Author Topic: My father in law passed away and left my mother in law with under $100,000  (Read 6733 times)

Jana

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He was day trading in his 80's and losing. Go figure. So here we are.....

There are 2 annuities that I am considering moving to Vanguard. One is at AAA and has a guaranteed rate of 3.15% with no fees. He failed to take his minimum distributions and it has dropped over 10,000 in the last 10 years.  I don't know much about annuities but I plan on moving her assets to Vanguard.

She will be living off of SS of about 2000 a month. She also has a reverse mortgage. My plan is to take as much as possible out of the house and put it in a safe ratio -index funds/bonds at Vanguard for future health care needs. She is 74 and in fairly good health for now.

He kept her in the dark about everything so now I'm educating her and I've got her on a budget too. She's very willing to cut costs and learn.

Any advice would be appreciated.

tomsang

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #1 on: December 31, 2016, 09:27:06 AM »
He was day trading in his 80's and losing. Go figure. So here we are.....

There are 2 annuities that I am considering moving to Vanguard. One is at AAA and has a guaranteed rate of 3.15% with no fees. He failed to take his minimum distributions and it has dropped over 10,000 in the last 10 years.  I don't know much about annuities but I plan on moving her assets to Vanguard.

She will be living off of SS of about 2000 a month. She also has a reverse mortgage. My plan is to take as much as possible out of the house and put it in a safe ratio -index funds/bonds at Vanguard for future health care needs. She is 74 and in fairly good health for now.

He kept her in the dark about everything so now I'm educating her and I've got her on a budget too. She's very willing to cut costs and learn.

Any advice would be appreciated.

I think the goal would be for the account to be zero by death.  I hate seeing the elder having their budget cut to maintain their Stache.  The Stache should be going down each year based on life expectancy.  If there is a health issues she will be covered by Medicare.  $100,000 doesn't cover a week in the hospital so saving money for health is a bit challenging when you are talking these levels of wealth. 

Paul der Krake

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #2 on: December 31, 2016, 09:29:00 AM »
I don't think she's in bad shape- $2000 with paid for housing, assuming reasonable maintenance and taxes, that's enough to live quite comfortably even in old age.


Goldielocks

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #3 on: December 31, 2016, 04:00:23 PM »
Jana,

Not an emergency situation, by any means.  First call the annuity company and ask for the details.  There are all sorts of types, and leaving it as an annuity may be worth it to your mom...  especially as there are ZERO decisions about selling off a portion every year to generate an income, and the amount is guaranteed (will never run out).  That is pretty good deal.  Run the numbers net of penalties to compare to vanguard and the (small) risk of running out of money.

Second, the reverse mortgage  - you may find that you can not withdraw any equity on it, as the equity is what is securing the reverse mortgage...   check the details and limits.   They can put a large lien on the property, for the full equity amount, to block any others from claiming a portion of the equity, and to free it up, you first need to pay off the reverse mortgage.

Instead, you may be best off to sell the home, pay off the reverse mortgage and have her move into a small condo that she buys with the remaining equity, and use the annuity / SS pension income to pay for maintenance, food, and taxes.

You may find out that the reverse mortgage income was just paying for the whole home expenses, and with just her, a larger home is just not needed (nor the maintenance) anymore.


Cassie

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #4 on: December 31, 2016, 04:06:18 PM »
GL has come up with a great plan if your MIL is willing to move. Also she is right about the reverse mortgage. 

pbkmaine

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #5 on: December 31, 2016, 04:08:40 PM »
Also investigate programs in her area for low income seniors.

Jana

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Thanks everyone!

Dicey

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First and foremost, I am sorry for your loss. Shitty to lose a parent, even shittier to learn something negative after their passing. 

I third all of Goldilocks' advice. I also recommend contacting the reverse mortgage company to find out payoff amounts and options. You might be shocked at what the payoff amount is. Please do that and report back. Also, what is the size and condition of the house? How far is she from you?

I have ideas, but it's going to depend on what you find out. Standing by and wishing you well in the meantime.

