Asked to help but need advice

[Badger]

I am trying to help MIL but have limited information. Actual present investment information will be available later today.

BIL who has POA and is trying to protect his mother has very limited knowledge of investing and my wife relys on me to take care of our retirement (fortunately we are doing fine). Today we are sitting down to discuss alternative plans since a major bank is handling the stocks and mutual funds to the tune of about $10k/yr. One thing he is considering is turning this over to Scottrade to get rid of the bank fees and then making some adjustments to the investments.

MIL is about 85, in fair health, and married but her husband's money is separate from her trust. He is not in the best of health and his trust has been taken over by his children. He has lost control of his money and the children are just waiting for their "ship to come in". Both MIL and husband are not capable of making decisions.

They are living in a nice assisted facility (approximately $8000/month) that is being paid out of his trust but if he predeceases her that will stop and there will be no money going to MIL from his estate. Fortunately I believe she has somewhere around 1 million dollars in her trust. Hopefully she will be with us for a long time but living expenses and potential health costs could eat up her trust before her time.

I know there needs to be more information and I will be glad to answer questions if I can but if you were making decisions under these circumstances where would you consider to be appropriote investments and allocations?

Cheers!

 

[LOL!]

I think a better forum to ask these questions is over at Bogleheads Investing Advice and Info Click on the "Getting started" link.

Scottrade is not the place to put MIL's assets. One can get rid of bank and other fees at much cheaper places. I would suggest investigating Vanguard - Mutual funds, IRAs, ETFs, 401(k) plans, and more as a possibility. If this is a trust, you may not have much of a choice.

 

[ERD50]

Sounds to me like capital preservation is far more important than return at this point.

$1M with 0% return can still pay out $100,000 per year for ten years. Once you have a better view of expenses (what is there above/beyond the $8K/month?) and any income (SS, pensions?) you can look at how long the nest egg can be expected to last.

I'm more aggressive than most with my AA, but I'm not sure I'd have any of this money in stocks at all at this stage.

-ERD50

 

[bubba]

Sounds to me like capital preservation is far more important than return at this point.

$1M with 0% return can still pay out $100,000 per year for ten years. Once you have a better view of expenses (what is there above/beyond the $8K/month?) and any income (SS, pensions?) you can look at how long the nest egg can be expected to last.

I'm more aggressive than most with my AA, but I'm not sure I'd have any of this money in stocks at all at this stage.

-ERD50

ERD50 makes a really good point. CDs would probably be the investment I'd choose for my MIL in your shoes.

 

[FreeAt30]

First of all, it's very nice of you to help your family.

There are a few questions that I would ask myself if I was in your situation. It differs slightly from one I have dealt with in helping my MIL help her parents who are beyond making stressful decisions about their finances and have requested help.

First of all, I understand the desire to reduce fees, but roughly ($ or %) how much are they? The reason I ask is that if a big bank is doing a good job of managing the money then it might be worthwhile. I find sometimes the handholding and explanations are worth the fees. This may be especially desirable because you mentioned that your BIL who has POA is not particularly stellar in the finance department. Discount brokerages are "discount" because they don't offer personalized service that banks sometimes do.

Care facilities are quite an expense. Will the $8K/month continue for your MIL alone after your FIL's passing or will the fees be reduced for just one person?

Lastly, what kind of investing you / they considering if the move to Scottrade was made? I often find that with discount brokerages (not all, but some) the asset classes are limited. Given your MIL's needs, I suppose she would want capital preservation and income. GICs, term deposits, bonds, bond funds, preferred shares, and maybe a small portion of dividend yielding common stock if one was to be really be aggressive would be in order. Does the brokerage that you want to move to save fees offer all of those? Will there be anyone there to explain them and what the risks / payoff are?

Wishing you the best of luck.

 

[haha]

I would consider this clearly to be CYA time. If there is family consensus to go with CDs, likely ok for you to advise this. Otherwise the safest course is to not get involved. How good does the banks management appear to be? What was the max drawdown 10/1/2007 through 3/15/2009? If it was modest, and if she didn't take any meaningful hits to her income from fall 07 until present, (Other than hits from falling interst rates) $10,000 pa might be a sterling opportunity, all things considered.

When things go wrong in situations like this with a family member or perhaps worse an in-law at the helm, some nasty resentment can come out.

Ha

 

[youbet]

I concur with ERD50 and haha.

Capital preservation is key. A minimal or even zero allocation to equities would be appropriate.

