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Need suggestions for stable income
Old 08-16-2016, 10:17 AM   #1
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Need suggestions for stable income

Hey all, I need some suggestions on creating stable income for my mother. My father died a few years ago, and I've been managing the life insurance. I took 90% of it and placed it into various high quality muni bonds, corporate bonds, REITS and other Vanguard funds. However, a lot of them are being called (bonds), and there is little out there to purchase to replace the lost income w/o going into high yield. I've been in the market since 18, so I know what I am doing. However, for my mother she doesn't have 20 + years for income, she needs it now. I've looked at preferred stocks, by most are significantly over par as well. Most is sitting on cash, as again, there is little to buy. She also has my "younger" 28 Y.O. sister at home that she pays for everything because she doesn't have a job. She now wants to go to business school, guess who offered to pay for this? Well, not me. Since the money is in a trust and I am the primary trustee, I control the funds. We have around enough to cover her monthly expenses and her prop. taxes. However, with all the new bonds called, we're starting to touch principle. In addition, I have no idea where she's going to get the money for business school.
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Old 08-16-2016, 10:35 AM   #2
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My late mom faced the same problem. Nobody expected her to live to 102. She had most of her money in CD's which paid little.
Your sister should look into scholarship assistance, and I agree with you about not paying for it out of your mom's trust.
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Old 08-16-2016, 10:35 AM   #3
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I'd start by breaking things down to three separate issues/problems:

- Where to get more income for mom
- Mom supporting sister without question
- Sister at home not contributing but wants to go to school

If mom stopped supporting sis, would there be enough money for her to live without touching principal? If so, that is the crux of the problem and makes your income search lot easier to figure out.
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Old 08-16-2016, 10:55 AM   #4
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I'd start by breaking things down to three separate issues/problems:

- Where to get more income for mom
- Mom supporting sister without question
- Sister at home not contributing but wants to go to school

If mom stopped supporting sis, would there be enough money for her to live without touching principal? If so, that is the crux of the problem and makes your income search lot easier to figure out.
Mom had an annuity come due last week of about 200k. Initially, she wanted it all, but I told her we need that money to support your monthly expenses. She agreed for half. She wants that money because the 10k a month is not enough and she wants money of her own. I know that this money is mostly going to go for frivolous things and sisters "education". Not for nothing, but my parents paid for her room and board @ college as well as the degree. Now, Mom wants to pay for a 100k business degree. I said where are you going to get the money to pay for it? She had no answer. They both know I will not give it to them. It will cause an issue and fight, but I do not see how my sister would be able to cover my mother's bills. Very narrow minded. They do not know how hard it is to make this money for the trust.

I have a feeling my sister will be living with my Mom for the foreseeable future. It is possible that she will use most of the 100k on my sister, but if the trust does not bring in the money, then I will be forced to reduce her monthly dividend. I had to do this once already. It a tough position to be in.
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Old 08-16-2016, 11:18 AM   #5
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I know that this money is mostly going to go for frivolous things and sisters "education".
There's your problem right there.

Fix that and the rest goes away.
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Old 08-16-2016, 11:20 AM   #6
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There's your problem right there.

Fix that and the rest goes away.
Easier said than done. Mom also wants to eventually destroy the trust. She needs my approval, but I do not believe that would happen.
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Old 08-16-2016, 11:37 AM   #7
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Get mom to see that she needs to spend less or,

Get a lawyer

Increasing the income side will only exacerbate the spending side.

Good luck
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Old 08-16-2016, 11:47 AM   #8
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I have a sneaking suspicion that your sisters reasons for not having a job have nothing to do with getting a business degree and after she blows a lot of money on schools she will continue to have plenty of reasons for not being able to find and hold a job.
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Old 08-16-2016, 11:57 AM   #9
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intl, this is, indeed, a tough position to be in. As Trustee, I know you are more than aware of prudent man statutes required of a trustee. I am also somewhat sure the life insurance proceeds were for the "benefit of your Mother" not "your sister and your mother". As long as it is for "your Mom" and things are set up the way I think they are set up, it is OK to invade principle for health and welfare. Only you can decide how much is too much, although I'm sure you'd rather not invade it at all!

