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My parents and their inheritance
Old 07-22-2004, 02:44 PM   #1
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My parents and their inheritance

My grandfather passed away in the beginning of the year and as a result, my grandmother decided to retire and sell the family business. From the sale of the business she has decided to give half to her children and keep half to finance her retirement (my grandmother is 75 yrs old).

So the business (gas station, small convenient store, coin laundry and carwash) along with the property it is on, is on sale for $3M. My grandma owns her own home which is valued around $800K and a small rental condo (I am not sure whether or not the condo has any mortgage on it).

Right. So if the business is sold on its asking price, my grandma will be keeping $1.5M for her retirement and the rest will be divided among her 8 children.

My parents have been asking me what to do with the windfall (my mom is 52, my dad is 55). They have their own coin laundry business and my mom helps my grandma running the "family empire" (sorry can't resist).

My parents are not very sophisticated investors and although they live very frugally with no debt (home paid for), they have little savings (thanks to my dopey brothers - we won't go there).

I don't know what to tell my parents. On one hand I want to help whatever I can to make sure they have comfortable retirement (and maybe say something like "stop giving money to my adult brothers") but on the other hand, I am not comfortable advising someone else about their money. I am not sure I want to refer them to a financial advisor (I don't have one - I don't trust many of them advisors). I don't expect any inheritance, actually, I would rather my parents to have the time of their life and spend most of their money during their "golden years".

Such a long winded post, isn't it? I guess I am just trying to make sense of all this. What do you think?

Jane
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Re: My parents and their inheritance
Old 07-22-2004, 02:50 PM   #2
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Re: My parents and their inheritance

Get in touch with Vanguard and explain your situation. Be sure to ask about the Target Retirement Series.
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Re: My parents and their inheritance
Old 07-22-2004, 03:31 PM   #3
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Re: My parents and their inheritance

The FIRST thing I would tell them is not to get involved with ANY financial planner, bank or insurance company until you have had a chance to research the entity. I saw the vultures circle my parents until I called a halt and asked my parents to put their $ in the bank until they worked through a plan. The plan can start before they receive this money. [BTW, have your Grandparents done their due diligence on their gift plan?]

Working through a plan includes their meeting with a lawyer to execute wills and health care directives. Search on my handle, "Brat", and you will find a thread where others were scrambling to care for their family members. Read that and you will find the value of up to date wills, health care directives and revocable living trusts. The work for your parents will be making a list of their assets and insurance policies. That exercise alone was an eye-opener for my husband and I, titles were not as we thought.

One purchase worthy of consideration is Long Term Care Insurance. When purchased as a couple discounts of 10-20% are available.

The Vanguard fund mentioned is worthy of consideration. Whether it is appropriate as a parking place until they have made a plan - I don't know.
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Re: My parents and their inheritance
Old 07-22-2004, 03:51 PM   #4
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Re: My parents and their inheritance

Temporarily there are a lot of < 1 year cd specials going on right now with interest rates between 2.5 and 3%+. Cashing out before the full year loses one month of interest.

Longer term, with over $1M they qualify for vanguards "flagship" service, aka the 'butt kissing' level. They should provide service to help determine what to do with the money at no cost.

Good options:

Target retirement income
Lifestrategy income
Wellesley income
(state) intemediate term municipal bond fund

All four will throw off at least 3.5 to 4% dividends and offer low volatility and some modest capital growth that should mitigate inflation, except for the muni fund. You dont say which state you're in, so I cant say if vanguard offers a fund for that state.

If they're in a high tax bracket, the muni fund might make the most sense as the income should be largely tax free.

The other option is for them to buy long tips (20 year) at the best rate they can get and take the ~2% yields and leave the inflation adjusted principal.
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Re: My parents and their inheritance
Old 07-22-2004, 05:09 PM   #5
 
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Re: My parents and their inheritance

Hello Jane! I don't have the answer, but you made me think of my own situation (wife says I do this a lot).

