Help With In-Law's Finances

[tgotch]

Hi,
Looking for help with in-laws finances.

A little back story:
FIL-80
MIL-76, Healthy
FIL had a massive stroke about a year ago, and is currently in a nursing home. Can't speak, or use left side of body. Prognosis unknown, but not great.

They have always held financial matters "close to the vest", but MIL recently started opening up about their finances. I am starting to get a handle on them, and have some questions.

Quick Breakdown:
Income
~$3000/mo. in pension and SS
~$2500/mo. farm rental income
~$1300/mo. in annuity

Expenses
~$6500/mo. for nursing home care
(Don't have her living expenses nailed down yet, but they have always lived pretty frugally).

Investments
~$27,000 Jackson National Annuity
~$190,000 in bank brokerage account (moderate fund mix)
~$14,000 in Penn Mutual Annuity
~$191,000 in Forethought Income 150+ Annuity
~$116,000 in Midland National flexible premium adjustable life insurance
~$1,400,000 in farm/land value

MIL knows very little about investing, nor about where money comes/goes. She pays the bills (writes checks, handles accounts), but that's about it.

My initial thoughts are to get her out of the annuities/insurances, and into some better investments (index funds - ~50/50 mix). Also simplify it for her.

Questions:
Can she cancel annuities?
What types of penalties will she incur by cancelling annuities?
I have never been a fan of annuities, but with her investing skill set, is this best for her?
She has been drawing money from the bank brokerage to pay for FIL nursing home expenses, is this best option?
What are some ways we can protect her assets into the future? (I have heard some horror stories about widows being fleeced of money in many different ways)
She is thinking of selling the house +5 acres of land, but continue renting the farm-able land for the near term. She would then downsize into a condo. Would it be best to pay cash, or finance the condo?

She has made an appointment to talk with a different financial advisor (distant relative. I'm afraid he will try to steer her towards his own commission-able products.

We have also talked to her about talking with an estate attorney, but she doesn't seem too interested.

Many, many more questions, but my wife and I are just getting started on this journey, and educating ourselves. Anything obvious I am missing?

 

[pb4uski]

Assuming the annuities are not in payout phase, then yes, she could surrender them. There might be surrender penalties, but i suspect that they have probably had these annuities a long time and surrender penalties may have expired. However, cashing them in may not be your best bet if they are paying a reasonable rate of interest and if they are old then that might be the case. A lot of those old annuities issued 20 years ago or more had 3% or 4% minimum interest rates and that is looking pretty good today so find out more about them before jumping to the conclusion that you should surrender them.

Given their assets, they will probably be private pay for the foreseeable future and there is not much that can be done about it.

If you can get the latest statements for the annuities and the life insurance then you may be able to tell by looking at those statements and how they have grown over the period.

I assume that the life insurance is on FIL? If so, then you'll probably want find out what the death benefit is and keep that given his health issues (sorry to be morbid, but that is just the way it is).

Assuming that she needs $3k a month to live on then she is burning through $32k a year so no need to hit the panic button quite yet. I'm guessing that the death benefit on the life insurance will pay back a number of years of burn.

 

[ERD50]

...
Assuming that she needs $3k a month to live on then she is burning through $32k a year so no need to hit the panic button quite yet. I'm guessing that the death benefit on the life insurance will pay back a number of years of burn.

Agreed. Although the nursing home expense is a large number, they have resources and nothing needs to be done too quickly.

While the investments would not be the first (or second) choice for most here, they probably aren't so bad that any immediate change is warranted. You could look into the bank brokerage costs/ expense ratios, etc, and if the funds are appropriate, but then there is likely a tax hit to move them.

If selling 5 acres and moving fits into what she wants, that might be a good plan to free up some cash, but then again, cap gains on the sale (but 15% isn't the end of the world either). I'm not sure about finance/cash. Not sure she could get a mortgage with current cash flow situation anyhow?

My biggest concern is: She has made an appointment to talk with a different financial advisor (distant relative. I'm afraid he will try to steer her towards his own commission-able products.

