Author Topic: Help me help my father? He came into some money, but doesn't have much time.  (Read 1927 times)

bounce

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My father recently discovered he has a pension of 80,000 from a company he worked for. Currently it’s in a BASF annuity that will pay monthly, but won’t pay out to a beneficiary should something happen to my him. He’s old and not taking care of himself well, so that might happen sooner than I’d like. I know so little about this, so it would be great if I could hear some advice, other options, thoughts, etc?

He has met an “independent insurance advisor” who is trying to talk him into transferring it from the BASF annuity into a "Sentinel Security Life index annuity" that will pay out to a beneficiary (me) when my father passes.
Of course that would not be good to see the money lost after he’s gone, but I want to do what’s best for him now.

From the reading I’ve done, I can see his options of what to do with the pension money as:

Lump sum payout.  Pros: he’d get the money and be able to do something with it while he’s around. Cons: he makes about 1900 a month now and this would kick him into an income bracket for the year where he wouldn’t be able get discounted heart medications. He’s on many of those which are costly.

Transfer it from the BASF annuity to the Sentinel Security Life “Index annuity” that the independent insurance advisor is trying to sell him on. Pros: My father would be getting monthly payments and it would pay out to me  when my father dies. Cons: concerned about hidden costs/obligations hidden in the paperwork with the independent insurance advisor. No benefit is market goes up.  Would it be difficult to retrieve the money once my father passes? Is this kind of set up from a independent insurance advisor generally sketchy?

Stock Market - Pros: could make more money. Cons: obviously could lose a lot too and not enjoy any money while he’s around. 

Roll the 75,000 in an IRA/trust fund & take out the “minimum required distribution” each year.

I want my father to enjoy the money, but I’m not sure how much time he has left with the way he’s taking care of himself. My first thought was for him to do the lump sum and enjoy it and take care of some things like mortgage payments, but he won’t be able to afford his discounted heart medication if he were put in a different income bracket. My biggest concern was the fast sell of the insurance advisor guy’s index annuity and how legit that is. So I’m brainstorming and asking for some tips. Thanks!







« Last Edit: October 03, 2018, 12:34:54 PM by bounce »

MDM

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bounce, welcome to the forum.

Chances are approximately zero that the index annuity will be a good deal.  You could ask for the full prospectus/contract, and after taking the time to understand fully all 100 pages or so, including full understanding of all terms and buzzwords, your father could make an informed choice.  Or just skip that effort and say "thanks but no thanks."

Often a pension lump sum may go into an IRA and thus not be immediately taxable.  Withdrawals from the IRA will be taxable, the same as pension payments.  From what you have shared, taking the lump sum may be the best choice.

TrMama

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I'm sorry to hear your father isn't doing well and has also acquired a vulture. I don't understand the logic of converting one annuity to another, other than for the purpose of generating a commission for the vulture.

However, wrt to what your father should do we probably need a bit more info. For example, how old is he? People can live for a surprisingly long time even when they have have serious health issues and don't look after themselves. You don't want your dad to run out of money. Letting the BASF annuity pay out monthly for the rest of his life may not be a terrible idea.

What's his current financial status? Does he have a spouse who's financial status will be compromised when he passes?

bounce

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@MDM  My philosophy is the less moving parts the better and who know what kind of jargon is hidden in that contract.
With the IRA I was thinking an option could be to go that route and then take out the minimum per year which is I think 2%.  My gut feeling was the lump sum.

@TrMama  vulture-like is the feeling I got from the whole thing, especially after the time window to do transfer expired and the guy said he’d come back with another proposal.
He’s 75 and widowed. Financially, he owes about 120,000 on his mortgage. Makes near 2000 a month, bills take nearly all. He can barely get himself out of bed and he’s already fallen once and cracked his shoulder/ had multiple heart attacks.

I’ve been reading some of the best of posts on here and like what I’ve read in the forum. Thanks for the warm welcome.

MDM

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@MDM  My philosophy is the less moving parts the better and who know what kind of jargon is hidden in that contract.
With the IRA I was thinking an option could be to go that route and then take out the minimum per year which is I think 2%.  My gut feeling was the lump sum.
Your gut seems good.  See https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf for the RMD table.  It will be more than 2%, assuming he is over 70.5.  If he is younger, there is no minimum.

bounce

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Thanks. Most of my concern with the lump sum is that after taxes and a year without meds discounted from pharma the pension would be eaten up. That made the option the guy was offering seem more attractive in that it would pay monthly now and also after my father passed. Part of it is I have to convince my father this fast-talker is just in it for the money. I'm not sure why an "independent insurance advisor" would even be needed for that deal anyway, seems like you could just go to the insurance company directly and get the Sentinel Security Life index annuity. Appreciate the replies.

MDM

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Thanks. Most of my concern with the lump sum is that after taxes and a year without meds discounted from pharma the pension would be eaten up. That made the option the guy was offering seem more attractive in that it would pay monthly now....
Would the lump sum itself be taxable?  Note that You may be able to defer tax on all or part of a lump-sum distribution.

If the lump sum is not immediately taxable, what is the difference between taking IRA withdrawals vs. annuity payments?

TrMama

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That made the option the guy was offering seem more attractive in that it would pay monthly now and also after my father passed.

In your father's case, he doesn't have enough assets to worry about leaving anything to you. He's got a negative net worth so you're not going to inherit anything of value. This is how it how it should be.

Also, when you tell your dad you don't need any money from him it'll make him more likely to trust to handle his affairs since you're not going to profit from his passing. So sorry you're dealing with all this. DH has been handling his mother's affairs, and doctor's appointments, etc for years. It's a thankless job.

cchrissyy

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I agree that you should discard anything offered by the insurance advisor guy! you don't need to respect his advice or seriously consider his proposals. he is wasting your time and by definition, he is doing it to earn some $ off the transaction.   Your focus is properly placed on your dad and not that vulture. Tell him thanks but no thanks and don't contact you again. Life is too short to waste time on an opportunist like that.

as far as the lump sum idea, are you sure that the heart medications discount would be affected? maybe the program doesn't care about one-time income events. or maybe taking a pension as a lump sum is not counted like income in their eyes but more like an exchange of preexisting assets. it's worth checking their rules closely because you also need to know if there if there is any impact with your idea to roll it into an IRA.