Mom's Estate: Can you help please?

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bluesclues
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Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 3:52 pm

Hi there,

I am hoping to get some advice on how to help my 86 year old mother manage her estate. My father passed away early this year (2018). My mother has since gotten all her beneficiary paperwork in order on her various accounts, updated her will, and appointed me as her executor. Mom is still totally with-it mentally and physically, although she is starting to show some small indications of physical frailty. I believe this was accelerated by the stress of Dad’s passing and the loss of her partner of 60 years. Fortunately, Mom is in pretty good financial shape. Here’s the summary:
  • Pension & Social Security: $5,500 monthly
  • Savings (in 2 different bank savings accounts): $1,338,000
  • Retirement savings: $274,000 (in short term bond fund)
  • Home in coastal California (fully paid): $1-1.2 million (based on Zillow estimates and my review of comps in the local newspaper)
Having lived through the aftermath of the Great Depression (Dad) and World War II Britain (Mom’s British), my parents were extremely aggressive savers and cautious investors. In fact, they completely shunned the stock market.

One of the things Mom and Dad never wanted to do was burden their three children with having to care for them in advanced old age, so while they were saving, they were thinking that one or both of them might need a very extended stay in a very expensive nursing home. When Dad passed at 94, he was gone in 2.5 months (from congestive heart failure with a minimum amount of suffering). Fortunately we were able to keep him in hospice at home. But Mom continues with her concern of funding a potentially long stay for herself in an extended care nursing facility as she grows older and dies.

In the meantime, she has asked me to advise her on how to better invest her money, particularly the $1.3 million sitting in that 0.01% interest savings account. I’m trying to think about this thing wholistically, including how we might also address the long term nursing care concerns. Here’s my thinking:
  • My sister’s and I would prefer to have Mom in hospice at end of life. This way she can be close to us and not suffer the indignities of being cared for by strangers. We would probably need in-home nursing care to help with the heavy lifting. I have estimated that 24x7 assistants would run somewhere on the order of $155,000 / annually. Her annual pension would cover $66,000 of this amount leaving a remaining balance of $89,000 that would not be covered. The money in her retirement account alone could fund 3 years of coverage.
  • But should nursing home care become necessary, I used a high end estimate from the the web of $86,000 / annually, although if we were to have supplemental dedicated care in the home, this could run as high as $200,000 / annually. In this case her pension and retirement savings would carry her for 2 years. Note that in these first 2 points, I'm using more extreme estimates.

  • At this point, let me state, that inheriting from Mom is the last thing on the sibling’s minds. If Mom needs every penny in her estate to pay for her end-of-life care, then that’s what will happen. On the other hand, Mom would definitely prefer to leave as much to her kids as she can and not pay an institution for a bed and medicines.
  • Now, Mom’s house is a 5 bedroom, 3 bath home. It’s well kept and has been updated so that everything is contemporary. But it is too large for her. It is also a split-level which is not practical as she gets older. She seems in no rush to get rid of it or downsize though, and there is no pressure on the siblings’ part for her to do so. It’s her decision. Eventually she may move in with one of my sisters who has offered to setup an apartment-style arrangement in her home.
My general inclinations at this point are as follows:
  • Leave Mom’s retirement assets where they are to pay for end-of-life care if necessary
  • Move her $1.3 million cash into a simple, 50/50, 2-fund portfolio with VTI & BND so that this money can grow. Mom feels like the money might as well be invested.
  • If or when necessary, sell her house to pay for additional end-of-life care. At the rates calculated above, these monies could fund a long time in hospice or a nursing home.
  • If or when Mom moves in with my sister, make sure that sister is getting some monthly payments from Mom's pension to help with associated expenses.
Questions: Am I thinking about these matters correctly? What am I missing? Do any of you have similar experiences or advice that might help to guide me and my siblings on this next phase in our lives? What would you do in this situation?

