Author Topic: My dad died. What do I do with Mom's finances  (Read 1900 times)

justchecking

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My dad died. What do I do with Mom's finances
« on: January 16, 2018, 09:15:05 AM »
My father passed away in May of 2017.  My mom, 64, lives really close to me and my brother.  She is in great health.  She and my dad split the financials and she understands how much she has and what she needs.  She is frugal, but not Mustachianian.  What I mean by that is that she and my dad have always had a financial planner who looks after there money.  They took the planner's advice on the products that he sold.  Now that my dad is gone my mom has an opportunity to change what those investments look like and she is willing to take my advice over the planner's if it makes sense to her.  The good news is is that if she just stays with what she has she will probably be fine and if she changes she could grow her wealth with low risk.  Her current income from pension and SS is much more than she needs to live on. 

Here is what here numbers look like.

Pension that is guaranteed forever: 2800 after tax and health insurance which is also guaranteed through pension
Social Security: 950 after tax
IRA   149,600
403b #1 266,683 Income lock annuity through VALIC
403b #2 27,152 invested in VALIC mutual funds

House is paid for and has new almost everything. 
Car is paid for and has plenty of life left in it.
My brother and I are committed to having her stay in her house or with us as long as possible as she ages.

Questions:
Should she just get out of the annuity and combine the two 403b accounts and invest in an index fund herself?

The financial planner is asking her to get this life insurance policy that she can draw on the payout to pay for medical expenses.  This is more expensive than her current policy that is for 100,000 and the premium does not go up until 2021. Advice?

How can she safely grow this money?

Do we just keep on with the financial planner and have me and my crazy mustachian ways not get involved?


Sibley

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Re: My dad died. What do I do with Mom's finances
« Reply #1 on: January 16, 2018, 09:18:50 AM »
Why does your mother need life insurance? Does she have a dependent? I'd check to make sure this financial planner has a fiduciary duty and is fee only, no commission. Cause that seems a little wacky to me.

And sorry for your loss :(

slappy

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Re: My dad died. What do I do with Mom's finances
« Reply #2 on: January 16, 2018, 09:43:40 AM »
Why does your mother need life insurance? Does she have a dependent? I'd check to make sure this financial planner has a fiduciary duty and is fee only, no commission. Cause that seems a little wacky to me.

And sorry for your loss :(

It sounds more like a hybrid long term care policy that has a life insurance payout if she never needs LTC.

radram

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Re: My dad died. What do I do with Mom's finances
« Reply #3 on: January 16, 2018, 10:46:16 AM »
Here is an interesting thread on this topic.

https://www.bogleheads.org/forum/viewtopic.php?t=93768

I would pay particular attention to:

1. An annuity INSIDE a 403b makes little sense. You do not need deferred growth inside a qualified account, as it is already shielded from taxes until withdrawal.

2. Fees. What are the fees to move the money? Compare that to the saved expenses of using index funds through Vanguard or similar. With her age, it might be quite inexpensive to move it, making the payback more immediate.

I bet you could do better.

Let us know how it goes.


frugaliknowit

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Re: My dad died. What do I do with Mom's finances
« Reply #4 on: January 16, 2018, 11:59:19 AM »
So sorry about your loss.

Based on your information, assuming none of you are dependent on her income (in which case she should have life insurance) I would dump the annuities, dump the planner (life insurance to pay for medical...nah!!!) and either:

1.  Hire a "fee only" planner, putting the approx. $450K into low cost index funds, dialing the risk according to your mom's tolerance (50/50???).

2.  Just follow Paul Merrimans recommended mutual fund mix for Vanguard, once she picks her stock/bond allocation (60/40, 50/50, 40/60, whatever...https://paulmerriman.com/vanguard/).  In trying to gauge the risk of an asset mix, you and/or your mom can look at these tables:  https://paulmerriman.com/fine-tuning-tables-2017/

Best of luck and congrats to your parents for preparing so well!

justchecking

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Re: My dad died. What do I do with Mom's finances
« Reply #5 on: January 16, 2018, 05:36:49 PM »
Thanks for the advice.  Does anyone else have any thoughts?

