Where to Park Mom's House Sale $$?

[SteveR]

Mom finally has a solid offer on her house and it appears she will net about $150,000 after closing. I need to find a nice safe place to stash the cash until she needs it for her Assisted Living expences.

Here is the skinny on what I am trying to do with these funds.

1. She is very very risk adverse. She lived through the Depression and does not trust the stock market so almost all her stuff is very conservative.

2. She has a number of bond and treasury funds already and I don't see adding to those.

3. She is funding her $35,000/year living expenses from a combination of SS and a teacher's COLA pension. That only pays for about $25,000 of the total. The rest is coming from a number of CDs (one year and a couple of 2-year CDs). AS they mature I have been transferring the funds into her MM account until needed and then into her checking on an as needed basis. This has worked well so far. She still has about 3 CDs that will carry her for another 3-4 years at her current expenses so the house money will not be needed for a while if ever.

4. She is 83 and in generally good health but is blind and limited in mobility. She does not spend much beyond some occasional food items or gifts and we don't see a significant change in her expenses until she gets more dependent on skilled nursing care. Once that happens she as a paid up LTC policy that will provide about 90% of her exenses for 5 years. We are waiting to use that until she really needs it but that is a balance between waiting too long to cash in on the policy or living beyond it and then depleting her other assets at a higher burn rate.

5. She also has a couple of annuities that she paid into but is not yet drawing on. I don't have all the details on them by I would think that they could be used anytime to generate income. Can you cash these things out without a big penalty or should I even think about it?


So, the money is not needed right now and may never be needed is we can carefully use her liquid assets first and then work through the other investments over time. Being 83 and with no immediate health issues makes her longevity an unknow (just like the rest of us) so I am planning on the long side so we want her to be fully funded for at least 15 more years.

Where would you guys suggest I stash this cash to protect it from market swings but have it available if needed and to minimize probate and inheritance issues?

Thanks in advance.

 

[Brat]

Brewer is the go-to guy in this area, but here is my $0.02..

If she is really risk averse then she wouldn't be comfortable with either Oakmark's, Dodge & Cox's or Vanguard's balanced funds although they would provide you with better growth potential than my next suggestion: buy indexed savings bonds in $500 denominations from your local bank or Treasury Direct.  The advantage of Treasury Direct is that she probably won't be able to cash them without your help, it will be more secure. 

I understand perfectly item 4, my Mom is 89 has used up her LTC.  I would use the LTC policy as soon as appropriate, build up her assets which you will then spend down after five years.  Choose a facility that accepts Medicaid if her assets are exausted.

"If I knew then what I know now", I would have STRONGLY encouraged my Mother to move to a non-profit continuing care facility before she needed hands-on care.  When she needed to move within the facility there wouldn't have been the social disconnect.  Explore that with her now.  Eventually she will need to move, the only issue is when and whether she will be able to choose.  See http://tinyurl.com/78tsl

 

[brewer12345]

A couple questions:

- Where will she be living once the house sells? Assisted living facility? Will the $35k living expense number continue once the house is sold?

1) Assuming you are not willing to disobey her wishes on investments, you are stuck with very conservative fixed income choices. I'd probably max out on I-bonds for the money you don't immediately need, and then go find the highest yielding short term CDs you can find for the rest.

2) Take a look at the bond funds. If you see munis or anything with more than medium duration, sell it for something taxable with short duration. Makes no sense to take extra rate risk in this environment.

3) ??

4) Since she only needs a smallish draw to fund her living expenses, I would probably hang on to the LTC policy until she really needs it. When she becomes heaviy dependent on skilled nursing, it will be expensive, and the policy will be handy.

5) Annuities are a tax disaster if you die with them outstanding. I would find out the terms of her annuities. Most likely, she will be entitled to cash them in, roll them over tax free to a different annuity, or annuitize them (i.e. turn them into a stream of payments). I would probably use the annuities first to fund living expenses, assuming she is no longer to surrender charges. Either the agent who sold them or the insurer should be able to tell you what the deal is.

 

[JohnP]

SteveR

Congratulations on having the offer on the house - that will simplify any future legal problems.

My mom and stepdad are the same age as your mom.  They have all their $ in CDs - They won't talk about any other options - he loves to pour over the local papers to find the best deals when it comes to renewal.  Their assets are fine but none are liquid, including their house.

