How to handle large financial windfall ($1mil)?

[asdf123]

1st post after many years of reading!

 

What would be the smartest way to handle an unplanned financial windfall of $1million dollars - preferred use to include buying a home cash? Challenges to consider:

 

1) Person has one Checking Account and is most likely unable to open a new account due to chexsystems entry.

2) Person has a 2 - judgments, one with EDD ($9k), one that isn't currently being pursued ($44k)

3) Recently had to close their long standing fresh start cu savings/checking account due to nsf balance and may be reported to chexsystems

4) Purpose of the gift is to purchase a house without a mortgage (specified instructions were attached).

5) Person was considering filing BK before this windfall, but now that seems to be a possible problem.

 

Advice on what to handle or do first?

 

In California.

 

Thanks in advance.

[ansky0007]

Don't think any bank would turn anyone down with a $1M deposit check regardless of what chex says. With $1M just pay off the judgements and buy a house and be happy.

[asdf123]

Is it possible to put the money in a trust before dispersing it to pay the judgements and while looking for a house? This is an opportunity to get it right and not be in the paycheck to paycheck situation again, and they are trying not to make any mistakes. Because of the prior credit/judgement problems should I post this in Credit forums instead?

 

see an attorney or financial planner first?

Thank you for your replies.

[bcbss]

Nice problem to have. I would hire an attorney and possibly a accountant or CPA. Be careful of financial planners. A lot of them just want to transfer your money to their bank accounts. They might consider taking some financial or business management classes. You read about lotto winners that are in worse financial shape in a short time. Good luck.

[ArchonInitiative]

Don't think any bank would turn anyone down with a $1M deposit check regardless of what chex says. With $1M just pay off the judgements and buy a house and be happy.

 

I was thinking the same thing. If a bank CSR turned you down, and you went over their head, and showed the money, that CSR would be fired on the spot. They kiss the feet of people with lower balances than that.

[ArchonInitiative]

For the balance (after judgment payoffs, mortgage, and blowing 5-10% on whatever), I would look into fixed immediate annuities for some of the money, to control the spendthrift.

 

Also, this forum is the tops for credit situations, AND IT'S NOT EVEN CLOSE. But, to be honest. www.bogleheads.org is the truth as far as investing and personal finance. Cross post this over there. Many would agree with what has been presented here, but an in-depth analysis may yield a solution that would be more to your liking.

Edited September 20, 2012 by ArchonInitiative

[loanuniverse]

1) Person has one Checking Account and is most likely unable to open a new account due to chexsystems entry.

 

This is not a problem as you can probably open a brokerage account and just keep the money in cash / money market / treasuries.

 

2) Person has a 2 - judgments, one with EDD ($9k), one that isn't currently being pursued ($44k)

 

Well once you have that money in an account somewhere, they can move against the money and garnish it.

 

3) Recently had to close their long standing fresh start cu savings/checking account due to nsf balance and may be reported to chexsystems

 

This is just making the situation worse. Seems as if money management is still a problem.

 

4) Purpose of the gift is to purchase a house without a mortgage (specified instructions were attached).

 

Does it make sense to use all $1 Million for a house? Keeping up the house will be costly, taxes alone will be thousands and insurance will be thousands. Also have to account for taxes on the gift.

 

 

5) Person was considering filing BK before this windfall, but now that seems to be a possible problem.

 

It will be a problem if you get the money before the bankruptcy is finalized. Depending on how much you owe, settling with the creditors might be your best move.

[asdf123]

Thanks everyone for the answers. They were very helpful. It's a nice problem to have, ITA, but can be overwhelming not knowing where to start and how NOT to lose it.

 

Here's the update:

 

- Spoke with the CU about the recently closed account and they will reopen the account and had not reported to Chexsystems yet. To loanuniverse: thanks for your complete answers! They tried a brokerage account previously and was denied due to credit, I think it was Fidelity. Is there one you can recommend?

 

- Meeting with an attorney to set up will, create trust account for the funds and get the judgments paid. Not going to file BK - they wouldn't qualify for 7 and 13 wouldn't make sense having the means to pay the creditors.

 

- They aren't looking to spend all of it a house - only half or so, then a portion for reserves, invest a portion that would grow for nest egg, and pay off the debt. They thought it would be impossible to accomplish that with one checking account.

 

 

To ArchonInitiative: Thank you also for your advice. Would fixed immediate annuities be something they would need to see a broker for?

 

Planning and Budgeting wise for future (retirement, etc) and present - If financial planners are a not a good option, would that be under the CPA ?

 

Thanks again!

[loanuniverse]

To loanuniverse: thanks for your complete answers! They tried a brokerage account previously and was denied due to credit, I think it was Fidelity. Is there one you can recommend?

 

I think most brokers would welcome a client that is going to get that much money, in fact I think there will be a lot of banks that might even let you open an account with them regardless of what Chexsystems says. The important part is to get to someone with the authority to override. Some institutions are more strict than others, but there is always someone that can do it. The key is to have a discussion with someone with enough power or desire to champion your cause.

 

A good example of someone like that would be a branch manager. That person would probably have the ability to override, and if he does not he has the incentive to champion your cause with headquarters as bank branch managers have deposit goals.

 

Getting things done is much easier once you have the money. However, do not forget that people need to stick to good money management or the same problem will appear years down the road

 

I still think a $500,000 house is too much, unless your household is pulling in $200,000+ a year. Better buy a good $300,000 house and save $200,000.

[asdf123]

To loanuniverse: thanks for your complete answers! They tried a brokerage account previously and was denied due to credit, I think it was Fidelity. Is there one you can recommend?

 

I think most brokers would welcome a client that is going to get that much money, in fact I think there will be a lot of banks that might even let you open an account with them regardless of what Chexsystems says. The important part is to get to someone with the authority to override. Some institutions are more strict than others, but there is always someone that can do it. The key is to have a discussion with someone with enough power or desire to champion your cause.

 

A good example of someone like that would be a branch manager. That person would probably have the ability to override, and if he does not he has the incentive to champion your cause with headquarters as bank branch managers have deposit goals.

 

Getting things done is much easier once you have the money. However, do not forget that people need to stick to good money management or the same problem will appear years down the road

 

I still think a $500,000 house is too much, unless your household is pulling in $200,000+ a year. Better buy a good $300,000 house and save $200,000.

 

Ironically, they were told by 2 and 1 CU, they wouldn't open even a savings account with a Chexsystems entry. One said maybe with a letter from the bank that reported, but both times were from a teller or account rep not a manager.

 

This time around, they are seeking help from professionals to ensure they practice good money management.

 

For the house price, there is probably an expectation to have room to take care of their parents in the somewhat distant future.

But, the goal is to find most house for least money, it will take time so they want it protected while they look.

[syncracirca]

$500k is alot of house. If the 1,000,000 were all used (wisely), would this individual be able to maintain property taxes and utilities in the long term? This is an interesting thread, thank you for posting.

[tamo42]

OP, lottery winners to broke every day. The amount of money you are getting can be spent easily as you get used to the finer things in life.

 

If I were in your shoes, I would buy a cheap house (in California that might be $200-$300k), pay off my debts, and temporarily bank the rest. The other posters are correct that all you have to do is talk to the bank manager. Don't even bother with tellers, they can't make decisions.

 

While your money is banked, learn how to invest. There are a million ways your money can be putti work for you. If you have $500k to invest and earn 10%, that's $50k a year income with very little work. It will take time to develop investing knowledge and skills though.

 

Start reading about all kinds of investment vehicles to try to get a holistic view of the world.