Mother handing over investments to me, not sure which route to go

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2tall4economy
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Mother handing over investments to me, not sure which route to go

Post by 2tall4economy » Thu Jan 19, 2017 1:17 am

My father passed away recently and he had taken care of all the finances of my mother and himself. My mom is deathly afraid of money, gets confused on financial matters, reuqiring me to write things down and explain to her 3 times what to do (even though she can remember the place that she spent $5.35 on June 20 of last year no problem), is afraid of anything having to do with transacting online or using debit or credit cards, and has decided she would rather go back to someone else managing her money.

At the moment, her "money" consists of about $1m of farmland that I'm a joint owner of (on paper - i haven't contributed anything other than my credit score for a refinance a number of years back), $60k cash, and some personal effects worth approximately $50k if liquidated.

At first blush, selling the land she doesn't want and doing age in bonds in low cost funds seems to be the rational approach.

However, with my fathers passing, her pension and Ss cover 125% of her monthly living expenses after tax, so she actually doesn't need the money. For anything unless she wants to get an extravagant here and there, which isn't her personality. Therefore I'm thinking maybe it actually would be fine to put it into more stocks that you might otherwise expect for a person of her age.

Any thoughts?
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123
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Re: Mother handing over investments to me, not sure which route to go

Post by 123 » Thu Jan 19, 2017 1:44 am

One elderly relative I assist with is age 85+ with a portfolio of over $500,000. She grew up during the depression, never invested in stocks, and is very risk adverse. Her entire portfolio is in a mix of CDs. Her SSA and pension cover her monthly expenses. While undoubtedly some of her portfolio could be invested in equities she's just not interested in that. It's her money and with it all in CDs she has nothing to worry about. Stocks and bonds both have NAV variation risk which she just doesn't want to take.
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Bogle_Feet
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Re: Mother handing over investments to me, not sure which route to go

Post by Bogle_Feet » Thu Jan 19, 2017 2:22 am

2tall4economy wrote:and has decided she would rather go back to someone else managing her money.
If she goes to an advisor then BE SURE that she goes to a fee-only fiduciary (agreed in writing) on an hourly basis. Don't go to a commission-based advisor and don't pay an asset manager 1% per year.
She needs to come up with a "game plan" then invest ON HER OWN (with your help) in stock and bond index funds and then percentage rebalance (if and when needed), all through a deep discount brokerage like AmeriTrade or E Trade. That's it! It can be as simple as owning 2 or 3 index funds.

She needs to understand that once you come up with a "game plan" (example 50% stocks / 50% bonds) then the only thing an asset manager is supposed to do is percentage rebalance (which any 5th grader can do) and make sure you resist the urge to time the market (don't panic and sell because of headlines). Here's a great quote....
“If your advisor thinks he can pick winning stocks, choose winning actively managed mutual funds, or time the market -- steer clear!” -- Whitecoat Investor

mac808
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Re: Mother handing over investments to me, not sure which route to go

Post by mac808 » Thu Jan 19, 2017 2:52 am

What's her/your basis in the farmland? Seems like this is a situation to optimize for taxes more so than anything else. As far as AA once the farmland is liquidated, I'd personally go something like 1/3 stocks, 1/3 bonds, and 1/3 CDs.

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celia
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Re: Mother handing over investments to me, not sure which route to go

Post by celia » Thu Jan 19, 2017 3:54 am

What is her age? If she is 50, she will be needing more income over the years as inflation picks up. If she is 90, she may mainly need her monthly bills paid automatically from her checking.

Has she always been "afraid" of money or is this something that just started in the last couple of years? If this is relatively new, it could be a sign of cognitive decline, which also presents other complications.

But having some extra money available should give her a sense of freedom--freedom to go out to lunch or a movie with a friend without having to get a permission from anyone or buying a new sweater or whatever catches her eye.

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BL
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Re: Mother handing over investments to me, not sure which route to go

Post by BL » Thu Jan 19, 2017 9:33 am

Depending on what "recent" means, she is in the grieving stage and this is stressful. Decisions add more stress. No need to add stress right now making changes unless required immediately. Give her a year and then consider whether to sell, etc. Right now, if she has money in a savings account or CDs, etc., that is just fine. Avoid the advisor; she could end up making bad decisions with that and that person could cost her too much.

Eventually she could just buy a Target Retirement income fund at a place like Vanguard. They also do have an advisor with no conflict-of-interest that would manage for 0.3%/year and put her in a handful of low-cost index funds. This would have to be on-line or by phone, however. Nothing wrong with buying CDs at a local bank, either.

If land is sold, that would probably mean that both of you would have Capital Gains to pay, right?

If she is older, perhaps buying a SPIA (single premium immediate annuity) would make sense if she wants regular income coming in the rest of her life (would have to pay extra to have you get some remainder is she dies in less than X years, otherwise it is gone.) I wouldn't consider any other kind of annuity or insurance.

