$750k in checking accounts- 84yr old- help !

[Katoslake]

After two years we've finally gotten our 84yr old aunt to discuss her finances with us so as to prepare for the future.

Here's what she has;

$750,000 in checking accounts
$334,000 in Columbia Large Cap Growth Fund- class A shares

$375,000 house paid in full.

$2,720 monthly SS survivors benefit

She's ready to discuss allocations and strategies going forward. She's asking for help.

This is most of what I know.

Thoughts and/or advice will be appreciated !

 

[OldShooter]

Well, get her away from the snake selling her load funds.

Maybe consolidate at Schwab. $1M is enough to get her an individually-assigned rep. It may be at Fido, too. Interview reps to find one she "clicks" with. Maybe a middle-aged female with a very conservative investment outlook. https://brokercheck.finra.org/ is your friend.

Ditto find a specialist estate attorney that she clicks with.

The "allocations and strategies" discussion will start to emerge from the above work. No reason to rush it. The market will still be here in six months.

 

[Dash man]

At a minimum get that cash moved into a decent money market!

 

[target2019]

After two years we've finally gotten our 84yr old aunt to discuss her finances with us so as to prepare for the future.

Here's what she has;

$750,000 in checking accounts
$334,000 in Columbia Large Cap Growth Fund- class A shares

$375,000 house paid in full.

$2,720 monthly SS survivors benefit

She's ready to discuss allocations and strategies going forward. She's asking for help.

This is most of what I know.

Thoughts and/or advice will be appreciated !

Banks love older folks.

LEGAX Columbia Large Cap Growth Fund Class A - -32.18% in 2022. That got her attention I'm sure.

30% in the growth fund, and 70% in checking making nothing for some number of years.

I'd take her to Schwab and Fidelity to just talk with an advisor. See what they offer. My opinion is that 30-35% in equity is ok, it's just that all growth is wrong.

At a high level I'd shoot for 35% equity and insured high-yield accounts as well as CD's.

But I wouldn't get in the middle, unless qualified to advise. There should be an investment policy statement of some kind that guides her caretakers.

 

[Peter]

If the growth fund is in an IRA, then, sure, she could move it somewhere else. But if it's in a taxable account, it may still be showing significant capital gains and I don't think auntie would be happy paying the capital gains taxes.

 

[Sunset]

Have her open an Ally bank savings account and earn 3.3 % on $200K of the cash. Can do it all via the computer. Although you may need to do it for her.

Open a brokerage account, honestly, since she seems pretty non-active investment wise, a Vanguard account is great. It pays a high interest rate in the settlement account (like MM) and she can buy cheap ETF's like VOO, VTI, and some treasury bond/bills (totally safe).

Could even just do Vanguard, and leave large chunk ($200K) in the settlement fund and skip Ally bank. Do it online, or just phone Vanguard
https://investor.vanguard.com/home

I'm meaning the cash in all the above, as it's earning 0% right now...

I had to help my FIL, as banks take advantage of old folks giving them low interest CD's or worse high expense investment funds.

 

[Freedom56]

It's not that difficult these days. We are in the golden period. Money market funds with that much cash will pay 4.26% today. That's two to three times what a bond fund pays today. I would start by moving the bulk of the $750K to a Fidelity money market fund like FZDXX. Moving 725K into a money market will generate and immediate $2,662 per month and rising monthly as the Fed continues to hike rates. Her capital will be 100% protected. Then you can slowly ease into short duration treasuries, CDs, and high grade corporate notes that yield more than the money market funds. You can buy a basket of high grade corporate notes from JP Morgan, Citigroup, Bank of America, Bank of Montreal, CIBC, Royal Bank of Canada, Gold man Sachs, and TD Bank yield over 5%. You should be able to generate about $37,500 annually assuming you invest at an average coupon of 5% (which is very conservative) or an average of $3125 per month of additional income without risking capital. I'm assuming that her checking account pays little to no interest so the extra income will come as a shock to her. The corporate bonds I mentioned are from many of the same issuers that the self proclaimed fixed income expert from Fidelity bought for you but your aunt will be buying them with coupons 3 to 8 times higher.

Whatever you do, don't invest in those loser bond funds and ETFs. Stay away from Fidelity managed accounts. They are loaded with too much low coupon debt and offer no capital protection and will cut her income to a fraction of what even a money market fund pays out monthly.

 

[badatmath]

Not sure what you goal is here. . . I don't think she is going to outlive her funds. Are you trying to grow money? Make it easy to pass on to heirs? Does she have an estate plan?

 

[Mark1]

Lots of good advice to earn more interest above.

It appears that she has sufficient money for the rest of her life, so future earning are a secondary issue to me. The main issue to me is that it is her money, so your focus should be more aligned with making your aunt comfortable with the investment strategy and not stressed out and worrying about her money for the rest of her life. We have left lots of DM's money in a lousy, local saving account checking account, since she is more comfortable with that approach. There is no way my DM will run out of money, but there is no way anyone will ever convince her of that.

