mickeymag wrote:Mom already has an estate attorney and a tax man who has kept her from paying any taxes at all. And I do work with these people, but I guess before I talk to these people I’m trying to find out whether I’m right to be suspicious of advice that points toward annuities and whether the bond market is inherently too risky for her situation.
And whether anyone knows in general how assets in bond funds would transfer to heirs, esp. in terms of taxes and dispersment.
mickeymag wrote:Thanks. Very interesting! I hadn’t realized that heirs of a stock or bond fund would not have to pay taxes on either principle or gains. Big difference.
Except that it is more complicated than that. If the heirs of an investment sell that investment they do have a tax cost on gains from their basis. That basis may be a stepped-up basis from date of inheritance (with a couple of additional small quibbles), but the basis could also be the basis from the time of death of your father if the assets are in a pass-through trust with your mother as beneficiary and you as heir. This is what I am trying to explain about understanding who has inherited what when. If the assets are inherited in the form of any kind of tax preferred account, including annuities, you would have to look at the exact details to know what is what. Also, while heirs do not pay an inheritance tax, the estate from which they inherit has to pay inheritance tax (which may be zero after exclusions) which then reduces the amount of estate to be inherited. Again, if there are trusts involved, this can be very complicated.
Unfortunately, my dad and I never discussed any of the investments I would manage in the event of his death, so I don’t know the reasoning behind his purchase of annuities, except that I gather he felt he’d been burned in some other investment dealings and was looking for something that would preserve his remaining principle.
Here again there are annuities of every flavor. The outcome will be hugely different depending on what you are talking about. The biggest single issue is between deferred annuities that hold investments and fixed immediate annuities which are income streams that may or may not terminate with or without a residual on death of the annuitant. Again things change if these are inside a trust.
In my own reading since, an 80/20 bond/stock mix of indexed funds seems better suited to hedging inflation (Mom’s nursing home bills have about an 8% inflation rate) and also preserving principle, but am I right in thinking that even an 80% bond fund mix (or 100% bond for that matter) will leave her principle considerably more vulnerable than her 24 annuities (distributed between 7 companies)? If the names of the companies are important I can supply those.
The question would be better suited compared to what? A portfolio of 100% TIPS is exactly hedged to inflation and highly secure as to principal as measured by CPI but certainly not to the costs of a person whose expenses increase at 8% pa. A mix of 80/20 nominal bond/stocks would not have any particular security in a time of high inflation. The riskiness of the annuities depends on the terms of the annuities and how they are invested if the terms depend on the investments. Note that single premium immediate annuities, if that is what you have, might be fixed and have no protection against inflation but are guaranteed for payout and longevity or might be inflation indexed by CPI. If there are really 24 annuities, etc., this is going to take a detailed look that maybe a financial planner might best examine. Annuities other than SPIA types are usually so hard to understand that I doubt anyone here is going to be able to analyze the situation, although volunteers are welcome, one is sure.
mickeymag wrote:“First, it is necessary to learn exactly what kind of annuities are owned. Sounds like a fixed deferred annuity, but not enough information to be certain.” [by mephistophles] I realize a full review of all 24 may be in order, but I know this much: they feature a high teaser rate for a year or two and then settle into much lower, fixed returns that roll back into the account; some, perhaps all, can and some have been “annuitized,” meaning they were converted into something that paid monthly until emptied (SPIA?)—we’ve done this with four of an original 28 annuities. With the help of the tax accountant we have already spent almost all the taxable monies on Mom’s nursing home bills, which prevented taxes.
I understand that the ideal way to proceed here would be a careful review, probably by myself and by a financial professional, of all 24 of Mom’s annuities. But before I begin a time consuming and potentially expensive rethinking of my Dad’s decision to go with annuities, I’m trying to figure out whether such a review is called for.
I hope some of the annuity experts will comment on why it makes sense to deplete IRAs before tapping annuities. Doesn't make sense to me, but I don't know anything about annuities.mickeymag wrote:the tax accountant and, actually, the annuity guy have been working together to use taxable monies in the annuities to pay for nursing home expenses. That is, after a couple of taxable IRAs were depleted.
Bob's not my name wrote:I hope some of the annuity experts will comment on why it makes sense to deplete IRAs before tapping annuities. Doesn't make sense to me, but I don't know anything about annuities.mickeymag wrote:the tax accountant and, actually, the annuity guy have been working together to use taxable monies in the annuities to pay for nursing home expenses. That is, after a couple of taxable IRAs were depleted.
f you make a change that turns out to be less than wonderful down the road, you could have serious problems within your family
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