My take? Your sister needs to get a job and/or get her own loans for business school.

You don't say how old your mom is or how much money she has for her remaining years so it is difficult to know what a $100,000 hit will do to her. If it can truly harm her I'd sit down with her and show her . Then I'd have a sit down with her again with sister involved. Any chance your sister may not truly understand what she is asking of your mother?

Regarding suggestions for stable income, since you have done this since you were 18, have appropriately discounted some possibilities for the right reasons, you already know there is no where to hide at the moment.

I will mention one thing I did when I was trustee of a marital trust for the benefit of my Dad after my mom passed away when market conditions also were tough. I put money in a deferred annuity with a 3% guarantee, guaranteed death benefit with my Dad as the annuitant and the Trust as the owner. It was basically the safest thing I could think of given market conditions (2003/2004ish). His age was around 78 at the time. This meant that I would make 3% and if market conditions tanked I was guaranteed return of principle + any growth. And that is exactly what happened when he passed away in 2006. Principle plus growth was paid to the Trust.

HOWEVER, I did not spin off monthly income to him as he didn't need it. So, you would have to really look to see how monthly income draws affect death benefit. OR...perhaps look at something like this annuity for "part of it" not spinning off income on that part, which may give you some leeway with reaching for yield on the other parts. OR perhaps it will allow you to feel better about invading principle on part if you know "this" part is guaranteed. But of course that is at her death. I don't know what your goals are. My goal was that I needed the cash in the trust to make money so the trust could pay it's proportionate share of Estate Tax at my Dad's death. (The Unified Tax Credit amount at the time was not anywhere near as high as it is now and we did pay a lot of Estate Tax).

Like others here, I am not a fan of deferred annuities. But in this case it was the perfect vehicle and I came to view deferred annuities given this application as great "wealth transfer" vehicles with minimal to no downside risk when market conditions are questionable. The triggering event is at the death of the Annuitant so there is no time frame on the investment.

That said, I have no idea what percentage guarantees are out there at the moment.

Best of Luck. You are in a tough position.
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Old 08-16-2016, 12:19 PM   #10
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Some options (best one depends on you mom's age, possible pop-up needs for a lump of cash, etc):
1) Use the entire trust to buy an immediate annuity for you mom. This assures your mom has income for the rest of her life, and if you buy one with inflation protection she'll never lose spending power. Depending on her age and the withdrawal rate you are using, this may provide a higher monthly check than she is getting from you the trust now. There--you are off the hook. It's a prudent thing to do, it assures your mom is taken care of, it gets you out of making investment decisions, and it puts the money out of reach of your sister. If Mom wants to pay for school instead of paying the electric bill, that is up to her. You aren't the "bad guy" who is frustrating anyone's goals.
2) Buy an immediate annuity for your mom, but only big enough to provide a check equal to her present spending "allowance." Assuming this leaves some money in the trust, continue to invest that money, it will be available to cover extraordinary expenses your mom might incur, and if not needed for that it can be divided among heirs when your mom dies.
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Old 08-16-2016, 01:18 PM   #11
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Sis says she feels bad, and I suggested for both of them to get student loans to pay for the business degree. The girl is lost life. I try to steer her in the write direction, but she falls apart and says I am not helping. Mom becomes Mamma bear to protect her. The fact is, Mom is 74 and she's 28. The sad fact is that she's hurting her daughter more than helping her. I've stated this, but it falls on deaf ears. She's been enabled by our parents for far too long. When our Mom is no longer here, I feel sis will be really lost. It's not a good situation to be in. I offered her a job once, she wanted more than what I pay myself. Then she doesn't want to work for me, she wants to be a partner. I passed.