 

[OldShooter]

Not sure what you goal is here. . . I don't think she is going to outlive her funds. Are you trying to grow money? Make it easy to pass on to heirs? Does she have an estate plan?

That was kind of my point in my first post above. Get the basics in place, which will involve plans and strategies, then move to sort out the money. Eat the elephant a bite at a time rather than jumping to implementing detailed investment recommendations. IMO she will be more comfortable with a deliberate, thoughtful process. This is very new stuff for her.

 

[CincyDave]

At the very least, I would suggest she move most of the $750K checking money into a good yielding money market or CD ladder. At least get some yield without more risk. May have to use a few different institutions to keep it all insured, but sounds like it's probably not now anyhow. How much of her living expenses are covered by her SS? If mostly covered, could get a little more aggressive, depending on her goals.

 

[ChrisC]

Hmmmm, insured deposit limit is $250k per deposit account at an insured depository institution. So, if $750k is at one insured bank or insured credit union, she exceeds the limit by $500k! This uninsured amount is at risk if the institution fails. You can structure deposit accounts (with joint or trust owners) to stretch the limits at one bank or credit union, but I think the simplest thing here would be or move some of her funds to other financial accounts. If she’s set on banks or credit union, she can divide her $750k to two banks or credit unions and add one joint account owner to one or two accounts and she’d be within the insured limits.

Navy Federal Credit Union will be offering 15 month CDs at 5% interest starting tomorrow —might be worth exploring. Or if you want more of a challenge, she can buy treasuries at Treasury Direct or FIDO.

 

[Katoslake]

Not sure what you goal is here. . . I don't think she is going to outlive her funds. Are you trying to grow money? Make it easy to pass on to heirs? Does she have an estate plan?

She has no estate planning in place best we can tell.

She doesn't want to worry about money, or even discuss it really.
Would like to minimize taxes for her heirs.

 

[Katoslake]

That was kind of my point in my first post above. Get the basics in place, which will involve plans and strategies, then move to sort out the money. Eat the elephant a bite at a time rather than jumping to implementing detailed investment recommendations. IMO she will be more comfortable with a deliberate, thoughtful process. This is very new stuff for her.

Very new is correct !

I'd like to add for context that she;

-Doesn't have a cell phone and doesn't want one
-Doesn't have internet service, hence no email
-Only writes checks, no credit cards
-Is walker dependent and will likely be in a wheelchair in the not too distant future
-Doesn't have a microwave and is afraid to try one
-Thinks she's getting preferential treatment because she has the lowest deductible allowed by her property insurance company -$250

We will be the closest family members to try and facilitate care.

 

[Sunset]

She has no estate planning in place best we can tell.

She doesn't want to worry about money, or even discuss it really.
Would like to minimize taxes for her heirs.

I wouldn't worry about taxes for the heirs, as depending upon the State but nearly all would have zero tax on the inheritance from her.

This desire to avoid taxes lead me FIL to be talked into odd annuities and insurance products so he could brag he wasn't paying taxes. Instead his heirs paid taxes on delayed earnings due to the insurance salesman "forgetting" to mention that issue.

They even sold my FIL a 10 year delayed annuity at age 84

Don't fall for insurance products at this age.

 

[youbet]

-Is walker dependent and will likely be in a wheelchair in the not too distant future

We will be the closest family members to try and facilitate care.

Moving her money to more appropriate, conservative investments should be a no-brainer (as long as she agrees) by working with a major brokerage house such as Schwab or Fido. Your most important duty at this stage is to ensure things are set up so that as she ages and becomes more disabled, she has funds at hand for top notch care in circumstances she likes and approves of. This may mean paying for in-home staff or moving her to a facility where high quality care in very pleasant surroundings is provided.

Estate planning to provide maximum inheritances to beneficiaries should be done only after your Aunt's comfort and care are generously accounted for. Sometimes FA's and estate planners lose track of this.

 

[RunningBum]

I wouldn't worry about taxes for the heirs, as depending upon the State but nearly all would have zero tax on the inheritance from her.

Depends on if it's in a tIRA or in taxable.

 

[ER604me]

Very new is correct !

I'd like to add for context that she;

-Doesn't have a cell phone and doesn't want one
-Doesn't have internet service, hence no email
-Only writes checks, no credit cards
-Is walker dependent and will likely be in a wheelchair in the not too distant future
-Doesn't have a microwave and is afraid to try one
-Thinks she's getting preferential treatment because she has the lowest deductible allowed by her property insurance company -$250

We will be the closest family members to try and facilitate care.

Your added context matches my mothers situation very much. My mother does have and uses a microwave. I echo others comments about making sure her needs are met for her health and safety. Does she live at home or with someone? My mother has been besieged by scam callers, mail contest offers and other "charities".

 

[Koolau]

Banks love older folks.

IF they have lots of money.

That does seem almost criminal not to alert her to the FDIC limits at the very least.

 

[Freedom56]

Very new is correct !