My folks are financially ignorant, but comfortable with no debts. Thankfully I don't have 7 siblings, but I do have
one dopey brother who is no help now and promises
to be a problem later. Bottom line, my wife and I would like to move south but my parents are not going anywhere and so I am kind of stuck. Don't like stuck.
Neither does wife. Best guess is we will snowbird it
for a while and see what happens. Not our original plan
but I do not see any good alternatives. Could not have
imagined the current situation even 3 years previous.
It's still a good life though.

John Galt
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Re: My parents and their inheritance
Old 07-22-2004, 06:22 PM   #6
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Re: My parents and their inheritance

Jane, being a fellow Canadian, and seeing one brother totally blow up a family, all I can say is I hope your parents see the light. The above Vanguard advice doesn't relate to your mom and dad. Advise them to put funds to their own business and write off the freeloader sons.
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Re: My parents and their inheritance
Old 07-22-2004, 06:27 PM   #7
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Re: My parents and their inheritance

In addition Jane, being Canadian your grandma doesn't need Long Term Insurance and she is covered by OHIP (Ontario Health Insurance Plan).
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Re: My parents and their inheritance
Old 07-22-2004, 07:22 PM   #8
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Re: My parents and their inheritance

Jane

Whoops - missed/forgot? the Canadian part. Depending on your temperment - explain your portfolio to them and why - looks like you could do as well as any planner. Are they planning to retire someday?
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Re: My parents and their inheritance
Old 07-22-2004, 10:56 PM   #9
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Re: My parents and their inheritance

Jane, I think the best thing you could possibly do is convince them to put the money away for a year and promise not to do or commit to anything until the year is up. Then you will have time to help them get educated and, if necessary, find a reputable financial planner that works on an hourly fee (i.e. no annual, asset based charges or commissions) to help them out one a one-time basis. The biggest challenge with a windfall is to avoid blowing it or screwing up royally.
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Re: My parents and their inheritance
Old 07-23-2004, 12:12 AM   #10
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Re: My parents and their inheritance

Yeah I forgot we already razzed Jane about the candian thing.

Perhaps she'll be too busy participating in the invasion planning to get around to making any investment decisions.
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Re: My parents and their inheritance
Old 07-23-2004, 05:16 AM   #11
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Re: My parents and their inheritance

I am trying to convince them (my parents) to save the money maybe in GIC or MM or bonds, and then maybe invest in some low-risk portfolio. I don't think they like the idea of investing in funds or stocks because they think people always loose money on funds/stocks.

I talked to my mom yesterday and asked her what she was thinking of doing with the windfall. She said she was thinking of buying a bigger house. I asked what's wrong her house now. Well, she wants more space because her 1500 sqft house feels so small since my two brothers and wife (one of them is married) lives with my parents. I was like,"well tell them to get their own place and you have more space without having to move anywhere".

Don't think she like that answer too much :P I nagged her for months a couple of years ago to start charging my bros rent before my mom finally agreed. : My brothers are 26 and 28 and my parents are ready to bail them out as if they are 16 and 18. My mom reasoning for not charging rent was so my bros could save their money and one day buy their own homes

Anyway, I suppose I probably will understand this reasoning better if I am a parent. Unfortunately I am not.

At the very least insurance is all covered by the OHIP so I am not worried about that. My parents are pretty healthy (they don't smoke, drink and they walk every day).

I am sure this will keep me busy and worried for the next couple of months that the plan to invade US will be put delayed indefinitely. Too bad...

Jane
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Re: My parents and their inheritance
Old 07-23-2004, 07:04 AM   #12
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Re: My parents and their inheritance

Patience and persuasion, persuasion and patience.

And now for perhaps - quid pro pro invasions - Canadians south in winter, Americans north in summer - with skiers as anomalies.