As Ha suggests, try not to take a leadership role in this. If your plan is correct, you'll get no credit. If your plan is wrong, you're shoulder all blame for eternity.

Make sure that the current situation isn't actually acceptable before changing things. That is, could you simply instruct the bank to follow a much more conservative AA for MIL, as opposed to the "stocks and mutual funds" you mentioned, but keep them managing things? Perhaps the $10k in annual fees would be less with a CD ladder portfolio.

 

[FinanceDude]

ERD50 makes a really good point. CDs would probably be the investment I'd choose for my MIL in your shoes.

Problem with your theory is that COL increases WILL eat principal and she'll run out of money before she dies. Murphy's Law happens to often in cases like these........

 

[haha]

Problem with your theory is that COL increases WILL eat principal and she'll run out of money before she dies. Murphy's Law happens to often in cases like these........

Say what?

MIL is about 85, in fair health...

 

[REWahoo]

The devil is in the details.

 

[FinanceDude]

Say what?

So, if she lives past 10 years, and nursing homes are $100,000 or so a year, what happens next?

The fastest growing segment of the population is 100+. OP can do what he wants.........

 

[FIREd]

...some nasty resentment can come out.

I agree. MIL asked for my help with financial matters a few years ago. I agreed to help her manage her meager retirement portfolio and even managed to save her from huge losses in 2008. But, in the end, my getting involved turned out to be a mistake. I was rationing her (so that her portfolio could last longer, which was in her best interest I thought) and she resented me for that. In the mean time, I resented her for asking me to help her and then ignoring my advice.

I finally told her to get professional help to take care of her affairs. When she runs out of money (which is bound to happen soon given that her WRs are at 10+%), I don't want to be the one who has to break the news to her that she now has to make due on social security and that her expenses have to be cut by 60%...

 

[haha]

People are usually no more realistic about losing money than about losing a lover. It is always someone else's fault.

Ha

 

[Badger]

Thank you for all the replys. Since my original post I found was there is presently about a 60/40 split between investments and cash. He has already sold some stocks and wants to sell a few more. He feels they haven't been doing well in the last couple of years and wants to buy others that are already well into their up swing - "sell low and buy high"

forgetting about any dividends that have been paying out. Although he thinks he understands how to make money in the market he is more than a rookie at investing. I suspect he is again in a financial squeeze (kind of a continuing saga of satisfying wants) and sees this as a way to improve his net worth in the future.

I think he is concerned about making sure there is money for his mother but also has this urge to play the stock market to improve his inheritance. We tried to explain that he can do that once the inheritance is distributed and he is not jeapardizing his mothers trust or his sister's inheritance. I don't think that got through to him.

According to his portfolio print out his mother has:
43% Cash
33% Stocks and Mutual Funds (stock)
17% Fixed Income (?)
7% Annuities

I was glad to see so much in cash but prefer it was in CD's or something conservative so that she would at least only be losing to inflation instead potentially poor choices in the stock market. At 85 years she may only have 5 more left and that could require money for medical attention and nursing home.

My wife couldn't have been more clear about this and earlier has made sure he understands that any suggestions I may make will be speaking for her. She is listed in the trust as trustee in case he is not able to carry out his duty. She has requested copies of the trust and will to make sure she is clear about her mothers intentions.

I just went through a legal battle with a brother who was trustee and thought he could play the stock market with my parents money against their expressed wishes since he was trustee and had POA. This has all the earmarks of turning ugly too if PIL continues to want to be a daytrader with his mothers trust.

Cheers!

 

[haha]

I think he is concerned about making sure there is money for his mother but also has this urge to play the stock market to improve his inheritance.

Your MIL should have almost no stocks, and this creep should be fired. His two alleged goals are incompatible, as one of the absolute best things for the old woman is one of the worst for the gunslinger remainder man-single premium immediate annuities.

The exact mix between inflation indexed annuities and straight annuities and an ETF such as TIP and CDs could use some careful and skilled attention. I have never had to do this, so I really don’t know the details. But these are details. The core issue is that he could ruin this trusting old woman with his greed.

Ha

 

[oilspill]

When you can't trust your children, you are doomed. Your MIL is likely doomed.

 

[harley]

So, if she lives past 10 years, and nursing homes are $100,000 or so a year, what happens next?

The fastest growing segment of the population is 100+. OP can do what he wants.........

Attribution? I know that 85+ is the fastest growing segment, and I suppose it's possible that 100+ could be the fastest growing part of that group, but I find it hard to believe. There's a big difference between 85 and 100.