Bracken_Joy

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Re: My dad died. What do I do with Mom's finances
« Reply #6 on: January 16, 2018, 05:52:15 PM »
I'm sorry for your loss!

A long term care policy could be a good option, research the costs there. LTC will eat assets faster than you can even imagine =(

Another Reader

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Re: My dad died. What do I do with Mom's finances
« Reply #7 on: January 16, 2018, 07:08:35 PM »
Your mother has health insurance and will go on Medicare in a years.  She does not need a high commission life insurance policy to pay medical expenses.  She needs to dump her commission-based planner and move her investments to Fidelity or Vanguard.  She can invest in low cost index funds according to her risk tolerance, which is probably low.

The Valic annuity was probably the only choice at the time.  It was common for teachers and some other groups to be offered only investments in annuity wrappers.  Figure out how it pays out and how much it would cost to get her investments out of it.  Then decide the best course of action.  The other Valic account can be closed and rolled over to an IRA.

Long term care insurance policies are very expensive and the benefits are limited.  I would not go that route.  Most people that end up in nursing homes spend less than a year there.  Your mother has money for three years plus the house could be sold.  Medicaid would take over after all her assets were exhausted.

At 70, she will be required to take minimum distributions from her retirement accounts.  It will not be that much at first, but you should plan what to do with that money.

Your mother is lucky to have two sons that are looking out for her best interests.  Good job!

Finances_With_Purpose

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Re: My dad died. What do I do with Mom's finances
« Reply #8 on: January 16, 2018, 10:28:46 PM »
My father passed away in May of 2017.  My mom, 64, lives really close to me and my brother.  She is in great health.  She and my dad split the financials and she understands how much she has and what she needs.  She is frugal, but not Mustachianian.  What I mean by that is that she and my dad have always had a financial planner who looks after there money.  They took the planner's advice on the products that he sold.  Now that my dad is gone my mom has an opportunity to change what those investments look like and she is willing to take my advice over the planner's if it makes sense to her.  The good news is is that if she just stays with what she has she will probably be fine and if she changes she could grow her wealth with low risk.  Her current income from pension and SS is much more than she needs to live on. 

Here is what here numbers look like.

Pension that is guaranteed forever: 2800 after tax and health insurance which is also guaranteed through pension
Social Security: 950 after tax
IRA   149,600
403b #1 266,683 Income lock annuity through VALIC
403b #2 27,152 invested in VALIC mutual funds

House is paid for and has new almost everything. 
Car is paid for and has plenty of life left in it.
My brother and I are committed to having her stay in her house or with us as long as possible as she ages.

Questions:
Should she just get out of the annuity and combine the two 403b accounts and invest in an index fund herself?

The financial planner is asking her to get this life insurance policy that she can draw on the payout to pay for medical expenses.  This is more expensive than her current policy that is for 100,000 and the premium does not go up until 2021. Advice?

How can she safely grow this money?

Do we just keep on with the financial planner and have me and my crazy mustachian ways not get involved?

First, I am terribly sorry for your loss.

My own father was an incredible man and the best influence in my life by far.  He also died too young and left my mother behind more than four years ago now.  I'll respond here based upon that experience. 

My mother is just like yours: lives on a budget, is frugal, but isn't Mustachian (by far), yet makes ends meet just fine without racking up any debts. 

You asked some specific questions, but before jumping into each one, I'm going to paint a general picture of things.  Your mother is a widow.  She is aging.  Many, many people will assume that she understands finances and life less well than when she was married and had your father with her.  There may be truth to that: she used to be part of a stronger team, but now, she may be doing things for the first time. 