Mom is 73 and has around 2.5 million in the trust. She pulls around 75k yearly from the trust and the trust owns her home, so that is another 15k year in prop./school taxes. She also receives my Dad's pension of around 1100.00 per month. The 100k would reduce the trust to 2.4 and her monthly dividend would need to be cut as well. Her response, she'll tap the 100k as needed to cover the short falls. I can also dole out the 100k as and additional monthly dividend, which she somewhat agreed to. The trust was written to give me a good amount of flexibility. The trust also provides funds for all beneficiaries for medical and emergency expenses. Also, the trust allots me a 1% management fee; which I do not take. She had 300k in an annuity in her name, bit she was concerned about the insurance company going belly up, so she paid a 5% cancellation fee and the funds were redeposited into the trust. That is part of the money she wants for her own use w/o any oversight. I just worry, as she gets up in years and medical problems pop up if there will be enough money to cover it all.
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Old 08-16-2016, 01:19 PM   #12
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Some options (best one depends on you mom's age, possible pop-up needs for a lump of cash, etc):
1) Use the entire trust to buy an immediate annuity for you mom. This assures your mom has income for the rest of her life, and if you buy one with inflation protection she'll never lose spending power. Depending on her age and the withdrawal rate you are using, this may provide a higher monthly check than she is getting from you the trust now. There--you are off the hook. It's a prudent thing to do, it assures your mom is taken care of, it gets you out of making investment decisions, and it puts the money out of reach of your sister. If Mom wants to pay for school instead of paying the electric bill, that is up to her. You aren't the "bad guy" who is frustrating anyone's goals.
2) Buy an immediate annuity for your mom, but only big enough to provide a check equal to her present spending "allowance." Assuming this leaves some money in the trust, continue to invest that money, it will be available to cover extraordinary expenses your mom might incur, and if not needed for that it can be divided among heirs when your mom dies.
+1

That is what I was thinking as earlier I went through this thought process for a 90 yr old fellow. At elder ages, the payouts are pretty substantial and it lasts for the lifetime.
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Old 08-16-2016, 01:26 PM   #13
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OP - Your Sister is a leech... plain and simple, has she not heard you can borrow for school, but you can't borrow for retirement ?

I don't know how rich you are, but I think you should take the 1% as Trustee, because when your sister has screwed over your Mom enough for as much as she can in the next 10 years, your Mom may need a bunch of extra expenses beyond the ability of the Trust to pay.
Your Sister won't be paying anything.
You can take all that accumulated 1% that you reserved and use it to pay for Mom, because we all know when the Trust runs out, who will pay !
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Old 08-16-2016, 01:58 PM   #14
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This is one of the reasons why trusts have disinterested third parties (lawyers) act as the trustee.

Gets family members of the middle and puts some objectivity to the situation.

Have you thought about transferring/relinquishing your trusteeship to someone outside the family errrr.... 'dynamic'?
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Old 08-16-2016, 02:14 PM   #15
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If I or someone else took the 1% to manage the trust, there wouldn't be enough for the expenses. They've tried to get additional monies from the trust, I've continuously said no. One time Mom was yelling and I said, I do not need this crap and I am just going to hire an independent trustee to manage the trust. They backed off quickly, as that 23k would reduce her monthly income.

I know sis is depending on inheritance. However, I am not sure how much will be there. I do not believe much will be there due to the high Long Island expenses. When Mom needs a live in person or nursing home, that will take up a great deal of the money. I do wonder what sis will do at that time.. She's really lazy. Must be the generation.


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Old 08-16-2016, 02:37 PM   #16
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Mom is 73 and has around 2.5 million in the trust. She pulls around 75k yearly from the trust and the trust owns her home, so that is another 15k year in prop./school taxes. She also receives my Dad's pension of around 1100.00 per month. The 100k would reduce the trust to 2.4 and her monthly dividend would need to be cut as well
If the trust buys an annuity with mom as the annuitant (but the trust is the owner), she won't be able to cash it in and take the hit (as she did last time). To produce $75K in annual income ($6250/mo, no inflation protection) for a 74 YO female, the trust would need to invest about $1 million. Take the rest of the money (1.5 million), invest it conservatively, and at the end of each year pay the taxes, insurance, and upkeep on the house and then give Mom an annual check based on her remaining life expectancy (straight from the IRS tables, no need for any subjective calls on you part, no need for her to come make a case to you, etc). She needs to know up front that the $6,250 per month will never change, it wont keep pace with inflation. The annual check to her will vary depending on investment returns, costs for the house, etc.

