Does Mom have too much cash?!?

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Beth
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Joined: Thu Apr 05, 2007 8:32 am

Does Mom have too much cash?!?

Post by Beth »

My 84-yo mother has an all-taxable portfolio. In 2007 she tip-toed over the line into the 25% marginal bracket, tho' with increased expenses drawn from principal this year and lower returns of late in her all-cash portfolio, she may be in the 15% bracket for 2008 and beyond. She has a 7% state tax rate. Sometime back many DHs were helping me do portfolio analysis etc but before implementing that plan we got the unfortunate word that she has Alzheimers Disease, which is taking its ugly toll :( . Actually, being largely in CDs and Prime MM these last few years hasn't been so bad, but now things have changed. I have projected her 2009 expenses and then gone out to 2014 (total 5 years) projecting across the board increases of 10% for each line item (including fed and state taxes, which, one hopes, is unlikley). I hope that builds enough padding to cover what will surely be the greatest cost increase, higher levels of skilled residential care. Some line items will just disappear as her condition worsens. I projected just a 4% increase in SS benefits each year. She has only SS and a very small, non-COLA'd pension. For the next five years I have CDs maturing each year (all with coupons in the 5% range) to cover her expenses. Of course I cannot predict her longevity with this disease, but I want to look ahead to Year 6 and beyond for the funds as yet unallocated for her care. I have some of those tasty older IBonds as the last $ to be spent on her care, which would easily cover at least 1 yr in a nursing home. Beyond that is about $200k of cash to do something with now. It's sitting in Admiral Treasury MM. Would it be prudent to put some/all of this $ to work in Target Retirement Income and/or something like Wellesley Income, which is at about a 4-year low right now? Or maybe something in tax-exempt? Any thoughts welcome. Thank you. Regards, Beth
muddlehead
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Post by muddlehead »

in your shoes almost exactly. fortunately, my mom made me a co trustee on her trust where all her money is/was. been moving money from their out of her name past 4 yrs. idea is when she has to be instutionalized - as you should well know by now alz elders can live a looong time - her assets will have been zero for awhile qualifying her for state run care. as for the investments, imho you have to stay as liquid as possible - meaning money market or 1 yr cd's.
Chip
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Post by Chip »

Beth,

I'm very sorry to hear of your mother's sickness. It must be very difficult to have to deal with it as well as the financial implications.

I would be tempted to split the 200K amongst a medium duration tax exempt fund, TIPS (VIPSX or individual), and maybe a little bit (<20%) of pure equity (e.g. TSM or perhaps even the small value index). As you know, the yields on both muni funds and TIPS are very high now, at least when compared with recent history. Obviously there is risk in both of them, but I think it is WAY lower than stock market risk. As you also probably know, fixed income portfolios with a little bit of equity have historically been less volatile than 100% fixed income.

I'm thinking that this kind of split might get her firmly into the 15% bracket, reduce state taxes, plus give her some decent income as well as a chance for some capital gains down the road. Assuming the markets step back from the edge of this cliff :roll: .

Good luck with whatever you decide.
Enzo IX
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Post by Enzo IX »

Beth,

I would think you would want to keep your mom's monies 100% safe. Keep laddering the CDs with a little MMF for liquidity. My mom's about the same age with slight dementia, didn't have the altheimers(sp) tested because there is no cure anyways, just medicine to delay, which she is taking. At their age growth of portfolio is insignificant, but losses are devestating.

Best Wishes,

Doug
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tom0153
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Post by tom0153 »

Beth,

Your Mom must be pleased to have such a daughter, interested in her well being.

Have you been able to consult with an attorney as to how to best protect her assets, keeping them in reserve for her care in the best possible manner?

Local bar associations will have the ability to refer to lawyers who have specialized in your mother's situation.

The objective of course would be to provide for her hightest and best care, which would suggest that funds be free to supplement the quality of her care provided by a residential facility. It may be she would at one point require medicaid coverage, but you would control assets that can ensure the extra things you would like to see her have.

It would seem that liquidity would be an important feature for your investments on her behalf, for instance, those I Bonds would seem to suit that purpose, since you can cash them in as needed.

Are you also hooked up with caregivers' associations and web based support groups?

Best,
Best, Tom
retiredjg
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Post by retiredjg »

I agree that the money must be "safe", but an all cash portfolio will not keep up with inflation. That's not safe.

I think your idea of TR income or Wellesley is good for at least some of the money. The TR only rates a 2 on the risk scale, Wellesley Income is a little higher at 3.

If her diagnosis is relatively recent, what about investing half now and leaving the other half in cash or more CDs, bought as the rates are going up? As things progress, you may have a better idea of what is the best plan.

In her tax bracket, I don't see how anything tax-exempt would help you out.

Good luck in dealing with this difficult problem. jg
dbphd
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Muddlehead muddles

Post by dbphd »

I wonder if muddlehead realizes that by taking money out of his mother's name so he can dump her expenses on the tax payers he is doing what the financial community is accused of doing: Privatizing profits, socializing losses.

db
Topic Author
Beth
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Joined: Thu Apr 05, 2007 8:32 am

Thanks for the replies, so far

Post by Beth »

Responders, though, please note I am not of a mind to undertake active Medicaid planning. If her situation comes to that it will be because all of her money has been used to provide a modest but comfortable life in an appropriate residential facility. I have no responsibility for the accumulation of her portfolio, at least not since my father died in 2000, so my attitude is she has what she has and all I can do is my best, conservatively, to provide for her comfort. Neither my sister nor I have made spending/investing decisions that contemplate an inheritance. I frankly find it hard to believe she will make it to Year 6 and beyond, but one never knows so it seems prudent to me to do something sensible to maintain the current purchasing power of $200k, and if I also can get some capital growth, responsibly and conservatively, so much the better.

Chip, thank you for your idea. I'd welcome any other thoughts along this line. Thanks again all. Regards, Beth
Avo
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Re: Muddlehead muddles

Post by Avo »

dbphd wrote:I wonder if muddlehead realizes that by taking money out of his mother's name so he can dump her expenses on the tax payers he is doing what the financial community is accused of doing: Privatizing profits, socializing losses.
And if it's more than the tax-free gift limit, the state medicaid agency will come after you anyway.
muddlehead
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Post by muddlehead »

fair questions. 12k per year can be gifted to children, grandchildren, anyone without creating a taxable event. as for alz care down the road, and the privatizing-socializing accusation, we all have to decide if we want our heirs to get an inheritance or use that money to pay for elder care.
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tom0153
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Post by tom0153 »

This is another "we aren't playing nicely in the sandbox" diversion.

I appreciate the clarification on how one can properly care for our elderly relatives with love and kindness via financial planning, and I object to the assumption that one's intent was to divert funds away from such care.

Now, can we get back to elements of eldercare that relate to how one holds resources for the benefit of an elderly relative with a chronic and disabling health condition requiring substantial care?

I'd appreciate it.

Best,
Best, Tom
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