabilities. I don't know the family well, and I have some worries that if someone in the family thinks I have not done a good enough job they will sue me.
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Bruce, you are absolutely correct, and that's reason enough not to do it. For income of $3,000 it's just not worth it, IMNSHO.

And for managing someone else's money for a fee, you might be required to register with the SEC as a Registered Investment Advisor. There's an exception for family members, but I don't recall the technical particulars about that. You don't say just how distant this relative is. That's another thing to review with your lawyer. And of course, get a written agreement to protect yourself. That's the first thing you should be doing with your lawyer.


Bill
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brucedoe writes (in part):

So far so good, but the RMD from the sizable IRA goes into this account which, as nearly as I can tell, is around $12,000 - $15,000/yr. Of course for tax purposes, the RMD and short-term capital gains are considered income, but is that always the case? What I mean is that I will not be managing the IRA so is the RMD for other purposes income or an infusion of capital? I think the safe thing is to just withdraw dividends and interest.

I reply:

If you decide to take the gig (and I'd be very leery of doing so), raise this issue with her and come to a clear and documented understanding. --Bob
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I'm not sure that I agree with the previous respondents. This looks like a variation on a typical first-to-die bypass trust. In that situation, the surviving spouse gets the income from the trust and other beneficiaries (typically children) get the assets (corpus) upon the surviving spouse's death.

If this is created as a formal trust with you as trustee and income beneficiary and the great grandchildren as the corpus beneficiaries, then you are free to manage the account as you wish without interference from the future beneficiaries. On the other hand, if she just wants you to manage the existing account as owned by her with an understanding as to how the income/corpus will be disbursed, I would run away.

Ira
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Bruce, I would try to find her a well-qualified financial advisor/broker. The liability is too great.

Donna
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