Author Topic: Father passed away, mother in a tight spot  (Read 3516 times)

CanuckStache

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Father passed away, mother in a tight spot
« on: January 15, 2014, 12:00:04 PM »
So late last November my dad very unexpectedly passed away at just over 60 years old of a heart attack.

My mom is 60 and now finds herself in a bit of a bind.

My dad was in some ways very mustachian (they lived fairly modestly) but married young, had kids, lots of debt and 'lean years', years of being a smoker, and certain hobbies (like fly fishing) later in life means they racked a ridiculous amount of CC debt.

Thankfully, almost 100% of that CC debt is in my dad's name only. And the laws here in BC, Canada mean we can tell the creditors that they have to write it off, since my mom isn't liable at all for it. My dad had a good job later in life and thankfully he named my mom as a beneficiary for all his insurance and benefits so it all goes direct to her, tax free, and nobody can touch it. There's about $10k in his 'estate' which we're dividing up amongst creditors, but the insurance and stuff stays with mom.

Long story short, here's the financial situation:

Insurance: $230k
Line of Credit at 4%: $125k (!!!)
Mortgage: $125k as well.

As you can see it's a bit of a wash. She will have about 50k in RRSP's but she can't really draw from that yet. Her only income is disability payments from the government, and some other pensions and stuff so she'll probably have about $1800 or so income monthly.

Their mortgage rate is really low, around 2% and so I'm not too concerned with that. It's more about balancing either paying off the LOC or a chunk thereof and investing the rest?

She will eventually sell the house (in about a year) and it's worth at least $450k so that's a plus.

I've been doing my best to help lower her monthly expenses too, but at 60 years old and not very computer savvy she can't imagine not having cable TV and that sort of thing. I've managed to sign her up with a new cable provider and bundle in internet and phone as well which will save her around $250 a year.

I'm working around the house to do some minor maintenance items to help lower other utilities (new thermostat has already saved a tonne of money this winter). Just did a bunch of maintenance on her car too which will save her money.

But back to the original question: Is it worth paying off the entire LOC? Or just a chunk of it and investing the rest? What would be a decent investment? I know very littler about investing and personally don't have the time to really keep up with the markets and such. A stable relatively conservative fund would be ideal for her.

We're based in BC, Canada as well, if that helps.

Any advice for helping my mom through this is very welcome. Not only what to do with the insurance, but other things for reducing expenses and all that.

Home Stretch

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Re: Father passed away, mother in a tight spot
« Reply #1 on: January 15, 2014, 12:30:17 PM »
First off, so sorry for your loss. It's always tough when you combine a deep personal loss with having to deal with less than ideal financial situations.

Easiest thing to do here is compare the total cost of that LOC with the investment income you'll get from investing the full $230k insurance payout. What is the deal with the LOC anyway? Is it a home equity LOC? Is there a term on it, like 10 years or something? If I had that information I could actually crunch the numbers for you, but here's a quick preview:

5 years of investing that $230,000 will net you close to $100,000 of investment income!

CanuckStache

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Re: Father passed away, mother in a tight spot
« Reply #2 on: January 15, 2014, 12:38:27 PM »
Thanks for the response! Yeah dealing with the paperwork has been almost a full time job in itself. But thankfully, since I'm personally fairly mustachian and am self-employed I have the ability to stay with my mom as long as needed to help her out.

It's definitely a home equity LOC, no fixed term, and it's prime + 1% so about 4% right now. For my mom it's a little scary of course because of expenses and her limited income. My gut says pay some down, invest some. My mom is very, very conservative. We're thinking of putting some in a tax free savings account? I think she has  $30k limit there.

Frankies Girl

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Re: Father passed away, mother in a tight spot
« Reply #3 on: January 15, 2014, 12:50:46 PM »
Not going to be much help as far as what investments, but wanted to say how sorry I am for your family losing your dad so unexpectedly. That is just terrible.

I think if it was me in the same position, I'd make regular payments on the mortgage, pay off the line of credit and invest a large chunk of what is left in something safe, but keep out a year's worth of expenses in a high rate savings account. Once she has a chance to catch her breath, then maybe get the house on the market and then use the proceeds from the sale to find a nice (cheaper) apartment or small house (rental), and then invest the rest of the money from the house sale so she might have enough to live on with her disability payments.

I don't know how she'd feel about an apartment, but that would eliminate the maintenance and taxes and insurance (there is renter's insurance, but it's nothing as expensive as homeowners in general).

If they had two vehicles, I'd definitely sell the one that gets the worst gas mileage - and drop full coverage down to liability. If she isn't internet savvy, then why does she have internet in that bundle?

I would not invest it with an adviser - there are plenty of smart people on here that can tell you some low maintenance/cost funds through Vanguard and not bombard her with management fees.

If she's going to be getting $1800 a month from her disability and pension, that's actually a comfortable amount if she really reduces her living expenses. I'd  think the biggest expense would be the mortgage, and if she could sell that expensive house and get something MUCH cheaper or rent, she'd probably be okay with making little adjustments and just watching the credit card and debt stuff with the cushion from the house sale and the insurance as a buffer.

I would definitely talk in detail with an estate lawyer to figure out if there are going to be any hidden liabilities. Good luck.

CanuckStache

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Re: Father passed away, mother in a tight spot
« Reply #4 on: January 15, 2014, 01:02:43 PM »
Thanks! Yeah that's basically the current plan. Pay off some (or all?) of the debt, keep making mortgage payments, and down size to a condo or something at in a year or two.

Possibly invest some of the money in updating the house since I can do most of that work myself and in theory should help the house sell more. The housing expenses definitely add up.

gooki

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Re: Father passed away, mother in a tight spot
« Reply #5 on: January 15, 2014, 01:27:27 PM »
The one benefit of paying of all the debt is you mum then has to live of the $1800 a month (assuming she has no access to other credit), which may force some moustacian habits more quickly, and then when she sells her home, you can deal with investing then.

CanuckStache

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Re: Father passed away, mother in a tight spot
« Reply #6 on: January 15, 2014, 01:30:32 PM »
That's a good point. Pay off the debt, then when we sell the house she can invest that income.

She's pretty mustachian, and doesn't need much. She's been wanting to downsize for years. I just can't get her to kick the cable tv :)

One thing that's helpful is she qualifies as 'low income' meaning I've been able to get her a bunch of smaller benefits from utility companies. About to request a free home energy audit online, hopefully that'll help identify some things in the maintenance area and add value to the home.

Frankies Girl

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Re: Father passed away, mother in a tight spot
« Reply #7 on: January 15, 2014, 01:38:23 PM »
You might want to call an area realtor (look for a name on signage that you see frequently in that neighborhood) and let them know your mom will be putting the house on the market in the next year so you want to find out what fixes would be worth your while. Some things just aren't worth the time or money, and better you find that out now than after you've already done stuff. They don't charge to get a basic assessment of the house and tell you some stuff that they'd recommend fixing up and what you could leave alone. (we did this with my dad's house and it was nice to know that some things we really didn't need to worry about). And the nice thing is, if you like the realtor, then you can use them when it comes time to list.

Of course, wait a while until you both are in a better place emotionally.