Dee18

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+1 re make no decisions until you get more facts.  Keep in mind she could still live another 20+ years.  Her social security with medicare should cover all her current monthly expenses, allowing her to save the annuity payments for when her expenses increase if she needs assisted living.  My mother is 93.  Her monthly expenses with a paid off house are $1400.  But she is thinking of moving to a senior living arrangement where the monthly fee is $3800.  She is fortunate to have plenty to cover that, but is having a hard time spending that much!

Her preferences are as important as her financial situation.  Does she want to stay in her house?  Would she rather have an apartment that is easy to care for and perhaps provides more social interaction?  Are family nearby?  So many variables.

friedmmj

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Jana,

Not an emergency situation, by any means.  First call the annuity company and ask for the details.  There are all sorts of types, and leaving it as an annuity may be worth it to your mom...  especially as there are ZERO decisions about selling off a portion every year to generate an income, and the amount is guaranteed (will never run out).  That is pretty good deal.  Run the numbers net of penalties to compare to vanguard and the (small) risk of running out of money.

Second, the reverse mortgage  - you may find that you can not withdraw any equity on it, as the equity is what is securing the reverse mortgage...   check the details and limits.   They can put a large lien on the property, for the full equity amount, to block any others from claiming a portion of the equity, and to free it up, you first need to pay off the reverse mortgage.

Instead, you may be best off to sell the home, pay off the reverse mortgage and have her move into a small condo that she buys with the remaining equity, and use the annuity / SS pension income to pay for maintenance, food, and taxes.

You may find out that the reverse mortgage income was just paying for the whole home expenses, and with just her, a larger home is just not needed (nor the maintenance) anymore.

A reverse mortgage doesn't work that way.  The whole point is that you draw out the equity and when you die or move to a nursing home then the house is sold to repay the loan balance or the heirs to the estate can pay off the loan if they prefer to keep the house.

Dicey

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #10 on: January 10, 2017, 07:02:53 PM »
What people fail to realize is that there is a meter on every dollar they lend out, plus fees. Families are often shocked at the balance their loved one managed to amass. Meanwhile their loved one didn't get anywhere near that many actual dollars in their pocket. It's a business, people, not a benevolent organization.

Goldielocks

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #11 on: January 11, 2017, 06:51:06 PM »
Jana,

Not an emergency situation, by any means.  First call the annuity company and ask for the details.  There are all sorts of types, and leaving it as an annuity may be worth it to your mom...  especially as there are ZERO decisions about selling off a portion every year to generate an income, and the amount is guaranteed (will never run out).  That is pretty good deal.  Run the numbers net of penalties to compare to vanguard and the (small) risk of running out of money.

Second, the reverse mortgage  - you may find that you can not withdraw any equity on it, as the equity is what is securing the reverse mortgage...   check the details and limits.   They can put a large lien on the property, for the full equity amount, to block any others from claiming a portion of the equity, and to free it up, you first need to pay off the reverse mortgage.

Instead, you may be best off to sell the home, pay off the reverse mortgage and have her move into a small condo that she buys with the remaining equity, and use the annuity / SS pension income to pay for maintenance, food, and taxes.

You may find out that the reverse mortgage income was just paying for the whole home expenses, and with just her, a larger home is just not needed (nor the maintenance) anymore.

A reverse mortgage doesn't work that way.  The whole point is that you draw out the equity and when you die or move to a nursing home then the house is sold to repay the loan balance or the heirs to the estate can pay off the loan if they prefer to keep the house.

Fred...  you need to double check how reverse mortgages work.  Many lenders will put a large mortgage line on the property (more than they originally intend to lend you), because if you live longer than expected, (and they pay out for longer) they can get the full amount back when it is sold.   So they lock it up so a second mortgage can not be placed on the same property.   

Anyway,  a reverse mortgage can also be  like a loan that buys an annuity, from which a portion is used to pay the interest on the loan....  but not if the financing institution is self-funding the annuity.

