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

[Katoslake]

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.

Thanks for your comments and advice. Will encourage her to move forward.

It will be hard to get her to leave her banks due to her long relationships with those buildings. Not the people, but the locations

 

[pb4uski]

... It will be hard to get her to leave her banks due to her long relationships with those buildings. Not the people, but the locations

I get it but she would still be leaving a healthy amount there. The important thing is that her balances are under the FDIC limits and that all accounts have benefiry designations. If those banks offer CDs that are attractive at all at least it would be better than in a checking account.

You can just present her with choices;

1. You can leave it all in checking as is and your get $x annually in interest.
2. You can move it within each bank from checking accounts to certificates of deposit and earn $y annually in interest.
3. Or you can move it to a brokerage account and invest it in CDs and US Treasury securities and earn $z annually in interest.

Then tell her, its your money, what do you want to do?

 

[ivinsfan]

Who is "our" and are there other "ours" involved? Nice you want to help but best you get the lay of the land first. Who's getting what's left? I suggest you cover YOUR @ss six ways from Sunday...before you starting helping Auntie switch and invest money.


Auntie has plenty, you have time to figure out the next steps so that either Auntie appears to be making the decisions or you have an actual POA so that you can make decisions legally. Trust me you'll thank me later.

 

[Badger]

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.

If you have an account with Schwab wouldn't they be able to do this for you while having the statements coming through them? I would think that by having the money monitored by one place would simplify the process.
The $334k is another issue that may result in capital gains if sold so I will leave that for others more experienced to figure out.

Cheers!

 

[Morgan22]

If 84 year old auntie is happy with the way things are I think I would leave well enough alone. It can be upsetting to an elderly person to force them to change their ways. Maybe ask her if she has POD/TOD on all of her accounts. Or make sure she has a will that she feels still reflects how she wants things settled when she's gone.

 

[rodi]

The biggest issue I'm seeing here is the lack of estate planning... I'm not talking about having a will or trust - I'm talking about having medical directives/medical POA, perhaps financial POA.

She sounds similar to my MIL - who had a will, but did not have any of the POAs... and dementia became an issue. Once deemed incompetent, they can't assign POA. Unfortunately, it was a hot mess, the state's adult protective services got involved and insisted on guardianship for her - either a family member or the state... MIL was still refusing, and it went to court (as it should!) and DH has been financial guardian since. It's much easier if a POA is set up prior to loss of physical or mental competance. She can keep the POA in a box until she's ready to use it. (You need the POA to get access to accounts - so physically safeguarding it prevents it from being used prematurely).

MIL was a bank and savings bond type... Didn't trust the market at all. DH followed this for 10 years since that was her comfort zone. The state of Michigan required reviewer said it was too conservative so she's now got 1/3 in Wellesley. One of the things stressed upon DH when he became guardian was to retain her investment allocation... (that was a different state, she's since moved to a facility closer to another family member.)

You mention you are the closest to her and will likely be helping with long term solutions to care (in home or facility). Does this mean you are an heir? If there are other heirs you should include them on any discussions as well.

 

[target2019]

Thanks for your comments and advice. Will encourage her to move forward.

It will be hard to get her to leave her banks due to her long relationships with those buildings. Not the people, but the locations

Tip: Don't leave the bank(s) entirely. Keep a few thousand there, or continue with bill pay from the account(s) and limit the balance accordingly.

You attach an online account (or several for FDIC limits) to the local bank. Immediately make transfers to hi-yield.

Even better, look for my earlier advice, and go to Schwab and Fidelity for recommendations. Decide which one has better interest rates, etc.

 

[pb4uski]

If 84 year old auntie is happy with the way things are I think I would leave well enough alone....

Did you see this part?

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

 

[Aerides]

Did you see this part?

True, but there was also this part:

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 do agree with Rodi that dollars and finances is only half of it. Money doesn't do you much good if you don't have a plan for future health assistance, and the OP indicated this is an 84 yo on her own, with a wheelchair dependency down the road.