Thank you so much for any insights you can provide! BC

Gill
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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 4:14 pm

Your mother has sufficient assets to have the finest medical and nursing care forever. No need to worry about running out of funds. The savings account is the only matter that needs attention and almost any change would be an improvement. If that account is all in one bank you are taking considerable risk with much of it uninsured.
Gill

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 4:19 pm

Gill wrote:
Sat Sep 22, 2018 4:14 pm
Your mother has sufficient assets to have the finest medical and nursing care forever. No need to worry about running out of funds. The savings account is the only matter that needs attention and almost any change would be an improvement. If that account is all in one bank you are taking considerable risk with much of it uninsured.
Gill
Thank you Gill. That is very comforting to know. The savings accounts are split between 2 banks currently, and yes, I think she realized it was crazy to keep it at such low interest.

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tractorguy
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Re: Mom's Estate: Can you help please?

Post by tractorguy » Sat Sep 22, 2018 4:30 pm

At 86 and in a split level your Mom is only one fall away from a forced move out of the the house or worse. Have you considered an upper end retirement apartment for her? She can afford a pretty nice one.

Last year we moved my 92 year old MIL into one in NJ. It was the best thing we could have done for her and was her choice after she realized what could happen to her with her on her own. It's like being on a permanent cruise. Instead of being isolated in her house, we have trouble finding a time to call her that doesn't conflict with her social activities.

The one she is in has on site assisted living apartments but she is in a private 1 bedroom with a kitchen. She usually eats dinner in the dining room but makes her own breakfast and lunch.

As to investing, we put her most of her cash into CD ladders at online banks, keeping the total at each one under the FDIC maximum. About 10% of her net worth is in stock funds held at Fidelity with all of the dividends set to automatically roll to her checking account each month. I have all her bills set up to automatically be payed. I check her account balances every month to make sure nothing will be overdrawn and to look for any signs of fraud.

All signs are that she will only draw down a fraction of her principal but dementia or other illness can change that forecast. That's why we elected to keep all her cash liquid.
Lorne

Gill
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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 4:31 pm

The only hesitation I would have is the idea of moving half the savings account into equities. Would your mother be comfortable with such a move? Maybe 25% would be more acceptable to her.
Gill

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 4:45 pm

tractorguy wrote:
Sat Sep 22, 2018 4:30 pm
At 86 and in a split level your Mom is only one fall away from a forced move out of the the house or worse. Have you considered an upper end retirement apartment for her? She can afford a pretty nice one.

Last year we moved my 92 year old MIL into one in NJ. It was the best thing we could have done for her and was her choice after she realized what could happen to her with her on her own. It's like being on a permanent cruise. Instead of being isolated in her house, we have trouble finding a time to call her that doesn't conflict with her social activities.

As to investing, we put her most of her cash into CD ladders at online banks, keeping the total at each one under the FDIC maximum. About 10% of her net worth is in stock funds held at Fidelity with all of the dividends set to automatically roll to her checking account each month. I have all her bills set up to automatically be payed. I check her account balances every month to make sure nothing will be overdrawn and to look for any signs of fraud.

All signs are that she will only draw down a fraction of her principal but dementia or other illness can change that forecast. That's why we elected to keep all her cash liquid.
Thanks for the insights tractorguy. Mom fell 2 weeks ago doing laundry in the garage and broke her wrist (fortunately a clean and simple break). This has given us all a wake-up call.

The retirement apartment is a good idea, and perhaps something to consider instead of her living with my sister (they do have friction sometimes).

Keeping a large chunk of Mom's assets liquid seems like a very good idea. If we were to sell her home, we'd add significant liquid assets to her retirement and pension money. So would it still make sense to move the savings account money into something slightly more aggressive?

HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 4:49 pm

Does she want to move?

Can she safely live on one level of her existing split level? By this I mean, if you were to have a barrier-free shower installed, grab bars by the toilet, etc, could she manage on one floor and go in and out of the house without having to climb steps?

How long ago did she purchase the home? My sketchy understanding is that half the house's cost basis will plus up to its value on the date of your father's death & your mother's half will equal half of the original purchase price + half of the improvements. She will now have a $250K exemption against the capital gains, but if she has been in the house a long time, a home worth $1.2 million with no improvements could still have a capital gains tax bill on $300K.

You should obtain a real estate appraisal, if you did not at the time of your father's passing.

If the capital gains tax bill is not significant and she is willing to move into a retirement home as tractorguy described, that may be a wonderful solution for all involved. She will have a built-in network of people to meet in addition to access to organized activites, and she will be somewhere she can safely age in place.

