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Editor's note: In April 2006, FDIC deposit insurance coverage on retirement accounts held at banking institutions was raised from $100,000 to $250,000. Non-retirement account FDIC deposit insurance coverage remains at $100,000.

Managing a multimillion-dollar inheritance

Dear Dr. Don,
I'm going to inherit $8 million in the next few months. The attorneys are getting things together. My questions are about how I should manage this money. The money will be transferred into my bank account, but my bank only insures $200,000 in deposits. I can't open 20 accounts! How should I handle the money so that I can still have a comfortable life style and invest in opening some businesses? (Like owning my own McDonald's.)

Is it easy to transfer money to foreign banks? How do the millionaires do it?
Thanks,
Jane Juncture

Dear Jane,
I'm always at a loss for words when I hear about someone getting an inheritance because I recognize that an inheritance usually comes at a steep price, the loss of a loved one. If that's true for you, I'm sorry for your loss.

You're right in thinking that you don't want to open dozens of bank accounts to have all your deposits backed by FDIC insurance.

U.S. Treasury securities are backed by the full faith and credit of the federal government as to the payment of principal and interest. (You can, of course, lose money by investing in Treasury securities if interest rates move against you and you sell your position at a loss.) But a short-term portfolio of Treasury bills held in a brokerage account can keep your wealth safe for a few months while you sort things out.

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Brokerage firms that carry SIPC insurance protect eligible investors in failed brokerage firms for up to $500,000 in securities but not more than $100,000 in cash claims. It's important to recognize that SIPC insurance doesn't protect investors against fraud or poor investment choices. The SIPC estimates that more than 99 percent of eligible investors have been made whole in the failed brokerage firm cases that it has handled to date.

Don't rush into business ventures or offshore investing. Concentrate instead on finding people you trust to advise you. At a minimum you want an accountant, a lawyer and an investment professional paying attention to your financial needs.

Interview people from at least three different firms for each post. Get comfortable with what they can do for you and how they will be compensated for their work. There are plenty of horror stories about how wealthy people have been talked into making poor investments or have been fleeced by advisers. Do a little legwork to improve the odds that your name doesn't make that list.

If you understand how your money is invested, where your investments are held and the risk level of both the individual investment and how it effects the risk level of your overall portfolio, that's a great start.

Wealth can give you the luxury of having your money work for you vs. you working for money, but don't make your money work harder than it has to in achieving your financial goals. That often means you're taking on unnecessary risk in your portfolio.

-- Posted: April 25, 2002

Read more Dr. Don columns here
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See Also
How to handle your inheritance
Understanding Inheritance taxes
QUIZ: Could you handle sudden wealth?
More Dr. Don stories

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