 

[Katoslake]

Thanks to all that have provided comments and advice !

I'm very grateful to the people on this site for taking the time to help others.

My only advice to my family and friends is to get things in order as best you can when the seas are calm. Trying to straighten these things out during a storm will be difficult at best.

 

[Koolau]

If 84 year old auntie is happy with the way things are I think I would leave well enough alone. It can be upsetting to an elderly person to force them to change their ways. Maybe ask her if she has POD/TOD on all of her accounts. Or make sure she has a will that she feels still reflects how she wants things settled when she's gone.

I understand your thinking and don't totally disagree. But as long as she is open to the idea, I assume she can understand that more interest with less risk (CDs of $250k each) should not be particularly difficult to adapt to.

Also, much of her estate planning can likely be handled by naming beneficiaries on her CDs or other holdings. She (like my mom) might avoid probate completely but YMMV.

 

[OldShooter]

Concern about FDIC insurance has always puzzled me and it puzzles me here, too. Most of us, including Dear Auntie, routinely invest in products that have hugely more risk than deposits in a federally regulated bank even sans FDIC insurance. Even money markets funds have significantly more risk. Spreading cash across multiple banks does of course reduce risk but it is risk so small that IMO the OP and Auntie would be better off with the simple solution of keeping all the money in one brokerage and looking at yields among liquid alternatives.

In almost all situations patient and thoughtful simplicity is IMO best and, in this one, I think it's the way to help Auntie in the least disruptive way. Again IMO, charging off in all directions scattering money among multiple banks is not "simplicity." And, as many have pointed out, "patient and thoughful" will have to apply to more aspects of Auntie's financial life than just running the money.

 

[CardsFan]

Concern about FDIC insurance has always puzzled me and it puzzles me here, too. Most of us, including Dear Auntie, routinely invest in products that have hugely more risk than deposits in a federally regulated bank even sans FDIC insurance. Even money markets funds have significantly more risk. Spreading cash across multiple banks does of course reduce risk but it is risk so small that IMO the OP and Auntie would be better off with the simple solution of keeping all the money in one brokerage and looking at yields among liquid alternatives.

In almost all situations patient and thoughtful simplicity is IMO best and, in this one, I think it's the way to help Auntie in the least disruptive way. Again IMO, charging off in all directions scattering money among multiple banks is not "simplicity." And, have many have pointed out, "patient and thoughful" will have to apply to more aspects of Auntie's financial life than just running the money.

And at the brokerage buy brokered CD's from different sources. Then you still have the FDIC protection, and all in one place.

 

[OldShooter]

And at the brokerage buy brokered CD's from different sources. Then you still have the FDIC protection, and all in one place.

Yes. I was going to mention that but the post was getting a little long, plus it leads to a discussion of yields on brokered CDs vs yields on CDs in the wild. But you are right of course.

 

[RetMD21]

Who is "our" and are there other "ours" involved? Nice you want to help but best you get the lay of the land first. Who's getting what's left? I suggest you cover YOUR @ss six ways from Sunday...before you starting helping Auntie switch and invest money.

Yeah, and having her meet with a finance person at Schwab/Fidelity or someplace should be easier to explain than if it was done some other way. Investing isn't rocket science and with some help she should make her own decisions.

 

[pb4uski]

Thanks to all that have provided comments and advice !

I'm very grateful to the people on this site for taking the time to help others.

My only advice to my family and friends is to get things in order as best you can when the seas are calm. Trying to straighten these things out during a storm will be difficult at best.

You got it. Now is the time to plan before some emergency makes it difficult to impossible.

 

[ChrisC]

Concern about FDIC insurance has always puzzled me and it puzzles me here, too. Most of us, including Dear Auntie, routinely invest in products that have hugely more risk than deposits in a federally regulated bank even sans FDIC insurance. Even money markets funds have significantly more risk. Spreading cash across multiple banks does of course reduce risk but it is risk so small that IMO the OP and Auntie would be better off with the simple solution of keeping all the money in one brokerage and looking at yields among liquid alternatives.