My mother will not leave her home and keeping her there absorbs an ever increasing amount of my time.

I agree that her assets are more than adequate for her needs. Check with her brokerage firm to confirm that beneficiary designations were properly updated AND that they will sell the necessary amount of the bond fund to allow for the RMD.

If you are not on her bank and brokerage accounts, you may want to ask her if she would like to add you. As my mother continues to decline, she doesn't have the energy to go into the bank the way she used to, so I can now handle transfers electronically.

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 4:49 pm

Gill wrote:
Sat Sep 22, 2018 4:31 pm
The only hesitation I would have is the idea of moving half the savings account into equities. Would your mother be comfortable with such a move? Maybe 25% would be more acceptable to her.
Gill
Good point.

Do you have an opinion regarding Vanguard's Wellesley fund VWIAX? Too concentrated for that amount of money?

HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 4:53 pm

Just saw your update that she fell recently. Would she consider wearing one of those ADT medic alert necklaces? You need to purchase the type that has automatic fall alert. I cannot remember what the feature is called, but it is the necklace version, not the bracelet type. If she falls and does not respond to the attendant shouting through the squawk box, ADT will dispatch the local fire/EMS. To avoid having her door broken down, you leave a key in a lockbox and provide the combination to ADT who passes it along to EMS when they call.

We had a stackable washer/dryer unit installed on the ground floor to keep her from having to go downstairs.

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 4:57 pm

HereToLearn wrote:
Sat Sep 22, 2018 4:49 pm
Does she want to move?

Can she safely live on one level of her existing split level? By this I mean, if you were to have a barrier-free shower installed, grab bars by the toilet, etc, could she manage on one floor and go in and out of the house without having to climb steps?

How long ago did she purchase the home? My sketchy understanding is that half the house's cost basis will plus up to its value on the date of your father's death & your mother's half will equal half of the original purchase price + half of the improvements. She will now have a $250K exemption against the capital gains, but if she has been in the house a long time, a home worth $1.2 million with no improvements could still have a capital gains tax bill on $300K.

You should obtain a real estate appraisal, if you did not at the time of your father's passing.

If the capital gains tax bill is not significant and she is willing to move into a retirement home as tractorguy described, that may be a wonderful solution for all involved. She will have a built-in network of people to meet in addition to access to organized activites, and she will be somewhere she can safely age in place.

My mother will not leave her home and keeping her there absorbs an ever increasing amount of my time.

I agree that her assets are more than adequate for her needs. Check with her brokerage firm to confirm that beneficiary designations were properly updated AND that they will sell the necessary amount of the bond fund to allow for the RMD.

If you are not on her bank and brokerage accounts, you may want to ask her if she would like to add you. As my mother continues to decline, she doesn't have the energy to go into the bank the way she used to, so I can now handle transfers electronically.
Great points! Thank you!

Mom might want to move, but I think she's still processing Dad's passing (FEB 2018). Her fall 2 weeks ago may accelerate that decision though. It is not feasible for her to live on a single floor. It's not setup the right way.

The house was purchased in '69 for $38,000. She had it reappraised in April 2018 at $1,200,000.

Yes, I will definitely check on the beneficiary designations & talk with her about adding me to the accounts if she is willing. She simply cannot deal with computers and if nothing else, I can keep an eye on things electronically as she ages.

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 4:58 pm

HereToLearn wrote:
Sat Sep 22, 2018 4:53 pm
Just saw your update that she fell recently. Would she consider wearing one of those ADT medic alert necklaces? You need to purchase the type that has automatic fall alert. I cannot remember what the feature is called, but it is the necklace version, not the bracelet type. If she falls and does not respond to the attendant shouting through the squawk box, ADT will dispatch the local fire/EMS. To avoid having her door broken down, you leave a key in a lockbox and provide the combination to ADT who passes it along to EMS when they call.

We had a stackable washer/dryer unit installed on the ground floor to keep her from having to go downstairs.
Yes, we are investigating this solution.

Afty
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Re: Mom's Estate: Can you help please?