Regardless of whether or why: your mother has a target on back.  People will try to take advantage of her.  Brokers of all kinds.  Contractors.  Repairmen.  You name it.  I've had to fend off otherwise reasonable-seeming individuals who sell insurance when I learned they were stealth annuity salespeople.  Coworkers' friends.  They come from all angles. 

I suspected that going in, but have been consistently surprised how many greedy salespeople will get push with my mother and push her towards deals that are awful.  It is unconscionable.  But they get a nice fat commission and get to walk away, while I am left dealing with the pieces. 

They're attracted to her like bees to honey.  It will be worse if people know - and some will - that your mother is able to afford her own lifestyle.  They'll think she has money, and probably far more than she actually has.  She looks like a sitting cash cow to many people in this world. 

Now, having said all that, I'll now tell you: we've fended off the bees pretty well, and my mother hasn't really entered into any awful deals.  Sure, she lost a couple thousand to a contractor once (turned out to be an alcoholic who did subpar work when he showed up) and she lost a bit to a few repairmen, but those were all one-off things and not big relative to her net worth.  We moved on. 

But person after person has tried.  And some will try to get close to her, then do it, hoping to influence her more.  Thankfully, my mother is (1) strong-willed, and (2) trusts me a lot.  She also has some good people who've known her for her whole life who are around her and who are reliable - they help.  (E.g., a plumber who was close to my father and who looks out for her on those things.) 

I remember one salesperson who tried to convince my mother - because I met with them too - that she should put her money with a particular company since they had been more honest about ratings during the 2008 crash, and they now rated this thing a great investment.  Turns out, they were half right: they HAD been better in 2008, but then the owners went crazy, were repeatedly sued for fraud, and the SEC was currently pursuing them and shutting them down for massive fraud.  (Somehow, the salesman neglected to mention the SEC investigation and fraud.) 

I realized a lot of the people trying to cheat my mother don't even understand what they are doing: they're retired teachers, healthcare workers, or whatever who are simply being pushed sales talking points and told how to sell things.  They are told it's a great value and they really believe it.  They deeply believe they are helping someone, even as they're really robbing them. 

Otherwise, she would have made serious financial errors, maybe enough to compromise her independence.  The annuity salesperson (disguised as an insurance agent) very aggressively tried to talk her into putting her whole net worth into an annuity that was disgustingly bad.  We cut that person out afterwards.

My mother is very independent.  From your post, yours is too.  My mother still lives by herself, but it's a matter of time before we'll be moving her here or us there (declining health, albeit very very slowly). 

I don't want to scare you here - at all - as it's all very doable, and everything I described above are things that come up maybe once every few months, or six months.  But I say all that so that you're really aware.  It took me a lot more handholding and monitoring than I expected - for her own safety.  And there are still risks. 

I manage all of her investments (and have for years), which we invested as she wishes.  She gets free management without worrying anyone is taking her for a ride - it's her money.  And I get the safety of knowing that nobody is taking advantage of her.  She likes safety, so she's about 70% invested in CDs, hoping to simply maintain her cash and most of its value through her lifetime.  (The 25% I actively invest keeps growing.)  It works really well.  We do it per her desire - her risk profile and comfort, not mine - she's very happy with things.

Mother has learned, over time, that people try to take advantage of her.  So she now runs the big things by me.  I basically act as a shield for any and all serious financial transactions for her. 

I have only done things that help her, which she sees, so she knows I'm never trying to take advantage of her.  And I also don't try to control what she wants to do: as long as nobody is stealing from her, it's totally her show.  And if they are trying to steal, then they have an issue with me. 

As far as I'm concerned, my mother can die in debt if she wants (I'd prefer not, but it's her life); she's managing her own affairs and can do as she wishes.  We may someday get to a point where we would have to have hard conversations about her finances if she gets to a point where it looks like we may end up supporting her, or if she's making really bad decisions that may lead her there, but we've never come close to that and I don't really expect to.  Even if she blows her cash (which she hasn't yet), that's her prerogative. 