I'd like to add for context that she;

-Doesn't have a cell phone and doesn't want one
-Doesn't have internet service, hence no email
-Only writes checks, no credit cards
-Is walker dependent and will likely be in a wheelchair in the not too distant future
-Doesn't have a microwave and is afraid to try one
-Thinks she's getting preferential treatment because she has the lowest deductible allowed by her property insurance company -$250

We will be the closest family members to try and facilitate care.

The first three habits most likely saved her from online scammers, crooked financial advisors that would have wiped her account, and annuity sales frauds. The problem is that scammers get more and more aggressive with seniors to the point they send bogus bills and letters by regular mail and harassing phone calls. At least that's the case with my parents past their mid 80's.

 

[Quattro73]

The simplest thing considering what you have replied about lack of tech acceptance is to find a really good Credit union locally ( or maybe a community bank). They should have a 4% or slightly better 5 year CD. Maybe you need 2 for FDIC/NCUA coverage. Get her 4% + fixed for 5 years on 500k. Put 250k in a high yield savings or money market and make sure you can tell her she has FDIC or NCUA coverage. I assume her expense are already covered by SS. This will increase dramatically her monthly income and she will know and UNDERSTAND it is protected. I again assume these things are important to her. It also gives her access to 1/3 without penalty. Again I assume she would want to know she had access should she need.

Finally, she needs an attorney to draw up a will for her and protect her assets, during this stage of her life.

 

[Dash man]

If the bank or credit union you choose allows her to choose beneficiaries, another $250,000 of FDIC coverage extends to each beneficiary.

 

[ChrisC]

IF they have lots of money.

That does seem almost criminal not to alert her to the FDIC limits at the very least.

Criminal is perhaps too strong a characterization, but not alerting or structuring her accounts to come under the FDIC limits is banker malpractice, not consistent with "knowing your customer" principles developed by banking regulators or the industry to prevent fraud and customer issues!

Banks do fail -- even outside of major financial problems wrecking the economy, like the thrift and banking crisis of the 1980s-90s. Or the melt down of the industry in the great global recession of 2007-2011.

We don't know what bank has the $750K checking funds. But I'd even be worried about the limits in banks that might be too big to fail. And if this were a local or regional community bank, my mother would not have $750K in a checking account there.

 

[pb4uski]

After two years we've finally gotten our 84yr old aunt to discuss her finances with us so as to prepare for the future.

Here's what she has;

$750,000 in checking accounts
$334,000 in Columbia Large Cap Growth Fund- class A shares

$375,000 house paid in full.

$2,720 monthly SS survivors benefit

She's ready to discuss allocations and strategies going forward. She's asking for help.

This is most of what I know.

Thoughts and/or advice will be appreciated !

She has no estate planning in place best we can tell.

She doesn't want to worry about money, or even discuss it really.
Would like to minimize taxes for her heirs.

There is no need to worry about taxes for heirs assuming that the investments are in taxable accounts (not in traditional IRAs), which I suspect is likely from what you wrote.

Obviously, the $750k in checking is very suboptimal, and unwise if it is at one bank. I'm guessing that she earns negligible interest on her checking accounts. The first thing that I would do is to take her and her checkbooks to your local Schwab or Fidelity office and set up a brokerage account and transfer at least $700k of the $750k into it... more if she is agreeable to it. The brokerage firm can then help you put in place a 4 year ladder of CDs or US Treasury securities that will likely yield 4.25% to 4.70% and generate about $30-35k a year of interest income. When you help her set up the brokerage accounts she can set up the beneficiaries of the accounts... who will get the money when she dies. She'll need their names, addresses and perhaps their SS#s.

While it is tempting to sell the Columbia shares, hold off until you know what the basis of the shares is. Columbia or her broker if they are held in a brokerage account should be able to tell her the basis depending on how long she has had them. Once you know the basis you can determine the gain if she were to sell them and the tax on the gain on the sale. When y'all talk with Columbia or the brokerage firm you will want to ask if she can designate beneficiaries for them and if so get the paperwork started to do that so the assets doesn't end up in probate. The stock will get a stepped-up basis when she dies so the beneficiaries can then sell it tax-free.

On the house, if she is in Texas like you are she is lucky that Texas is one of a handful of states that allow enhanced life estate deeds, also known as Lady Bird deeds. She can have an enhanced life estate deed written by a lawyer designating the people who she wants the house to go to when she dies. Technically, she transfers ownership of the home to those "remaindermen" but at the same time retaining a life estate that allows her all the same rights she has as the owner... to live there, to rent it, to take out a loan on it, to sell it and keep the proceeds from the sale, etc. When she dies then the life estate goes away and the remaindermen become owners of the property without the encumberance of her life estate.

From what you wrote you should be able to arrange her affairs so she can avoid probate when she dies and her assets will go directly to her designated beneficiaries without you having to go to probate court. Also, her investments should be generating much more income for her.

 

[RobbieB]

I'd go quarter mill in CD at one bank, a quarter in another bank and a quarter in the checking account. Yeah, 3 different banks.