Post by Afty » Sat Sep 22, 2018 5:02 pm

The new Apple Watch has fall detection. That might be more acceptable to her than something specifically for the elderly. https://support.apple.com/en-us/HT208944

I would keep her investments very conservative given how she and your dad invested throughout their lives. You could at least move the cash to an online savings account earning 1.75% though. Or a CD ladder as someone else suggested.

mouses
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Re: Mom's Estate: Can you help please?

Post by mouses » Sat Sep 22, 2018 5:04 pm

I am sorry about your Dad.

I would not put your Mom's $1.3 million in the stock market. You can build a CD ladder at credit unions, staying under the federal insurance limit in each. In my area credit unions are offering 3% for 2 year CDs. That's $39,000 more a year. Early withdrawal penalties (verify this) run from a loss of 3 months interest to 1 years interest in my area.

HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 5:07 pm

The first ADT necklace we had produced a lot of false positives, so we had them send a new one. Much improved, and truly a lifesaver as she fell on the garage floor.

Unfortunate that she cannot live on one floor. Do any of her friends live in retirement homes that allow the transition to AL? Can you take her to see one? She will have a big tax bill when she sells, but unless you consider installing one of those chair lifts on the stairs, it will be very difficult to age in place.

I wish there were an easy answer. My father passed a number of years ago, but my mother just did not want to move. It was OK-ish until two years ago, but now it is a part-time job to coordinate the aides, purchase equipment to allow her to continue to live in the house as she declines, coordinate construction, deal with the LTC insurance company, order grocery delivery, etc.

Also, I agree with your price estimates, as your #s are in line with the NYC metro area costs.

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Watty
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Re: Mom's Estate: Can you help please?

Post by Watty » Sat Sep 22, 2018 5:12 pm

tractorguy wrote:
Sat Sep 22, 2018 4:30 pm
At 86 and in a split level your Mom is only one fall away from a forced move out of the the house or worse. Have you considered an upper end retirement apartment for her? She can afford a pretty nice one.
+1

After my dad died my mom insisted on staying in the suburban family home I was raised in. I can understand that and it was her choice but it was very socially isolating since most of her friends had either died or moved away. She was younger than your mom and being isolated like that also made her try to drive longer than she should have.

She did agree to have one of the emergency alert buttons on a wrist band and she had to use it twice when she was alone. I would highly suggest that she gets one of these and uses it all the time, even when she is in a shower.

bluesclues wrote:
Sat Sep 22, 2018 3:52 pm
Move her $1.3 million cash into a simple, 50/50, 2-fund portfolio with VTI & BND so that this money can grow. Mom feels like the money might as well be invested.
I think that is too aggressive and she does not have any need to take additional risk.

I would just keep $100K in the saving account and put the rest into into a five year CD ladder and make sure that it is spread out so that it is all below the FDIC insurance limits. The longer CD's would get about 2% and as the CD's mature and are reinvested they will get the current five year rate.

The money in the retirement account I would put into something like the Vanguard Target Date Retirement Income fund.

https://investor.vanguard.com/mutual-fu ... file/VTINX

That may not be the theoretical "best" way to invest but she has been risk adverse for the 80+ years so now is not the time to try to change that.

One thing to do is to double check that you have the right power of attorney paperwork for everything. A few possible glitches;

1) Some companies, like Vanguard, are very picky about the power attorney paperwork and really want it on their form.

2) In some states a special different power of attorney is needed to sell real estate.

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Watty
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Re: Mom's Estate: Can you help please?

Post by Watty » Sat Sep 22, 2018 5:15 pm

bluesclues wrote:
Sat Sep 22, 2018 4:57 pm
Yes, I will definitely check on the beneficiary designations & talk with her about adding me to the accounts if she is willing. She simply cannot deal with computers and if nothing else, I can keep an eye on things electronically as she ages.
Also be sure that there are credit freezes on her credit report and that you know how to lift them in case credit reports are needed to move into a nursing home.

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mhadden1
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Re: Mom's Estate: Can you help please?

Post by mhadden1 » Sat Sep 22, 2018 5:18 pm

Please accept my condolences for the loss of your father.

Luckily, your mother seems to be in great shape financially, with a strong income, paid-for house, and savings safely salted away. I would consider her as having won the game.