Er forty years and the mists of time haven't clouded my warm fuzzy memories of Vancouver girls/ er women.
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Re: My parents and their inheritance
Old 07-23-2004, 07:06 AM   #13
 
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Re: My parents and their inheritance

Hello Jane. My parents basically got no inheritance.
If I get any it won't be much. Anyway, I have empathy
as I see my parents doing some obviously dumb stuff.
But, it is their money. I would never "nag" them though.
That would only cause trouble. My Dad has a hot
temper and my mother is very stubborn. Hard to give either one advice. Fortunately I have only one sibling
but he is still a problem. These family issues surely
can get complicated. Anyway, regarding treatment of your children, I believe it is best to make things
as equal as possible, regardless of their different
circumstances. That's what I have tried to do and I
think my folks have done a good job in that area
at least.

John Galt
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Re: My parents and their inheritance
Old 07-23-2004, 09:10 AM   #14
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Re: My parents and their inheritance

When I suggested long term care insurance I didn't know that they are Canadian. At least you are getting value for your taxes!!

With respect to adult kids, my parent's approach was to charge rent and put it in an account for the day they married and moved out or purchased a house of their own. Mom and Dad didn't feel guilty, it was a form of forced savings, a pot that functioned as an incentive to get on with life. There are multi-generational households that work well but it takes a lot to negotiate the power relationships.

There is a big difference between being a butt-in-kin and guiding family to make wise decisions (however, if compentency were an issue butt-in may be necessary). What worked for me was asking them if they had considered (whatever) or offering to research something they were considering, not telling parents what to do. I would ask them what they wanted me to consider and made sure that those items were addressed (pro and con) in my analysis.

There is a good Canadian financial advisor who lives in the Gulf Islands west of Vancouver, he must have peers in your area.
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Re: My parents and their inheritance
Old 07-23-2004, 09:43 AM   #15
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Re: My parents and their inheritance

Quote:
In addition Jane, being Canadian your grandma doesn't need Long Term Insurance and she is covered by OHIP (Ontario Health Insurance Plan).
So OHIP covers say nursing home cost if needed? Or a nurse to come to your house daily?

My parents can be quite stubborn, but so can I When I set my mind to do something, I can be quite persistent. I think after years of seeing my parents paid for cars, insurance, tuition for my brothers, loans to other family members (without getting a cent back), I finally just say enough is enough. The next person trying to leech some money out of my parents is going to deal with me. This is probably a form of butting in and my parents may/may not like it but they just have to deal with it.

This next few months my goal is to nag them to save the money for their retirement and to spend money on themselves for a change (they have never gone on any vacation, rarely buy new clothes and never bought new cars - heck they have never even gone to the movies!). Their children (me and my bros) all have full time job and we can (and should!) take care of ourselves.

Again, this may come from the fact that I am not a parent but I don't agree that as parents you have to pay for your kids forever...unless of course, you have millions of dollars in savings (like my grandparents who paid for school for the kids and bought houses for a couple of them).

I can understand paying for school but cars (plus insurance & maintenance), house? To the point where you have no/little savings to retire on? I don't understand that. When I have my own kids I will pay for school but other than that they are on their own. Unless of course they are smart like me and manage to snag a scholarship

"Sorry kiddo but mommy decided to retire early and have a grand trip to Paris so here is school money. Bus stop is 'round the corner".

Jane
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Re: My parents and their inheritance
Old 07-23-2004, 10:18 AM   #16
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Re: My parents and their inheritance

Jane, long term care insurance pays for more than nursing home care!!! Most of today's mature adults will need care that is best described as "assisted living". This can include at-home care, or living in a retirement facility with hands-on assistance. Many of today's demensia or altzheimer's patients would have died from other illnesses 20 years ago.

When Mom or Dad need help with the activities of daily living who is going to do that? You? Your brothers or their wives?

What I like about having that insurance in place is that Mom and Dad will use it instead of trying to struggle through by themselves.

If a couple is wealthy they can self insure. There is a practice in the states where a couple re-aligns their assets to qualify a disabled spouse for medicaid. It isn't fun, and the healthy spouse isn't enriched.