On Item #5 - I agree with brewer - Check out the contracts of the annuities - They are likely to be still in the accumulation phase if she is yet to draw on them - as such, they are basically an expensive 'savings account' at this point - they are also likely to be past a surrender charge period.  It is likely that you can draw some or all of the principle out without other cost.  If her annuities still have surrender charges, you can often draw up to 10%/yr without extra expenses.

At this point, I'd not recommend 'annuitizing' these annuities.  That's because you're likely to need liquidity one of these days.

Best regards
JohnP

 

[SteveR]

A couple questions:

- Where will she be living once the house sells?  Assisted living facility?  Will the $35k living expense number continue once the house is sold? She is currently in an Assisted Living center and will need to remain there for the duration. When her health gets worse, they have a wing for skilled nursing care so she would technically never leave the facility unless we find a nicer place but where she is seems to still be the best place in town

1) Assuming you are not willing to disobey her wishes on investments, you are stuck with very conservative fixed income choices.  I'd probably max out on I-bonds for the money you don't immediately need, and then go find the highest yielding short term CDs you can find for the rest. I was thinking IBonds too but was not sure how to go about seting up a Treas. Direct account in her name.

2) Take a look at the bond funds.  If you see munis or anything with more than medium duration, sell it for something taxable with short duration.  Makes no sense to take extra rate risk in this environment. Any specific suggestions here?

3) ??

4) Since she only needs a smallish draw to fund her living expenses, I would probably hang on to the LTC policy until she really needs it.  When she becomes heaviy dependent on skilled nursing, it will be expensive, and the policy will be handy.

5) Annuities are a tax disaster if you die with them outstanding.  I would find out the terms of her annuities.  Most likely, she will be entitled to cash them in, roll them over tax free to a different annuity, or annuitize them (i.e. turn them into a stream of payments).  I would probably use the annuities first to fund living expenses, assuming she is no longer to surrender charges.  Either the agent who sold them or the insurer should be able to tell you what the deal is. We are still trying to get information on the Annuities. I think they are about 4-5 years old but we have not had a chance to chase down the specifics on this. We were thinking about going to them as the next income stream to start drawing them down and then save the rest of the cash for CDs or bonds.

Thanks for the feedback. I know I have a lot to dig into but I was looking for some alternate ideas on where to put the $150k she will get in January.
Keep those good ideas flowing in here.

 

[brewer12345]

For bond funds, I think you could do a lot worse than either a short term Vanguard treasury fund or just buying T bills and bonds (Treasury Direct). Just keep maturities under 5 years. However, if you can get the same maturity with better yield from a CD, I would just go with CDs.

On the annuities, if you even know the name of the insurance company, they are usually pretty helpful when you call them. Alternatively, you might call your state's insurance department to see if they have any ideas on how to track down where the annuities arre.

 

[nfs]

4. She is 83 and in generally good health but is blind and limited in mobility. She does not spend much beyond some occasional food items or gifts and we don't see a significant change in her expenses until she gets more dependent on skilled nursing care. Once that happens she as a paid up LTC policy that will provide about 90% of her exenses for 5 years. We are waiting to use that until she really needs it but that is a balance between waiting too long to cash in on the policy or living beyond it and then depleting her other assets at a higher burn rate.

You're getting advice on everything else so I'll leave them to it. IMO you should think harder about the bolded sentences above. Unless your mother is very unusual, her life expectancy at 83 isn't that much more than the 5 year limit on a policy. (Without further information to plug into a calculator, median life expectancy is no more than about 7 years. There are hundreds of them on the net that adjusted for health and lifestyle. Google one and use it.)

Think about the two options here. One is to burn capital now and use the LTC policy later; the other is to use the LTC policy now and burn the capital later. Assuming you could predict her date of death, you seem to believe that it would be better to use the LTC for the five years immediately preceding. Offhand, I don't see why that's any better than using the LTC now. Capital gets dissipated before in one instance and after in the other, but there's no reason to believe that the burn will be bigger one way than the other. I would expect them to be about the same. Except ...

You can't really predict when she's going to die. So you can't really know when to start the LTC payments. So there is a risk after all: the risk that you'll trigger the LTC too late and never collect the 5 years. If that happens, capital has been burned needlessly.

I see no upside in waiting on the LTC policy. I see considerable downside.

 

[Brat]

I tend to agree with nfs (assuming she meets the qualifying factors).  One factor is the COLA in the policy.  If it is less than what she will earn from investing her assetts draw on it sooner rather than later.  Some policies give you a 'bucket of money', so if her care is less than the daily benifit rate the policy will last longer.

You really need to understand the policy provisions.