Regarding nursing home care - it's good to think about how the worst cases could be addressed, but remember that they aren't all that likely. Not many people are unlucky enough to require the highest levels of care, year after year. In the end, the home could be sold to fund care needs, since it is no longer needed at that point. Also, the health care expenses would be partly defrayed by money that would otherwise go to taxes.

I would try to at least employ the money in the savings accounts better. Some combination of on-line savings and/or a CD ladder should easily produce 25-30K a year.

There are ideas that a portfolio should have at least 30% or so in stocks in an effort to keep up with inflation. A fund like Wellesley Income, at a third or so stocks, might fit the bill. That said, it might be jarring to move heavily toward stocks for an older person, deep in retirement, that has never had any stocks before.

Another thing to think about is that the tax situation worsens for many people that must transition to filing single. In this case, pension, SS, RMDs from retirement accounts, and optimized amounts of interest could produce over 100k in income. Tax-free interest might be preferable. Sometimes actions can be taken to avoid jumping up a bracket or some other undesirable result. What with SS taxation and state tax wrinkles, it can get a little complicated.
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HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 5:24 pm

Watty wrote:
Sat Sep 22, 2018 5:15 pm
bluesclues wrote:
Sat Sep 22, 2018 4:57 pm
Yes, I will definitely check on the beneficiary designations & talk with her about adding me to the accounts if she is willing. She simply cannot deal with computers and if nothing else, I can keep an eye on things electronically as she ages.
Also be sure that there are credit freezes on her credit report and that you know how to lift them in case credit reports are needed to move into a nursing home.
Oh, good point. After me reminding her about this for ten years, she finally allowed me to place credit freezes two years ago. I recently unfroze & refroze the accounts when I applied for a new credit card for her. (She was no longer able to go to Costco so needed a new card to replace the Costco card.)

Agree 100% about POA on brokerage accounts. I am POA on her brokerage, and that required here to fill out a fair number of forms for each account. I think POA will allow me to sell the MM fund to cover the RMD, but I don't own the account....there are some things I cannot do. I think I am joint on her checking/savings account, and that required me applying in person at her bank.

The only trouble with the ADT wrist device is that it requires the user to request help. The necklace one, which costs a bit more per month, includes the service where ADT will contact EMS if the wearer does not respond. And, yes, agree about wearing in shower too. Apple one looks lovely, but I cannot teach my mother to text, so I am not optimistic about using an Apple watch.

Gill
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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 5:35 pm

The advice you’ve been given about the sale of the house is probably incorrect. If your father was sole owner or held it jointly with your mother there will be a new basis of the house. This plus the $500,000 exclusion would likely eliminate most or all of the tax on its sale.
Gill

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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 5:42 pm

bluesclues wrote:
Sat Sep 22, 2018 4:49 pm
Gill wrote:
Sat Sep 22, 2018 4:31 pm
The only hesitation I would have is the idea of moving half the savings account into equities. Would your mother be comfortable with such a move? Maybe 25% would be more acceptable to her.
Gill
Good point.

Do you have an opinion regarding Vanguard's Wellesley fund VWIAX? Too concentrated for that amount of money?
That would certainly be an appropriate investment, although it still would represent a significant investment in equities. With your parents’ investment history and your mother’s age, I’d be inclined to avoid equities altogether.
Gill

increment
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Re: Mom's Estate: Can you help please?

Post by increment » Sat Sep 22, 2018 5:43 pm

Gill wrote:
Sat Sep 22, 2018 5:35 pm
If your father was sole owner or held it jointly with your mother
In California it could have been community property (in which case the entire basis would be stepped up).

HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 5:45 pm

Gill wrote:
Sat Sep 22, 2018 5:35 pm
The advice you’ve been given about the sale of the house is probably incorrect. If your father was sole owner or held it jointly with your mother there will be a new basis of the house. This plus the $500,000 exclusion would likely eliminate most or all of the tax on its sale.
Gill
Gill--I was the one quoting possibly incorrect advice. This is what I said (pasted below). Am I wrong? I may well be, so PLEASE correct me if I am, as this is the misunderstanding I have been operating under with my mother's home. I thought there was something about selling the same year the spouse died, but now I can't recall as it has been a # of years since my father died, but I thought the rest of my explanation was correct.