Your fears are warranted, after all, this is how they make their living. Being a relative just makes it harder to say 'no thanks'. I'd try to find a tactful way to avoid any meeting at all. Once they are 'in' they will have pitch after pitch to take control, it's their job.

This is a tough time for all, just take it slow. Also be aware that there are emotional ties in much of this. I've made suggestions to my MIL about re-arranging some of her finances, but much of it was from stock they inherited in the 60's (and was stepped up when FIL passed, so no large cap gains on that - in fact, she could harvest some losses now). She just said flat out "I don't want to sell any of those stocks". So OK, we won't! That's that! Fortunately, they are good companies, but 80% is in two 'blue chip' stocks. I don't like it, but it isn't so bad to make a push against her wishes (her AA s ~ 40/60 - so that 80% is buffered).

Good luck with all this. - ERD50

 

[tgotch]

Assuming the annuities are not in payout phase, then yes, she could surrender them. There might be surrender penalties, but i suspect that they have probably had these annuities a long time and surrender penalties may have expired. However, cashing them in may not be your best bet if they are paying a reasonable rate of interest and if they are old then that might be the case. A lot of those old annuities issued 20 years ago or more had 3% or 4% minimum interest rates and that is looking pretty good today so find out more about them before jumping to the conclusion that you should surrender them.

Given their assets, they will probably be private pay for the foreseeable future and there is not much that can be done about it.

If you can get the latest statements for the annuities and the life insurance then you may be able to tell by looking at those statements and how they have grown over the period.

I assume that the life insurance is on FIL? If so, then you'll probably want find out what the death benefit is and keep that given his health issues (sorry to be morbid, but that is just the way it is).

Assuming that she needs $3k a month to live on then she is burning through $32k a year so no need to hit the panic button quite yet. I'm guessing that the death benefit on the life insurance will pay back a number of years of burn.

Thanks for the response.

The life insurance is on MIL
Forethought Annuity is only 1 year old. I believe the other annuities are rather new as well. From what I gather, they had a financial planner talk them into swapping their IRA for some annuities a few years back. I have the initial contracts, but not statements. Will try to get.

I have been reading through the Forethought contract, and trying to make sense of it. It appears they are invested in Barclays Armour II Spread Indexed Strategy. (Initial Tiennial Index Spread: 4%, Maximum Guaranteed Tiennial Index Spread: 15%), no idea what this means...

 

[tgotch]

Agreed. Although the nursing home expense is a large number, they have resources and nothing needs to be done too quickly.

While the investments would not be the first (or second) choice for most here, they probably aren't so bad that any immediate change is warranted. You could look into the bank brokerage costs/ expense ratios, etc, and if the funds are appropriate, but then there is likely a tax hit to move them.

If selling 5 acres and moving fits into what she wants, that might be a good plan to free up some cash, but then again, cap gains on the sale (but 15% isn't the end of the world either). I'm not sure about finance/cash. Not sure she could get a mortgage with current cash flow situation anyhow?

My biggest concern is: She has made an appointment to talk with a different financial advisor (distant relative. I'm afraid he will try to steer her towards his own commission-able products.

Your fears are warranted, after all, this is how they make their living. Being a relative just makes it harder to say 'no thanks'. I'd try to find a tactful way to avoid any meeting at all. Once they are 'in' they will have pitch after pitch to take control, it's their job.

This is a tough time for all, just take it slow. Also be aware that there are emotional ties in much of this. I've made suggestions to my MIL about re-arranging some of her finances, but much of it was from stock they inherited in the 60's (and was stepped up when FIL passed, so no large cap gains on that - in fact, she could harvest some losses now). She just said flat out "I don't want to sell any of those stocks". So OK, we won't! That's that! Fortunately, they are good companies, but 80% is in two 'blue chip' stocks. I don't like it, but it isn't so bad to make a push against her wishes (her AA s ~ 40/60 - so that 80% is buffered).

Good luck with all this. - ERD50

Thanks.

