Help with Stepfather's annuity

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MrMojoRisin
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Help with Stepfather's annuity

Post by MrMojoRisin » Sun Mar 25, 2018 10:22 pm

My mother and stepfather have moved to an assisted living center. My SF has dementia and I hold Power of Attorney for him as well as my mother. His niece is a co-POA with me but lives out of state, we communicate frequently and we are in agreement on issues pertaining to her uncle.


My mother and I are trying to get his financial affairs in order but my mother is also struggling with cognitive problems. She is aware of this.

My SF has an annuity worth approximately 125K. Mom has told me that it about to come due, whatever that means.

I have no experience with annuities. What I would like to do is put these funds to his best use. He has a long term care policy that should begin to pay for his care as soon as the exclusionary period is over. Once the LTC kicks in I plan on banking his Social Security and a modest pension into a local trust company that will run his books for him. His only other expenses, that I can foresee, will be some medical and Rx type costs and minor costs shared with my mother for cable tv and phone and personal consumables such at toiletries. The LTC has a pretty decent lifetime max that stands a good chance of outlasting him. In the event it does not the money his collected SS, Pension and annuity will have to cover the costs. These may increase if he has to go to a memory care center.

What questions should I ask of the annuity company, Allainz? How can I put this money to work for him with the least tax burden? I have full financial powers to invest for him as we (his niece is co-POA but lives out of state) see fit.

The contact with Allainz tells me it is a "MasterDex 5 Plus" product. It is single premium.

Thanks for any advice....I'm all ears..

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FiveK
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Re: Help with Stepfather's annuity

Post by FiveK » Sun Mar 25, 2018 10:58 pm

MrMojoRisin wrote:
Sun Mar 25, 2018 10:22 pm
The contact with Allainz tells me it is a "MasterDex 5 Plus" product. It is single premium.
Based on untitled - CT-3-Bonus-MasterDex-5-Plus.pdf, it is unlikely that this is a "Single Premium Deferred Annuity" (and we know it isn't a "Single Premium Immediate Annuity" because it didn't start paying immediately).

It may be that your stepfather made only one payment - that is different from what "single premium" implies.

But "unlikely" doesn't mean "impossible" so...?

You might look at Investor Analysis of Index Annuities - Bogleheads.org.

If his health is poor, you probably don't want to annuitize the balance, because the amount paid out would be low.

If there was only one contribution and no withdrawals, the accumulated interest is the difference between the current withdrawable amount and the contribution. This interest will be taxed at ordinary income rates, either your stepfather's if withdrawn while he is alive or his heirs'. There is no basis step-up as there is with stocks.

Consider transferring this to a Vanguard Variable Annuity while you decide how much of the interest to withdraw in this and subsequent years. Talk with Vanguard if interested in this.

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Sun Mar 25, 2018 11:05 pm

The cover sheet on the plan describes it as a SEP.
It list an "initial premium" and a "billed amount" which are identical in value and the Bill Mode is listed as "single premium".

I will head on over to the link you provided. Thanks..

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Wed Mar 28, 2018 9:24 pm

Ok, here is some more information.

The cover sheet notes that the "Bill Mode" is SINGLE PREMIUM and the "Billed Amount" at about 225K.

The Tax Plan is SEP

He has made withdrawals from it from time to time, he can only do that during certain times, from what I understand.

He has a balance of 124K left in this account and the 10 year anniversary is coming up soon, there will be no surrender fees after that date.

He is in his mid 80's and I would like to set this money up as his "emergency" fund.....his SS and Pension should be adequate for some time.

I am calling the Vanguard Annuity Guru tomorrow....if anyone has any other suggestions I am all ears.

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FiveK
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Re: Help with Stepfather's annuity

Post by FiveK » Wed Mar 28, 2018 9:37 pm

MrMojoRisin wrote:
Wed Mar 28, 2018 9:24 pm
The cover sheet notes that the "Bill Mode" is SINGLE PREMIUM and the "Billed Amount" at about 225K.
He has made withdrawals from it from time to time, he can only do that during certain times, from what I understand.
He has a balance of 124K left in this account and the 10 year anniversary is coming up soon, there will be no surrender fees after that date.
It is not uncommon for these plans to allow a 10%/yr withdrawal with no fee.

If he did contribute $225K, and the balance is now $124K, I hope he withdrew more than $101K over the years, otherwise he lost money - let alone didn't keep up with inflation.

In any case, there is a good chance the withdrawal of $124K would be completely tax free because it would be a return of principal. If you can find out how much of that $124K is "basis" (non-taxable when withdrawn) and how much is "earnings" (taxable at ordinary income rates when withdrawn) then you will know the tax consequences of removing it from Allianz and investing it in the fund(s) of choice at Vanguard, Fidelity, etc.

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BL
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Re: Help with Stepfather's annuity

Post by BL » Thu Mar 29, 2018 1:43 am

I believe you could ask the company for an in-force Illustration of guaranteed values and gain some information.

I don't see any point in converting to a better annuity if you owe tax on anything withdrawn. If you do talk to V annuities, be sure to tell them exactly what you have: it sounds like a SEP IRA. My guess is that you can rollover any funds to a rollover IRA.

Find out tax consequences of removing funds from annuity. If it is in an IRA, I don't suppose any of the money put in was taxed, so everything coming out would be taxed if it comes out of an IRA.

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Thu Mar 29, 2018 6:36 pm

Ok,

Some further research tells me that this is a 408K SEP plan.

My stepfather is nearly 88 years old.

His situation is that his Long Term Care insurance should start paying for his care at the assisted living center, it will cover all but about $300 a month.