"My sketchy understanding is that half the house's cost basis will plus up to its value on the date of your father's death & your mother's half will equal half of the original purchase price + half of the improvements. She will now have a $250K exemption against the capital gains, but if she has been in the house a long time, a home worth $1.2 million with no improvements could still have a capital gains tax bill on $300K."

So for the home purchased for $38K, let's assume improvements bring it to $100K. Today's value of $1.2 million means that new basis would be $600K for father's half + one half of $100K, or $50K + $250K exemption for single, so $900K basis, with capital gains on $300K? Although I think the RE broker commission may be added to basis also?

Gill
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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 5:45 pm

increment wrote:
Sat Sep 22, 2018 5:43 pm
Gill wrote:
Sat Sep 22, 2018 5:35 pm
If your father was sole owner or held it jointly with your mother
In California it could have been community property (in which case the entire basis would be stepped up).
Correct. Forgot it was California.
Gill

HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 5:46 pm

increment wrote:
Sat Sep 22, 2018 5:43 pm
Gill wrote:
Sat Sep 22, 2018 5:35 pm
If your father was sole owner or held it jointly with your mother
In California it could have been community property (in which case the entire basis would be stepped up).
Interesting! I did not know it worked this way in CA. That's great news. I don't think it operates that way in NY, or else I am woefully uninformed (which may well be the case...).

CRTR
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Re: Mom's Estate: Can you help please?

Post by CRTR » Sat Sep 22, 2018 5:49 pm

One thing I noticed was the Coastal Home. Not sure if someone mentioned this already. If that is part of her will, it will have to go through probate in California. Doing probate yourself is a major pain in California (I know, I did it when my Dad passed ~10 years ago). Paying someone to do it is quite pricey. A simple way to avoid the expense and hassle is to set up a Living Trust and title the house to it. This allows it to bypass probate. California is definitely a community property state so she received a step-up in basis to FMV on date of her husband's passing (assuming they were married). This will allow you/her to sell without big tax consequences.

Sounds like you've already set up all her bank and retirement accounts with directed beneficiaries. I agree with others' suggestions for conservative investments for her bank accounts. CD ladders (my first choice right now as rates over 3.25% are readily available and there's no interest rate risk) or short-term bond funds would be appropriate. The combination of her pension, RMD's and interest from the above should cover her current needs without need to touch principal. That same income and the ability to tap her principal should more than cover her lifetime needs as well. I have no issues with investing a bit more aggressively with her retirement accounts due to amount of other assets.

Finally, good job on having some foresight and planning these things before they're needed!! Sounds like you've almost got everything covered!

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 5:59 pm

mouses wrote:
Sat Sep 22, 2018 5:04 pm
I am sorry about your Dad.

I would not put your Mom's $1.3 million in the stock market. You can build a CD ladder at credit unions, staying under the federal insurance limit in each. In my area credit unions are offering 3% for 2 year CDs. That's $39,000 more a year. Early withdrawal penalties (verify this) run from a loss of 3 months interest to 1 years interest in my area.
Great points. Thanks for this.

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 6:01 pm

Gill wrote:
Sat Sep 22, 2018 5:35 pm
The advice you’ve been given about the sale of the house is probably incorrect. If your father was sole owner or held it jointly with your mother there will be a new basis of the house. This plus the $500,000 exclusion would likely eliminate most or all of the tax on its sale.
Gill
They held it jointly. My understanding is that the new basis plus $500k exclusion would eliminate the taxes on sale.

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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 6:01 pm

HereToLearn wrote:
Sat Sep 22, 2018 5:45 pm
Gill wrote:
Sat Sep 22, 2018 5:35 pm
The advice you’ve been given about the sale of the house is probably incorrect. If your father was sole owner or held it jointly with your mother there will be a new basis of the house. This plus the $500,000 exclusion would likely eliminate most or all of the tax on its sale.
Gill
Gill--I was the one quoting possibly incorrect advice. This is what I said (pasted below). Am I wrong? I may well be, so PLEASE correct me if I am, as this is the misunderstanding I have been operating under with my mother's home. I thought there was something about selling the same year the spouse died, but now I can't recall as it has been a # of years since my father died, but I thought the rest of my explanation was correct.