I can imagine that some reverse mortgages would work differently, but from a bank's position that would be foolish.

tomsang

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #12 on: January 13, 2017, 10:19:16 AM »
Jana,

Not an emergency situation, by any means.  First call the annuity company and ask for the details.  There are all sorts of types, and leaving it as an annuity may be worth it to your mom...  especially as there are ZERO decisions about selling off a portion every year to generate an income, and the amount is guaranteed (will never run out).  That is pretty good deal.  Run the numbers net of penalties to compare to vanguard and the (small) risk of running out of money.

Second, the reverse mortgage  - you may find that you can not withdraw any equity on it, as the equity is what is securing the reverse mortgage...   check the details and limits.   They can put a large lien on the property, for the full equity amount, to block any others from claiming a portion of the equity, and to free it up, you first need to pay off the reverse mortgage.

Instead, you may be best off to sell the home, pay off the reverse mortgage and have her move into a small condo that she buys with the remaining equity, and use the annuity / SS pension income to pay for maintenance, food, and taxes.

You may find out that the reverse mortgage income was just paying for the whole home expenses, and with just her, a larger home is just not needed (nor the maintenance) anymore.

A reverse mortgage doesn't work that way.  The whole point is that you draw out the equity and when you die or move to a nursing home then the house is sold to repay the loan balance or the heirs to the estate can pay off the loan if they prefer to keep the house.

Fred...  you need to double check how reverse mortgages work.  Many lenders will put a large mortgage line on the property (more than they originally intend to lend you), because if you live longer than expected, (and they pay out for longer) they can get the full amount back when it is sold.   So they lock it up so a second mortgage can not be placed on the same property.   

Anyway,  a reverse mortgage can also be  like a loan that buys an annuity, from which a portion is used to pay the interest on the loan....  but not if the financing institution is self-funding the annuity.

I can imagine that some reverse mortgages would work differently, but from a bank's position that would be foolish.

What does Fried have wrong?  His definition is pretty close to my understanding of a reverse mortgage. A bank is going to want to get paid back principle and interest no matter how long a person lives.  If the property is appreciating the heirs will still get the difference between what is owed and the value of the property.  If the property depreciates in value then the bank may be stuck with an asset that does not cover their loan with interest.  My understanding of a reverse mortgage is that it is designed to allow elderly people stay in the house that they have lived in for the rest of their lives.  The idea of selling the house and living in a condo is opposite of what a reverse mortgage is about.  The elderly do not usually want to have a lot of change in their lives.  They typically have a lot of equity in their house that is not that useful to them.  The idea of a reverse mortgage is that they are able to live in their house no matter how long they live or how the stock market does. It gives them the stability to die in the house that had meaning.  A downside is that when they die, the bank needs to be paid back so the heirs get less.  If the goal is to pass on wealth then maybe a reverse mortgage is not the best tool.  If the goal is that the elderly can live out their lives in the house that they want to live without worry of a mortgage payment and have more monthly spending then I think it may be a good tool. 

I am probably opposite, but when someone hits their elder years, I think the goal should be to make sure that they are enjoying their life and that their investments are decreasing not increasing.  Skimping on spending on things that they enjoy so that they can leave more to their kids or cover a potential cost in the future before they die is opposite of what I want from my parents.  If they are needing fulltime medical care, $100k will go away in the first year.  Also, if you are bed ridden, why spend more to have a fancy room?  Why prolong life? Trips to see family, dinners out, and spending money now when she can enjoy it seems like a prudent use of her assets if done in a reasonable manner.  I believe that the $100k should be gone when they die.  The goal is for the check to the funeral home to bounce :)     

K-ice

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #13 on: January 14, 2017, 09:09:36 AM »
Check the details on the reverse mortgage.

Generally the rates are higher than a regular mortgage.

How much have they already borrowed or was it just set up for emergencies?

I think it would make no sense to borrow a lot from a reverse mtg & reinvest it.
What greedy, sleazy finial advisor is trying to make $ on the mortgage and then on the investment.
You mention Vanguard so the fees on investing should be minimal but I still wouldn't take additional risk with my 74y old mother & borrowing the money first adds a lot of risk.

If they do have a reverse mtg I would draw down the minimum necessary each month.