In almost all situations patient and thoughtful simplicity is IMO best and, in this one, I think it's the way to help Auntie in the least disruptive way. Again IMO, charging off in all directions scattering money among multiple banks is not "simplicity." And, as many have pointed out, "patient and thoughful" will have to apply to more aspects of Auntie's financial life than just running the money.

Yeah, but the point of depositing funds in a checking or savings account at a FDIC insured bank is to save your money in risk-less accounts that are backed by the Full, Faith and Credit of the United States up to the insured limits. It’s likely that people like Auntie believe their funds in these accounts are not subject to any risks and are not willing to take any risks with these savings in other financial products like money market funds or other fixed income products.

Is the risk of bank failure really so small that you shouldn’t care about FDIC insurance limits? I’m sure the FDIC publishes data on its website where you can assess that risk yourself by reviewing the historical and recent bank failures and the hit that uninsured depositors take in these failures.

 

[Karloff]

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.

Newbie question. How would you go about purchasing this through Bank Of America? Would it be through Merril Lynch or similar brokerage account? I understood that these would not be FDIC insured, but I would love to learn more.

PS: Bank Of America is offering a 3.6% CD. That was the highest I have seen on their end. TD bank is offering a 4.25% 24-month CD.

 

[Freedom56]

Newbie question. How would you go about purchasing this through Bank Of America? Would it be through Merril Lynch or similar brokerage account? I understood that these would not be FDIC insured, but I would love to learn more.

PS: Bank Of America is offering a 3.6% CD. That was the highest I have seen on their end. TD bank is offering a 4.25% 24-month CD.

You would have to set up an account at Fidelity. Money market funds like FZDXX invest in short term treasury bills. They are very safe investments. Net asset value is maintained at $1 and with rates where they are today, there is no risk of the NAV falling below $1. They pay interest monthly. Banks will offer lower yields on CDs because they can. They have so much cash sitting in accounts they have no incentive to raise rates. Brokered CDs have much better yields.

 

[pb4uski]

... Brokered CDs have much better yields.

and if you set up an account with Fidelity you can buy brokered CDs from your Fidelity account.

https://fixedincome.fidelity.com/ftgw/fi/FILanding

2 year brokered CDs at Fidelity are yielding 4.5% and 3 year brokered CDs at Fidelity are yielding 4.6%.

 

[Karloff]

You would have to set up an account at Fidelity. Money market funds like FZDXX invest in short term treasury bills. They are very safe investments. Net asset value is maintained at $1 and with rates where they are today, there is no risk of the NAV falling below $1. They pay interest monthly. Banks will offer lower yields on CDs because they can. They have so much cash sitting in accounts they have no incentive to raise rates. Brokered CDs have much better yields.

Thank you. But are brokered CDs FDIC insured?

 

[pb4uski]

Thank you. But are brokered CDs FDIC insured?

Yes.

 

[CincyDave]

Newbie question. How would you go about purchasing this through Bank Of America? Would it be through Merril Lynch or similar brokerage account? I understood that these would not be FDIC insured, but I would love to learn more.

PS: Bank Of America is offering a 3.6% CD. That was the highest I have seen on their end. TD bank is offering a 4.25% 24-month CD.

Connexus credit union currently has a 4.51% 12 month or a 4.85% 15 month share certificate (credit union equivalent of a CD). Insured up to $250K

 

[dixonge]

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

you folks seemed to have missed the last word in this sentence in the original post:

"$750,000 in checking accounts"

That's accountS - with an S...

 

[Rustic23]

Texas also allows Transfer on Death TOD, and has the forms to fill out on the internet. It will supersede the will.

https://texaslawhelp.org/sites/default/files/2022-05/todd_from_toolkit-all-forms-2021.pdf