"My sketchy understanding is that half the house's cost basis will plus up to its value on the date of your father's death & your mother's half will equal half of the original purchase price + half of the improvements. She will now have a $250K exemption against the capital gains, but if she has been in the house a long time, a home worth $1.2 million with no improvements could still have a capital gains tax bill on $300K."

So for the home purchased for $38K, let's assume improvements bring it to $100K. Today's value of $1.2 million means that new basis would be $600K for father's half + one half of $100K, or $50K + $250K exemption for single, so $900K basis, with capital gains on $300K? Although I think the RE broker commission may be added to basis also?
Your understanding is correct. I wanted to emphasize that there is a full step up if the decedent is the sole owner or if it is community property. Also, the $500,000 exclusion is available for two years after death. There would appear to be no taxable gain in the instant situation.
Gill

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sat Sep 22, 2018 6:04 pm

CRTR wrote:
Sat Sep 22, 2018 5:49 pm
One thing I noticed was the Coastal Home. Not sure if someone mentioned this already. If that is part of her will, it will have to go through probate in California. Doing probate yourself is a major pain in California (I know, I did it when my Dad passed ~10 years ago). Paying someone to do it is quite pricey. A simple way to avoid the expense and hassle is to set up a Living Trust and title the house to it. This allows it to bypass probate. California is definitely a community property state so she received a step-up in basis to FMV on date of her husband's passing (assuming they were married). This will allow you/her to sell without big tax consequences.

Sounds like you've already set up all her bank and retirement accounts with directed beneficiaries. I agree with others' suggestions for conservative investments for her bank accounts. CD ladders (my first choice right now as rates over 3.25% are readily available and there's no interest rate risk) or short-term bond funds would be appropriate. The combination of her pension, RMD's and interest from the above should cover her current needs without need to touch principal. That same income and the ability to tap her principal should more than cover her lifetime needs as well. I have no issues with investing a bit more aggressively with her retirement accounts due to amount of other assets.

Finally, good job on having some foresight and planning these things before they're needed!! Sounds like you've almost got everything covered!
Thanks CRTR. I'll check on the title, but believe it is part of her living trust. Worst case, I'll have to call the attorney.

Indeed, keeping things conservative seems like the order of the day. :D

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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 6:10 pm

Gill wrote:
Sat Sep 22, 2018 6:01 pm
HereToLearn wrote:
Sat Sep 22, 2018 5:45 pm
Gill wrote:
Sat Sep 22, 2018 5:35 pm
The advice you’ve been given about the sale of the house is probably incorrect. If your father was sole owner or held it jointly with your mother there will be a new basis of the house. This plus the $500,000 exclusion would likely eliminate most or all of the tax on its sale.
Gill
Gill--I was the one quoting possibly incorrect advice. This is what I said (pasted below). Am I wrong? I may well be, so PLEASE correct me if I am, as this is the misunderstanding I have been operating under with my mother's home. I thought there was something about selling the same year the spouse died, but now I can't recall as it has been a # of years since my father died, but I thought the rest of my explanation was correct.

"My sketchy understanding is that half the house's cost basis will plus up to its value on the date of your father's death & your mother's half will equal half of the original purchase price + half of the improvements. She will now have a $250K exemption against the capital gains, but if she has been in the house a long time, a home worth $1.2 million with no improvements could still have a capital gains tax bill on $300K."

So for the home purchased for $38K, let's assume improvements bring it to $100K. Today's value of $1.2 million means that new basis would be $600K for father's half + one half of $100K, or $50K + $250K exemption for single, so $900K basis, with capital gains on $300K? Although I think the RE broker commission may be added to basis also?
Your understanding is correct. I wanted to emphasize that there is a full step up if the decedent is the sole owner or if it is community property. Also, the $500,000 exclusion is available for two years after death. There would appear to be no taxable gain in the instant situation.
Gill
Gill -- Thanks for confirming. Glad I haven't lost my mind entirely.

Can I tap your knowledge a step further....

Is there something about a person needs to live for at least two of the last five years in order to claim the capital gains exemption and step-up basis from the deceased spouse? (Asking for NY, non-community property state.) So, if an older person moved into AL but didn't want to sell the house, would she retain the exemption as long as she lived in it for two of the five years before selling?

3504PIR
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Re: Mom's Estate: Can you help please?