Or, even simpler, just just leave about $300K-$400K in the trust to pay for the housing repairs and expenses (taxes, etc) for the next few decades, and buy an CPI-adjusted annuity for Mom (as the annuitant, the trust would be the owner) with everything else. I don't know how much that would produce in monthly income, but it is what it is.

If you mom ends up in long-term care, that costs about $7,500/mo in most of the US, probably a lot higher in Long Island. An annuity and the pension you mentioned should cover $7,500. Maybe she'd need to be in a facility outside of LI to reduce costs. But using these streams of income to bound her expenses (living expenses now, aid to sis now, nursing home care later, etc) serves as an external source of discipline, a cap on these expenditures. That doesn't exist today--she sees $2.5 million, knows that she's 74 years old, and wants to spend the money while she can. Sis wants to help her.

There's no reason for you to be in the middle of this. It will generate ill will from Mom and sis, and as the cherry on top you'll also get blamed for crummy investment returns (even if just a dip) that happen if you are managing the trust's investments. They are both putting you in a bad spot by applying this pressure. Get a good insurer and consider your obligations to be met. As a side benefit, Sis will know immediately that there's no significant inheritance coming (other than the sale of the house). It has all been converted to a lifetime cash flow for your mom. This could be the wake-up call your sister needs to realize she's responsible for her future security. If she wants to squeeze mom for money, she'll need to get it all while Mom is alive, and do it month-by-month, because there's no big cash pile anymore.
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Old 08-16-2016, 03:05 PM   #17
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The trust was written to give me a good amount of flexibility. The trust also provides funds for all beneficiaries for medical and emergency expenses. Also, the trust allots me a 1% management fee; which I do not take. She had 300k in an annuity in her name, bit she was concerned about the insurance company going belly up, so she paid a 5% cancellation fee and the funds were redeposited into the trust. That is part of the money she wants for her own use w/o any oversight. I just worry, as she gets up in years and medical problems pop up if there will be enough money to cover it all.
So the trust is not just for your Mom? I presume you and your sister are current beneficiaries? Remainder beneficiaries? Anyone else? If so, this does change things slightly.
Also, the fact that an annuity just in your mom's name was cashed in and routed to the trust is a bit of a change up.

I would consider giving your mother the money that was in her annuity and was titled to her. It was her money. Not the money of the trust. Not sure why it was routed to the life insurance proceeds of this trust but is, what it is. I assumed this trust was set up thru your Dad's will but perhaps not. What triggered the set up of the trust? And when your Mom routed her annuity money to the trust, did she think she would be able to get it at any time?

I also assume there is verbiage in the trust that goes something like ..."for the health, welfare or educational needs of all beneficiaries". Does it include those words? For all beneficiaries?

So..think about...if there was another trustee other than yourself, would he or she distribute the money? Would he or she be bound by the terms of the trust and are those legitimate distributions? Because if so....I am no longer sure you can say no. You can request proof of legitimate expenses prior to distributing or perhaps in conjunction with. And you can warn everyone that distributions may be lower...etc...etc...etc.

And you might consider taking those management fees, set them aside for any future needs for your mom. (1% is higher than allowed by my state).
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Old 08-16-2016, 03:12 PM   #18
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This thread makes me incredibly happy to be an only child.

You got some good advice here. I hope everything works out. DH has a sister like this, and it is truly a no-win situation.
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Old 08-16-2016, 03:36 PM   #19
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Someone is going to eat a bitter pill here. Probably all of you will because all of your boundaries will need to adjust. Give up the 1% and have someone manage the trust. Your sister and mother are going to end up resenting you. It will destroy the family. For $23k a year I'd rather have them hate someone else. Have a 3rd party manage a traditional 4% withdrawal rate and let your mother spend the money as she likes. Stay out of the finances between mother/sister. That relationship is set and likely won't change.
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Old 08-16-2016, 03:41 PM   #20
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$2.5 Million seems like a lot of money for a 74 YO person to have as a retirement fund. I don't see the problem, except that spending is obviously out of control? The house is paid for, right? I mean, that's $100k/year at 4% WR...

What's Ma spending money on?
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