You may find other solutions for your situation.  But unless your mom is unusually competent at these things, the advisors and others will drain her life savings, one commission at a time.  I recommend serving as a shield for her if at all possible: not because she's not able to do things, but because so many bad actors will seek her out now - and some will be unusually canny. 

--

Now, as for specifics: you didn't give details on the annuity, but most annuities are worthless compared to a relatively safe portfolio of things.  There are many threads here at MMM about that.  After the past five years, I am firmly convinced that most annuities are designed to play upon fears in order to impoverish the elderly.  (Most salespeople don't even understand them; they just know the talking points.) 

The life insurance thing also sounds like an awful sales gimmick.  It's probably junk.  It probably has a high commission.  As other posters mentioned, she'll be on Medicare and with a gap policy she'll have nearly everything covered.  The only potential issue is long-term nursing care, which is just tough no matter how you look to cover it.  Life insurance doesn't help that. 

As a rule of thumb: don't buy anything you don't understand.  Complicated products are usually complicated for a reason: to deceive you.  They're usually junk.  Almost always, in fact.  They're rarely worth it.  I don't even give most of them my attention anymore, because if you can't tell me how it works in a few minutes, then you're probably trying to get one over on me somehow, and it'll may take me a while to figure out how.  I've been through that exercise enough to see how foolish it is.  (Dave Ramsey is dead on about that, btw; he says the same, basically.)  Also, insurance isn't an investment.  That's the most common way they complicate things: "hey, why don't you invest in this insurance policy?  It'll pay X, Y, Z rates, etc.  And get you a discount here, or help do something there."  It's always junk.  It's often hard to discern why, at first, but I have yet to find any of these things that provide any real value, and half the time I ask questions that the salespeople can't answer because they don't understand these products either - even though they'll tell you they are sure it's a great deal for your mother.  Lesson learned.

However, this is your first and most important priority: cut off the financial advisor.  Any of them.  Period.  NOW.  As soon as it practicable, many will begin trying to sell your mother things.  They know she's now a widow, they figure she's alone in the world and more afraid.  They know that will make their sales pitches more effective.  And she already listens to this person and trusts him. 

Get her out while she still has something in the bank. 

If I sound serious, it's because I am.  That one relationship is the most dangerous thing in her life financially.  The guy is already selling her annuities and insurance - get out while you can.  If you listen to nothing else here, do that.  I promise you're cutting off heartaches and financial woes at the pass.

As for particular investments, you can find all that here in many threads.  Don't be surprised if VALIC investments have high fees, or if she's also paying a fee even to use their platform in order to buy it (when she could have opened a TD Ameritrade or Vanguard account for free to do that.)  What you can't find here are ways to undo the awful and unethical arrangements these thieves will tie your mother into. 

I have been doing this for years now, helping others in these situations, and have now seen many others who have already gone for years without anyone honest helping them.  In light of that, I will leave you with the best advice I have that's generally applicable, even though I may sound cynical: assume everyone out there intends to steal from your mother.  Nobody else cares about your mother the way you do.  Nobody else (aside from the bro, of course) will be supporting her if these plans and products rob her.  Work backwards, and you'll learn which few people have no such intentions.  My mother now has a few people she trusts, and I trust them too.  (Close family can often be an exception - although be careful even there.  My mother has had more than one relative try to obtain free lodging at her house - indefinitely - via asking or manipulation, and she has thankfully always had the good sense to realize it and turn it down at the outset, on her own initiative, before I even knew about it.)  This forum is great, too, because, hey: none of us are selling you things.  There are few who even can, and you'll know it if someone is referring you here for commission because it's obvious (links, etc.); but that's rare and generally on the up-and-up here.

Once again, I am really sorry for your loss.  On the encouraging side, you can honor your father by taking care of your mother - that was my father's last request of me - and doing it well.  I know how hard my dad worked for my family and I know how much he cared, which makes it really easy to turn all the selfish folks who aim to steal (or are unwittingly stealing) away immediately.  It's now my duty to look out for my mother, and I am glad to do so. 