Some people are dead set on moving but I know a few who are happy to downsize. The condo option should give her some of the equity she needs to live on. Go over her budget again before making any moves. Condo fees might increase her monthly spending.  Next, with that equity it is a good idea to invest in low risk Vanguard because your mom may need money for another 25y & you wouldn't want inflation to destroy it. You could probably even look into getting a regular or reverse mortgage on the condo if you think Cash is still tight.


But this part "... take as much as possible" really scared me & I don't think anyone face punched you hard enough yet.


 She also has a reverse mortgage. My plan is to take as much as possible out of the house and put it in a safe ratio -index funds/bonds at Vanguard for future health care needs. She is 74 and in fairly good health for now.

Any advice would be appreciated.

No one pointed out the added risk of borrowing to invest. 

Malum Prohibitum

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #14 on: January 14, 2017, 09:14:07 AM »
She also has a reverse mortgage. My plan is to take as much as possible out of the house and put it in a safe ratio -index funds/bonds at Vanguard for future health care needs. She is 74 and in fairly good health for now.
  So this is not a decision about whether to get in bed with these sharks.   She already did that, correct?

Goldielocks

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #15 on: January 14, 2017, 10:00:00 AM »
Tomsang,   the part that was incorrect was not mentioned in your post.

Many reverse mortgages will place the mortgage line on the property for the full amount of equity on the property, even though they are only expecting to pay out a smaller amount, based on life expectancy.    This is to cover them if the person lives longer.

Like some of the HELOC lines that grow as you pay off your mortgage -- the company will place the line on the property for the full amount.   

This stops fred's parent from taking out a HELOC or other equity,  when a Reverse mortgage is in place.

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K-Ice   Maybe I read your post wrong, but a reverse mortgage is different from a HELOC.   A Heloc lets you invest the equity, but up to a lower borrowing limit, and can often be rescinded at will by the financial institution.  Also,  A Heloc, lets you take out a lot of money upfront for investing.

A Reverse mortgage is like an annuity, it pays on a monthly basis a consistent amount, guaranteed for life (or until home sells), and can be placed for a larger % of the home equity and grow from there if the person lives longer than expected.    There are administration costs to reverse mortgages, so are more expensive.

So the difference is that you can't borrow a lot from a reverse mortgage then re-invest it, you only get a monthly amount..  But you can do that with a HELOC, up to a lower limit.

K-ice

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #16 on: January 15, 2017, 02:17:48 AM »
Good point Goldielocks.
Banks are very sneaky in putting a full lean on your property even if you don't want to borrow that much. Sure they are doing you a favor so you don't need to renegotiate later if you need more money.
But they are just pushing out any second mortgage competition.

I agree, reverse mortgages are generally designed to disperse a small amount each month.
I am not sure of the limits you can borrow at one time from a reverse mortgage but believe it could be upto 55% of the home's equity.
Based on how the OP posed their question I thought they wanted to borrow a lot up front using a reverse mortgage. .
The main difference I see with a HELOC and a reverse mortgage is that monthly payments are expected on a HELOC.
A few other differences:
Reverse Mortgages are usually offered to seniors.
Interest rates are higher on reverse mortgages.
You can borrow less with a reverse mortgage.
I'm sure there are other differences.

Call it a reverse mortgage, a HELOC or whatever.

Regardless, does anyone think it's a good idea for the OP's MIL to borrow a large sum of money and reinvest it at her age?




Goldielocks

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #17 on: January 15, 2017, 12:49:48 PM »
Ah, Got it.
---------------
I firmly believe that seniors should invest their money to the extent of their knowledge and ability.   As we know one's ability to think through a situation may decline in the final 10 years of life, so not pushing the investing knowledge boundaries now is important for future.

So, some seniors who were active, informed investors in their younger days may be fine self-managing, or hiring someone to manage their funds for them, and understand the basics to know when good decisions are being made and when to restrain the advisor.   For them, investing funds may work well.