I am going through the bank brokerage info as well. They have her in 15 different funds (60% equities/40% fixed income). Appears to be a bit much, but will check on expenses. This is the account she has been pulling from.

Her initial thought was to pull from bank brokerage to buy condo with cash, then put up farmhouse for sale. She lives in a small town, with very few condos. One has come up for sale that she likes, but it may take some time to get her house ready for sale, and to sell.

 

[ivinsfan]

Her expenses might be higher then you think when you factor in taxes on the farm. Does her state have homestead tax rate for the farm she is living on now. Moving might trigger some additional property tax burden. Is her renter paying market rates for the farm land, rent is pretty expensive now and her rent/value ratio seems a bit low.

 

[pb4uski]

Thanks for the response.

The life insurance is on MIL
Forethought Annuity is only 1 year old. I believe the other annuities are rather new as well. From what I gather, they had a financial planner talk them into swapping their IRA for some annuities a few years back. I have the initial contracts, but not statements. Will try to get.

I have been reading through the Forethought contract, and trying to make sense of it. It appears they are invested in Barclays Armour II Spread Indexed Strategy. (Initial Tiennial Index Spread: 4%, Maximum Guaranteed Tiennial Index Spread: 15%), no idea what this means...

The Forethought annuity may be an equity-indexed annuity. In any event, get the statements for all the annuities and see if the account and surrender values are growing or declining, and if growing, by how much. Ditto for the life insurance policy.

Many annuities allow a 10% annual withdrawal without surrender fees so even if they are relatively new if you decide you want out you can take some funds out without surrender charges.

If a condo she likes has come up she could buy it and finance it, then sell the house and replenish the funds with the proceeds and either pay off the condo mortgage or not depending on what she is most comfortable with. Or maybe rent the house and use the rental income to pay for the carrying costs of the condo.

 

[tgotch]

Her expenses might be higher then you think when you factor in taxes on the farm. Does her state have homestead tax rate for the farm she is living on now. Moving might trigger some additional property tax burden. Is her renter paying market rates for the farm land, rent is pretty expensive now and her rent/value ratio seems a bit low.

I looked up her state, and it does have homestead tax exemption. Not sure what this means, will research it.

The farmland rental is another issue. They have been renting it to the same person for a few years (neighbor farmer for many years). The contract just ended (3 year). They had a base, plus bonus contract. We are re-negotiating that, and working on a higher fixed rate only, which should equate to a better income of ~$5000 per year.

 

[RE2Boys]

With the farmland, this may be a moot point But I have read somewhere that using annuities can be a way to protect assets/income for a spouse when one spouse is in a nursing home and working assets down to qualify for medicaid. Being no expert on this, but a quick consultation with an elderlaw attorney may not be so bad an idea.

 

[Turn_the_Page]

I don't see that you need to change a lot, investment-wise. Yes, it's arguably not a Boglehead approach, but they're not in too bad a shape. I'd continue to research the holdings to better understand them.

I'd second the recommendation to buy the condo, then get her moved. Clean up the house, sell it and use the proceeds to pay off the condo loan. Moving at her age will take some time, IMHO, due to all the time spent reminiscing as each item is packed. Plus, there may be a lot of unneeded 'stuff'.

Long term - I'd start reading up on Medicaid. It may not be needed, but some states have five year 'look - back' for eligibility. You don't want to make a money move now that could delay Medicaid, if it ever gets to that point.

I think that someone is going to have to monitor the meeting with the advisor. Likewise, any major financial decisions. Many older people are quite suspicious of financial people that they don't know. The bigger risk is from relatives or people who can appeal to their needs, such as more attention, attentive listening to health complaints, religious topics etc.

 

[BellBarbara]

You should first see an elder care attorney to understand the ramifications of spending down to qualify for aid. I would not do anything until you do this.

 

[pb4uski]

While I agree with the idea of consulting with an eldercare attorney, from my experience it given their resources is very unlikely that OP's FIL/MIL can finagle their finances to qualify for aid.... and most of that generation would prefer not to even if they could (which I look at as a positive).