 

[SteveR]

Think about the two options here.  One is to burn capital now and use the LTC policy later; the other is to use the LTC policy now and burn the capital later.  Assuming you could predict her date of death, you seem to believe that it would be better to use the LTC for the five years immediately preceding.  Offhand, I don't see why that's any better than using the LTC now. 
You can't really predict when she's going to die.  So you can't really know when to start the LTC payments.  So there is a risk after all: the risk that you'll trigger the LTC too late and never collect the 5 years.  If that happens, capital has been burned needlessly.

I see no upside in waiting on the LTC policy.  I see considerable downside.

As I stated in my OP, the policy is intended to be used when she has to go from Assisted Living to a full care environment. The LTC policy has limits on what it will pay for on both a monthly basis. The policy pays only a percentage of that unless you are in a full service nursing facility. She is not yet in this kind of facility and since the policy does have a total cap we don't want to burn through it until she can use it to the fullest. In that kind of setting, the policy would only last 3 years.

We are still evaluating our options with this. So the question becomes, do you burn through the policy at a low rate of payment and hope that she does not spend it all out before she needs a higher cost of care or do you wait and let the policy pay the maximum when that happens? One can make a case for either. Since cash flow on a monthly basis is not the problem we really just need to evaluate the best approach that works for her finances.

We have the LTC to fall back on if and when we believe the time is right to use it. Since it is a limited policy; monthly cap and is pro-rated depending on the level of care needed, we believe it to be better to wait and see for now. We always have the option to use it at any time. She has only been in there a year so far and her health has been fine. If she were to outlive all of us and she burned through her policy and her assets then where would she be? She has a habit of not following the statistical trends.

Thanks for the responses. It is always a tricky issue to deal with.

I am also looking into her annuities. It appears that she has three small ones that would not be surrenderable without significant charges for a couple of more years. She still has a couple of other sources of income that we can tap before then so we can wait them out. They have a guaranteed interest of 3%; which was good a year ago; but is falling behind now. In a couple of years she will and we will most likely cash our the annuities and use the income for living expenses. She still has a few bond funds of varioius types that can be used if needed down the road. And once we park the house equity someplace she will have that too.

 

[brewer12345]

Steve:

Even if the annuities still have surrender charges, you should be able to withdraw 10% of the balance a year. Most annuities include this feature to accomodate required minmum withdrawals by idiots who put tax sheltered annuities in IRAs. You might also call the insurer and see if they will waive the surrender charge for an 80-something year old woman living in a nursing home. Sometimes they will be flexible.

 

[kz]

I was in the same boat a few yrs ago with my mom's money. This is what I did with it.

Three $10,000 I-bonds
$30,000 three-yr CD
$20,000 two-yr CD
$20,000 one-yr CD
$15,000 money market fund

She also had $10,000 in a funeral trust CD and $35,000 worth of bank stock.

Mom is currently 86, in fairly good health and lives in an assisted living facility in a very small town in the midwest. ($1900 a month...everything included except telephone)

I was extremely conservative with her money, in large part, 'cause I was following dad's wishes prior to his death. At the rate of which we're using her money she should be covered for 8-10 yrs and then her 4 daughters would help to pay her expenses.

FWIW.

kz

 

[rapoole]

nfs-

You mentioned probate. Does mom have a will? How are her assets held - in her name, or as joint tenant with right of survivorship? The latter may avoid probate for those accounts, but you need to talk with an attorney in mom's state.

Depending on the laws in her state, if the accounts are her only meaningful assets and are held as JTWROS, there may be very little left to go through probate. If some money is in IRA's she should probably designate beneficiaries so they pass outside probate. However, if these assets pass outside probate, then their disposition will not be controlled by her will.

Has mom designated someone to hold power of attorney? Even if she is sharp now, she may not be forever.

Not offering legal advice, just suggesting you should encourage mom to do a little planning. It doesn't sound complicated and shouldn't be very expensive.

rapoole2000

 

[SteveR]

Mom has no IRA and her accounts all name my brother and I as beneficaries. There would be little to probate once the house is sold. Her assets are limited to some MFs, the annuities, CDs and a MM account.

She has a will that is up to date as well as POA, Living Will and a pre-paid funeral. We are not too worried about her assets as we expect most of them to be used up before she dies. If not, we are prepared to fund whatever she needs. I would say Mom has done a pretty good job of planning so far.

Brewer,
Thanks for the advice on the annuties. I found some basic stuff on the company websites last night and am going to get a copy of the contract to see what my options are.