My husband and I have that type of insurance, my parents had it, so I am not recommending consideration of something I myself have not purchased or used. I know that your parents can't use the program on the following link, but you can learn about LTC insurance features. There are insurers who offer single premium policies (which would be approprate for someone receiving a substantial lump sum inheritance).

http://www.ltcfeds.com/
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Re: My parents and their inheritance
Old 07-23-2004, 11:24 AM   #17
 
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Re: My parents and their inheritance

My parents are 87 and 85, in good shape considering.
In fact, I have almost no contemporaries with both parents living, much less in their own homes and pretty
active (my mother still sells Avon). Anyway, as far as I
know they have made no provisions for long term care,
etc., except to take comfort in my being nearby.
My wife works in eldercare and is concerned she will
end up taking care of them. It's a time bomb.

John Galt
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Re: My parents and their inheritance
Old 07-23-2004, 12:32 PM   #18
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Re: My parents and their inheritance

John, your parents are blessed. I can't tell if Jane lives nearby and would be in a position to care for her parents if need be.

Her grandparents, at least on one side, appear to have been active well into advanced age.

Her parents are middle aged, if they purchased LTC insurance now it would be relatively inexpensive.

Insurance isn't purchased by those who expect to (contract a serious disease, die, have a serious automobile accident), it is to protect against a risk that would be difficult to pay for out of pocket.

My father-in-law died of cancer quickly, my mother-in-law suffered an extended period of senile demensia (healthy as a horse otherwise), father had a brain tumor and needed care as a result of brain injury, mother has parkinson's. Three needed long term care.
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Re: My parents and their inheritance
Old 07-23-2004, 01:29 PM   #19
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Re: My parents and their inheritance

Quote:
Her parents are middle aged, if they purchased LTC insurance now it would be relatively inexpensive.
I had three grandparents who needed long term care for many years, so I delved into LTC a couple of years ago. The problem with waiting are twofold: 1) you might not be able to get it (or the price will skyrocket) if you wait and develop health problems in the meantime, and 2) it isn't necessarily for the old - a car accident could change everything. If my wife was in an accident and I needed to hire a great deal of help to care for her, I'd have to go back to work. So we decided to buy it.

Costs: I'm sure it varies significantly but I can tell you what we paid at age 50 & 49. We bought $110/day - unlimited days - with a 5% compound inflation rider (and several other important features). I crunched the numbers and decided to pay it in one lump sum. This company had three levels of preference - my wife met the "most" preferred category and the cost for her was ~$15,000. I met the "preferred" category and the cost was ~$20,000. The "standard" category was ~$28,000. They examined our medical records with a fine tooth comb. Our agent told us that outright rejections were quite common (my Dad was rejected, for example, but another company took him). So it cost us a lot ($35,000), but I have no regrets.
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Re: My parents and their inheritance
Old 07-23-2004, 01:31 PM   #20
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Re: My parents and their inheritance

Quote:
So OHIP covers say nursing home cost if needed? Or a nurse to come to your house daily?
No. My gran is getting on now and will likely be needing some assisted living in the next year or so (well, she is a little older now that she's 95). She lives on a small British government pension, the Canadian OAS (sort of like half of US SS) and a very small CPP pension (the other half of the US SS). There are programs that are income/wealth based and will take various portions of your income/wealth to cover the care. These are in general group rooms with a lot less privacy. We are working it out in the family to provide the top up payments to cover the private room when the time finally comes.

As for your parents "inheritance", with such a large windfall and the apparently large amount of their own portfolio it might not be necessary for them to invest in equities. Even a small amount though would go a long way to help - maybe 30% with 10% TSE60 index, 10% US Wilshire 5000, and 10% EAFE with the remainder in CG bonds or CDs. You could go more complex but the above would be reasonable since they are afraid of equities, are still working at their business and if they are frugal with such a large amount it could work out fine.
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