Finances_With_Purpose

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Re: My dad died. What do I do with Mom's finances
« Reply #9 on: January 16, 2018, 10:32:11 PM »
One more tidbit, re: investing: you need to know how comfortable your mom is with market swings, etc.  Especially since this IS her safety net.

That's more important than knowing how you can invest it.  That's the info that decides what you put it in.  Not our input.

If she'll want out when the market tanks, then keep her in CDs or something very safe like that.  (My mother leans in that direction.) 

She may want growth, but unless she's OK with big risk (30-40% downturn in a given year), then keep her away from equities.  Even bonds aren't risk-free. 

Just a tip.  Beyond that, you can find plenty here re: investing.  See JL Collins' Stock Series on his website, for example. 

Yes, combine the 403bs.  No sense in having two.  In fact, they should roll over into traditional IRAs, I believe.  Which you could then combine with other IRAs.  Less paperwork, less hassle.     

Finances_With_Purpose

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Re: My dad died. What do I do with Mom's finances
« Reply #10 on: January 16, 2018, 11:12:43 PM »
Your mother has health insurance and will go on Medicare in a years.  She does not need a high commission life insurance policy to pay medical expenses.  She needs to dump her commission-based planner and move her investments to Fidelity or Vanguard.  She can invest in low cost index funds according to her risk tolerance, which is probably low.

The Valic annuity was probably the only choice at the time.  It was common for teachers and some other groups to be offered only investments in annuity wrappers.  Figure out how it pays out and how much it would cost to get her investments out of it.  Then decide the best course of action.  The other Valic account can be closed and rolled over to an IRA.

Long term care insurance policies are very expensive and the benefits are limited.  I would not go that route.  Most people that end up in nursing homes spend less than a year there.  Your mother has money for three years plus the house could be sold.  Medicaid would take over after all her assets were exhausted.

At 70, she will be required to take minimum distributions from her retirement accounts.  It will not be that much at first, but you should plan what to do with that money.

Your mother is lucky to have two sons that are looking out for her best interests.  Good job!

I'll also second everything @Another Reader said here.  That's my most likely read on it all too. 

Another tip: You want to get her a good CPA/tax person now.  They can tell you, based upon her income, whether and when to take out IRA distributions now in order to minimize taxes.  She has five years where she can probably make small withdrawals to avoid higher RMDs - with higher taxes.  Once SS kicks in, you can get taxed on your income (the distributions) and it also causes SS to be taxed (decreased), so you pay a double tax bill, basically.  (It's scaled and more complicated, but basically, you take a bigger tax hit.)  So you may want to withdraw some along the way and put it in a taxable investment account. 

You may be able to save a few grand in taxes that way.  As always, YMMV. 

Linea_Norway

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Re: My dad died. What do I do with Mom's finances
« Reply #11 on: January 17, 2018, 05:54:21 AM »
The life insurance sounds like a big no to me. Assurances are something you buy for an unforeseeable event that will cause you (or your relatives) a financial problem. Your mother doesn't have anyone left who need to pay the mortgage on the house when she dies. Who should receive the life insurance? You and your brother can just inherit what is left of her stash.
If the life insurance is meant to pay out a sum for your own mother for medical expenses, then she could probably better save her money some other way? I cannot imagine the insurance would pay out more than she put in. It wouldn't be profitable otherwise.

civil4life

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Re: My dad died. What do I do with Mom's finances
« Reply #12 on: January 17, 2018, 09:29:48 AM »
I agree with all that has been said.

The only other thought I have is has she done appropriate estate planning?  Not to avoid taxes although important, but like you are concerned with the long term care and selling the house.  Many look into trusts or gifting/selling their homes to their children to protect the asset from being used for long term care.  However these have look back periods and other issues.