Unfortunately, based on what the OP indicated, this is not his MOM's situation, and I think she would be best suited to a conservative fixed income investment or even guaranteed financial income plan, that is targeted to her single monthly expenses needs (which may include a whole home,  or not, now that she is single and aging).  Guaranteed plans include the reverse mortgage and annuities, or a monthly spend down of a fixed income fund.

As a relative / child, it is our responsibility to look ahead and identify if MOM needs help deciding to change living situation to something better suited, if it will likely need to change due to health in the next few years.  This is often a blind spot as we age. 

BUT   I don't think that kids investing parents money (when parents have little money saavy to even keep track of what is happening) is ever a good idea, parents deserve as much self control / choices as they are capable of, including over their own money while their wits are with them.

KBecks

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #18 on: January 15, 2017, 04:09:09 PM »
Hi Jana,

Vanguard offers low cost annuities that you can research and look into.   You should be able to roll from one annuity company to another annuity company (Vanguard) without too much hassle, unless the current annuity company charges surrender fees.  Check into all the details of that.

Also, carefully review the reverse mortgage to learn how it all works, and all the details. 

if your dad just died, take it slow.  Losing a spouse is a massive change and it's so emotional.  Try to comfort your mom and not make any huge drastic changes to her life, let her decide when she is ready to dig in and make plans for her future.   

Also look out for your mom's health, it's a stressful time.  Just be there for her and connected as much as you can.

Hugs.

ETA:  I see that you are the daughter or son in law.   Is your spouse the only child?   Your post does sound very much like you are taking over.  Be careful about this so you don't come out as the bad guy if Mom feels pressured or doesn't understand what's going on.  Are you or your spouse the future executor of the estate?  Does she have a will, etc. are good questions. 

There is good advice that any money that is needed in the next 3 - 5 years should be kept in cash.  This may not be necessary if the reverse mortgage and social security are covering her needs,  but she should then have an emergency fund in cash.   

Lastly, be careful not to say anything bad about your FIL in front of his wife.  All the past decisions are long over, gently help your MIL if she's asking for assistance, and take it slow and careful. 
« Last Edit: January 15, 2017, 04:28:47 PM by KBecks »

Dicey

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #19 on: January 15, 2017, 04:22:01 PM »
Tomsang,   the part that was incorrect was not mentioned in your post.

Many reverse mortgages will place the mortgage line on the property for the full amount of equity on the property, even though they are only expecting to pay out a smaller amount, based on life expectancy.    This is to cover them if the person lives longer.

Like some of the HELOC lines that grow as you pay off your mortgage -- the company will place the line on the property for the full amount.   

This stops fred's parent from taking out a HELOC or other equity,  when a Reverse mortgage is in place.

-------------------------------------
K-Ice   Maybe I read your post wrong, but a reverse mortgage is different from a HELOC.   A Heloc lets you invest the equity, but up to a lower borrowing limit, and can often be rescinded at will by the financial institution.  Also,  A Heloc, lets you take out a lot of money upfront for investing.

A Reverse mortgage is like an annuity, it pays on a monthly basis a consistent amount, guaranteed for life (or until home sells), and can be placed for a larger % of the home equity and grow from there if the person lives longer than expected.    There are administration costs to reverse mortgages, so are more expensive.

So the difference is that you can't borrow a lot from a reverse mortgage then re-invest it, you only get a monthly amount.  But you can do that with a HELOC, up to a lower limit.
Nope, not true. A reverse mortgage can be a lump sum, monthly payments or a hybrid.

Telecaster

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Re: My father in law passed away and left my mother in law with under $100,000
« Reply #20 on: January 15, 2017, 04:31:49 PM »

Regardless, does anyone think it's a good idea for the OP's MIL to borrow a large sum of money and reinvest it at her age?

I don't.   It sounds like she already has the reverse mortgage.  If it is feasible, I'd recommend letting the $100,000K grow as much as it can, and just living on SS and the reverse mortgage.   I dunno what the RV is throwing off, but maybe $500 a month?  So $2,500/month with a paid off house should be reasonably comfortable.

If the MIL needs to move into a nursing home at home some point, then look into tapping the $100K.  It sounds a bit callous to say it out loud, but the average length of stay in a nursing home is only a couple years.