His SS and a pension will cover the $300 he is short and the rest of his income will be banked.

I want to set the money up where it grows tax deferred of course and then if and when he maxes out his lifetime benefit of his LTC the saving he has accumulated and this money from however we invest it for him come into play.

That said what are the suggestions?

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FiveK
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Re: Help with Stepfather's annuity

Post by FiveK » Thu Mar 29, 2018 8:38 pm

MrMojoRisin wrote:
Thu Mar 29, 2018 6:36 pm
That said what are the suggestions?
BL's suggestion to roll this over from the SEP held by Allianz to a regular IRA at Vanguard (or Fidelity or Schwab) looks good. Then invest it in one of the Vanguard LifeStrategy Funds (or similar). Choice of fund (i.e., choice of stock/bond split) would depend on how soon the money might be needed. The sooner the need, the greater the percentage in bonds, as the linked page indicates.

Caveat: Before doing the above, ensure that the money can in fact be transferred with no fees, penalties, or strings attached (other than possibly a nominal account closing fee).

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Sat Mar 31, 2018 8:12 am

Thanks again...

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Fri Apr 06, 2018 9:33 pm

Made a few phone calls and have now come up with a bit of a game plan.

On the anniversary date of the annuity I will move it from the 408K SEP annuity it is in now to a Vanguard SEP IRA.
Since my SF is at the age where he must make RMD's I am setting up a taxable account as well with Vanguard. The RMD's will be placed into the taxable account.

I am in touch with a local bank and trust that will run my SF finances for him. Mom is letting too many little things get past her and is using her limited funds to keep him solvent when he actually has a pretty healthy financial base.

They will accept his SS and pension checks and LTC policy checks into the account and pay his assisted living center bills and routine health bills. They will only accept bills from local health professionals. I may carry a debit card for him to purchase personal care items and things of that nature that he must provide and to help him with purchases that may be appropriate.

They will notify the trustees (myself and his niece) if funds get a low and a transfer from Vanguard needs to take place. They will have the required information so they can make that happen.

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Fri May 18, 2018 2:28 pm

"Changes in Latitudes, Changes in Attitudes"

Well here are how things have progressed.

Mom and Billy went into assisted living together, Mom claimed Billy would not be able to cope without her.

2.5 months into it she finds she cannot cope with a husband afflicted with dementia and decides he must get an apartment of his own. Luckily the place had an opening and in two days time I got it furnished and him moved in. I had been separating his financials from hers for awhile.

The Bank and Trust is doing well, I put some money into the account and they are paying his bills. The Long Term Care insurance is going to pay the assisted living center directly and the ALC will bill the Bank and Trust for any additional funds if needed. Billy's niece will have a debit card so she can purchase items he may need, I have a card as well. I am setting it up so his niece will receive all his mail and legal correspondence.

I got discouraged with Vanguard and all the hoops I was having to jump through and decided to go to the Bank and Trust and set up a IRA and brokerage account for him there. At least everything will be in one place. I will transfer his annuity when it becomes available into the IRA, looking at VWINX for this. The brokerage account will be for his RMD's and also regular deposits from his other Bank and Trust account as his expense are all covered pretty much by the LTC policy. He should be able to sock away about 3K each month into the brokerage account.

Here is my question. I want the brokerage account to be liquid so that the account that needs to pay bills can pull from it easily if unexpected bills hit.
What would be a good investment vehicle for this purpose. The account will have deposits made to it monthly so maybe just a few thousand in a money market fund and the rest in a CD ladder?

Please give me your thoughts.

Again, I was a lot better electrician than a financial guru....

drzzzzz
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Re: Help with Stepfather's annuity

Post by drzzzzz » Fri May 18, 2018 2:42 pm

This might be off topic, but possibly of value to you as an FYI - I recently rolled over two annuities for my mother to a Fidelity IRA and I felt Fidelity went out of their way to keep me in the loop, overnight paperwork as needed, and meet tight deadlines in contrast to experiences that I have had with Vanguard - while I have most of our portfolio with Vanguard I find Fidelity easier to work with and more attentive to my perceived needs - it is also nice to have a branch to go to when needed and to get things handled in person as well as talking on the phone with fairly knowledgable individuals. Good luck

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Fri May 18, 2018 2:46 pm

Thanks for the FYI on Fidelity.....if things go south again I will head that way.

Tal-
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Re: Help with Stepfather's annuity

Post by Tal- » Fri May 18, 2018 2:55 pm

Risin,

You're doing great! I hope that I can support my mom in a like manner, and frankly, that my kids can support me this way when the time comes. Well done so far!

At the age of 88 and in poor health, I would be pretty dang conservative. You commented that his finances were generally in good shape, so I'm not sure what he has elsewhere. If nothing, I'd first pile around $50K in cash, then put the next $50K in bonds.

If he already has these assets, I'd go a conservative stock/bond allocation (like 20-30 stock, 70-80 bond).
Debt is to personal finance as a knife is to cooking.

MrMojoRisin
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Re: Help with Stepfather's annuity

Post by MrMojoRisin » Fri May 18, 2018 4:04 pm

Thank you for the compliment. I had no idea what I was in for when I agreed to be his POA. I figured at some point in time I would sign his death certificate and mail it out to whomever.

I have been working pretty much 10-15 hours a week on his long term care, chasing various life policies, setting up his banking, changing his direct deposits....closing credit cards, cancelling online accounts, changing phone service, feuding with his son and granddaughter....never a dull minute.

He has been very appreciative of my help.

I am setting up my wife's and my estates so my kids will not be faced with this burden.

Best wishes...

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