 

[ivinsfan]

Re the Medicaid in this state you can get on assistance, if both spouse are living the healthy spouse will get money to live on and will not have to sell the farm to generate income for a nursing home. This is partly because the actual farm rent is a large part of how they pay their bills. However, the state will reserve the right to file a lien again the farmland that would have to be paid either when the lone survivor dies or sell the farm.

Research all the laws in this area or see that eldercare lawyer. The spendown rules for couples are pretty different. Don't collect a bunch of cash before you spend some time figuring this out. For example renting a condo or buying one with a big mortgage, (if she can get one) might be a better way to go. Some building sites are not worth a bunch of money.

 

[bingybear]

You should first see an elder care attorney to understand the ramifications of spending down to qualify for aid. I would not do anything until you do this.

I tend to agree. Can the farm be kept as a primary residence for the community spouse (MIL)? Could one set up a Medicaid Compliant Annuity with much of the investment assets? Moving off the farm or selling part of it could change the dynamics.
I have not had to deal with these issues personally, so do your own due diligence. Most of the time there are trade offs in anything you do in LTC areas.

 

[Sarah in SC]

My own attorney is an elder law specialist, and when we needed one in another state for my in laws, she recommended we look at her nation certifying group, NAELA. The NC atty we used was helpful, knowledgeable, and expensive. But what we needed done was very time sensitive, and she took care of it in two days.

Definitely an area where pre planning can be very important, as the laws are rather counter intuitive.

 

[Souschef]

I can relate to the "don't sell the stock". My mom had some stock that was earmarked for my 2 nieces. She needed 24 hour care, and was running out of money.
I told my sister, who was handling her finances that I was happy to help pay for her care. But, I told her she had to sell the stock first, as I was not going to subsidize my 2 nieces, who are both well off. She ended up doing just that, and I then started to help pay for mom's care.

 

[LARS]

Even a quick view of this situation, if the farmland can realize the $1.4 million you list, is what I would term a high class problem. The likelihood of depleting all assets appears to be quite low so in changing the investment mix you most likely are affecting final estate. The principal thing I would focus on is the farmland. Monetizing that in someway seals the financial security of MIL/FIL.

Only caveat is condition of FIL. If he could be around for another 10 years that could change shift spending burn rate to a level of concern (but even that looks okay).


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[ivinsfan]

Even a quick view of this situation, if the farmland can realize the $1.4 million you list, is what I would term a high class problem. The likelihood of depleting all assets appears to be quite low so in changing the investment mix you most likely are affecting final estate. The principal thing I would focus on is the farmland. Monetizing that in someway seals the financial security of MIL/FIL.

Only caveat is condition of FIL. If he could be around for another 10 years that could change shift spending burn rate to a level of concern (but even that looks okay).


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This depends on a lot of things including the tax basis of that farmland, the capital gains might be huge when it is sold. Once the money comes out of the farmland it has to be deployed another way and that involves other issues. I would not rush any decision about selling land.

 

[LARS]

This depends on a lot of things including the tax basis of that farmland, the capital gains might be huge when it is sold. Once the money comes out of the farmland it has to be deployed another way and that involves other issues. I would not rush any decision about selling land.

Don't disagree at all with your comments. They are simply factors in how best to monetize (which may, or may not mean a sale) the value of the farmland. It could be by selling, it could be by entering into a long term lease, or other means. The point being that securing value here is the single most important issue IMO facing the OP.


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[Katsmeow]

As others have sad, don't do anything before seeing an elder care attorney. People who have had a stroke can last a long time in a nursing home. DH's mother was in one for several years.

 

[Walt34]

As others have sad, don't do anything before seeing an elder care attorney. People who have had a stroke can last a long time in a nursing home. DH's mother was in one for several years.

Add another voice to this. While finances seem adequate or more than adequate now, five or eight years or more in a NH might change that. MIL should take steps now before it becomes too late.