Simple Susan has $2 million in investable assets. She pays fees to her financial advisor based on her AUM, or assets under management.
Simple Susan is eighty years old, and has one daughter, who lives two blocks away. Her daughter visits her every day and takes care of most of Susan’s affairs
All of Susan’s money is in an IRA that was left to her by her husband who died ten years ago. Her only other assets include her modest house and personal belongings. She plans to live on the IRA proceeds, and when she dies, she wants her daughter to inherit all of her assets. In the unlikely event that her daughter dies before her, then the proceeds need to go to his wife and kids.
Complex Carl also has $2 million in investable assets. Like Simple Susan, he pays fees based on his AUM. Since his investable assets are the same amount as Susan’s, he pays the exact same amount. However, his personal situation is quite different.
Carl is sixty-seven years old. His $5 million is allocated between several different accounts:
- $1.5 million is in an IRA
- $1 million is in a taxable brokerage account
- $200,000 is in a 529 plan that he never used for his kids’ college
- $1 million is in a Family Limited Partnership that a lawyer recommended to him. There are nine partners in the partnership, which means there are nine different personalities with nine different sets of goals and nine different sets of problems.
- The other $1.3 million is tucked away into four different trusts, each with a different legal purpose, different beneficiaries, and a different tax return.
Carl has significant other assets other than his investment portfolio. He is a partner in a large law firm that specializes in mergers and acquisitions. Naturally, this has led to having other interests:
- His ownership in the law firm is valued at $3 million.
- He has oil & gas mineral interests worth $15 million.
- He has a 20% ownership in a local real estate development company worth $5 million.
- He owns partial interests in several commercial buildings. His share is worth $7.5 million.
- He has a 10% interest in a local national bank. His shares are worth $1.75 million.
- He has a ranch outside of Austin worth $2 million.
- He is an avid art collector, and has an art portfolio worth $1 million.
- He owns a plane and multiple supercars. Collectively, their value is $3 million.
Carl is currently married to a twenty year-old exotic dancer named Candy that he met in Las Vegas. Candy has a one year-old child, who is not Carl’s. However, even though Candy has recently retired from her former job, she still does not take care of her child. She asks Carl to hire a nanny to take care of the child so she can continue to live an extravagant lifestyle—at Carl’s expense.
Carl has five children (ages 23 to 42) with three different women. He was only married to two of the women. The third one was the nanny, whom he never married. None of his kids get along with each other. In fact, they don’t even really like Carl, but they like the inheritance that they think they are going to receive. However, Carl hasn’t even created a will, and as it stands now, Candy will inherit virtually all of his money, and his kids will inherit nothing.