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Re: Mother handing over investments to me, not sure which route to go

Post by aristotelian » Thu Jan 19, 2017 10:05 am

I think you should ask her what she wants. You can help her achieve her goals, but the goals should come from her. Does she want to use it augment her income? Does she want to grow it to pass on to you and/or other heirs? Donate to charity? If she really has no use for the money and wants to give it to you to do what you want, then sure, put it in stocks if that is what you think is best. For all intents and purposes, it is your money (or it will be soon).

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Re: Mother handing over investments to me, not sure which route to go

Post by dbr » Thu Jan 19, 2017 10:12 am

mac808 wrote:What's her/your basis in the farmland? Seems like this is a situation to optimize for taxes more so than anything else. As far as AA once the farmland is liquidated, I'd personally go something like 1/3 stocks, 1/3 bonds, and 1/3 CDs.
I agree. The first step would have to be selling some land, and how that is done needs some consideration.

Actually, step zero is managing the land. You can't mean there is no income from all that land?

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Re: Mother handing over investments to me, not sure which route to go

Post by pkcrafter » Thu Jan 19, 2017 10:42 am

Maybe you should have power of attorney in financial matters? If you keep the land, are we only then talking about managing 60k? Moms age?

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Sandtrap
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Re: Mother handing over investments to me, not sure which route to go

Post by Sandtrap » Thu Jan 19, 2017 2:18 pm

Ditto to "paul". Financial and Medical POA? Are her affairs in order? Medical directive. Will? Trusts?

Been in your shoes. Vulnerable time. The sharks will circle, convince your mom she should trust them more than you (still a kid). Your role is to be her advocate and guard the gates. Her exist income is enough, for now. But in the future, long term care, catastrophe, etc. As for the farmland, property taxes, etc. Does it earn $$ profit.

As others suggest here. Partial SPIA for income supplementation, can always add to it later. Rest of farmland proceeds in conservative portfolio specifically for her long term care and needs. The value of the SPIA is that nobody can take the lump sum away from her, new boyfriend, aged friend, helpful friends and relatives and professionals, aged lawyer, aged financial adviser -- master of the senior shuffle.

More than concern for $$ is the change of human dynamics and vulnerablities. It is good that you are there. Her Guardian.

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Re: Mother handing over investments to me, not sure which route to go

Post by CaliJim » Thu Jan 19, 2017 3:17 pm

Might be worth dropping a few $ on a fee only certificed financial planner (Vanguard has a service) who can help you and her review the entire situation in an organized manner.

Then you can develop an investment policy statement, and invest accordingly in a conservative asset allocation at a low cost brokerage (Vanguard, Fidelity, Schwab, Wells Fargo Advisors...)

Also, spending a few hours with a Family and Estate Planning lawyer would be good. They can help you with the POA's, Durable Power of Attorney for Health Care, Health Care Directives, etc.
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Tal-
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Re: Mother handing over investments to me, not sure which route to go

Post by Tal- » Thu Jan 19, 2017 3:55 pm

I think I disagree with most others. Here are my thoughts:

Sell the farmland!!! $60K in total liquid assets is a lot of money, but given that this is 100% of her liquidity, it's simply not enough. It sounds like finances are fine for now, and that she is in good health. And, the RE market is strong (not sure about farmland RE). Now is the time to sell the farmland, pay the taxes, and create a diversified portfolio.

The biggest downside to doing this is not in the taxes now, but in the taxes at inheritance. With that said, I feel strongly that her money is for her security, and that any estate tax implications are a distant distant distant second. (I don't mean to imply you disagree)

And second, I don't think that she needs a financial planner - certainly not long-term! I'm typically the one advocating that people get a financial planner, but this situation seems quite simple. I think the solution of sell the farm land, and move to a portfolio that she is good with is the obvious answer. You need an estate attorney, and you need to get the wills/trusts/etc. set up. But, I'm not sure that a financial planner can provide a ton of value here. If you do use an adviser, do it on a project basis and ensure that you or your mom are managing the money long-term, and that everything that can be automated has been automated.
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Sandtrap
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Re: Mother handing over investments to me, not sure which route to go

Post by Sandtrap » Thu Jan 19, 2017 5:29 pm

Tal- wrote:I think I disagree with most others. Here are my thoughts:

Sell the farmland!!! $60K in total liquid assets is a lot of money, but given that this is 100% of her liquidity, it's simply not enough. It sounds like finances are fine for now, and that she is in good health. And, the RE market is strong (not sure about farmland RE). Now is the time to sell the farmland, pay the taxes, and create a diversified portfolio.

The biggest downside to doing this is not in the taxes now, but in the taxes at inheritance. With that said, I feel strongly that her money is for her security, and that any estate tax implications are a distant distant distant second. (I don't mean to imply you disagree)

And second, I don't think that she needs a financial planner - certainly not long-term! I'm typically the one advocating that people get a financial planner, but this situation seems quite simple. I think the solution of sell the farm land, and move to a portfolio that she is good with is the obvious answer. You need an estate attorney, and you need to get the wills/trusts/etc. set up. But, I'm not sure that a financial planner can provide a ton of value here. If you do use an adviser, do it on a project basis and ensure that you or your mom are managing the money long-term, and that everything that can be automated has been automated.
+1. . . . sell.

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