Post by 3504PIR » Sat Sep 22, 2018 6:39 pm

I'm sorry about the loss of your dad, he and your mom sound as if they had a great life together and accomplished a lot financially.

I wouldn't go crazy with building a portfolio and reworking your mom's whole portfolio. If it were my mother, I'd put a portion into short term muni bond fund, an intermediate bond fund and cd's. That will give her peace of mind and a level of safety she probably really wants from reading between the lines. Britain was a real economic mess following WW2 and I can imagine that her idea of saving/investing is 100% driven by that memory. My own parents are in their late 80s and their financial mindset is largely driven by fear from their early lives. Do not underestimate her point of view on risk and I would not invest her funds in a way that you or your siblings would in this case, as I'm sure someone will recommend and in general, that is a good recommendation. Again, do not underestimate her idea of risk. At her age, you don't have to worry about keeping ahead of inflation, even if she lives another 20 years. She needs to know her funds are "safe" in her mind.

I'd also begin to put her beneficiaries onto various accounts to simplify estate processing. My mother has essentially divided her assets into 3 institutions plus a brokerage account. There are 3 of us equally inheriting her assets and for our sake, she has divided the funds equally into 3 accounts with each of us as on the account with her. Her brokerage account, which is all pretty much in muni bond funds at this point has each of us as an equal beneficiary. She has been the executor of several estates and has found that by setting things up this way, the estate will be processed much more smoothly.

As for her living situation, she should definitely move into a high end retirement community and get an apartment. It will give her a whole new sense of purpose, friends and life. My parents are in a community that wasn't cheap, but has been really awesome for their mental health and probably has extended their lives. Take some time to find a couple of options she is happy with and then if there are no vacancies, get on multiple waiting lists. Depending on where you live, she may want to be closer to you or your siblings.

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Re: Mom's Estate: Can you help please?

Post by Dottie57 » Sat Sep 22, 2018 6:51 pm

Gill wrote:
Sat Sep 22, 2018 4:31 pm
The only hesitation I would have is the idea of moving half the savings account into equities. Would your mother be comfortable with such a move? Maybe 25% would be more acceptable to her.
Gill
+1.

My parent’s were/are the same age. And both would have been apalled at going to 50%. equity. OP, I would tone it down. All you need to do is ensure there is enough mney there for the rest of mom’s life.

A nice apartment might be good too. People to check on her.
Last edited by Dottie57 on Sat Sep 22, 2018 7:14 pm, edited 1 time in total.

increment
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Re: Mom's Estate: Can you help please?

Post by increment » Sat Sep 22, 2018 7:11 pm

3504PIR wrote:
Sat Sep 22, 2018 6:39 pm
put her beneficiaries onto various accounts to simplify estate processing
On the other hand, if the reason for the living trust was to avoid California's probate process, it might be better to have these accounts put into the trust instead.

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Re: Mom's Estate: Can you help please?

Post by bsteiner » Sat Sep 22, 2018 7:27 pm

increment wrote:
Sat Sep 22, 2018 7:11 pm
3504PIR wrote:
Sat Sep 22, 2018 6:39 pm
put her beneficiaries onto various accounts to simplify estate processing
On the other hand, if the reason for the living trust was to avoid California's probate process, it might be better to have these accounts put into the trust instead.
It would. That would allow the assets to pass to the children in separate trusts for their benefit rather than outright. If she weren't in California, by not having beneficiaries on the taxable accounts, she could accomplish the same thing by having them pass to the children in trusts under her Will.

She could designate trusts for her children or grandchildren as the beneficiaries of her IRA, though in this case since the IRA is relatively small, she might instead simply leave her IRA to her children or grandchildren, or to her issue so each child can either accept his/her share or disclaim it in which case it will go to that child's issue.

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Re: Mom's Estate: Can you help please?

Post by Gill » Sat Sep 22, 2018 7:28 pm

HereToLearn wrote:
Sat Sep 22, 2018 6:10 pm
Gill wrote:
Sat Sep 22, 2018 6:01 pm
HereToLearn wrote:
Sat Sep 22, 2018 5:45 pm
Gill wrote:
Sat Sep 22, 2018 5:35 pm
The advice you’ve been given about the sale of the house is probably incorrect. If your father was sole owner or held it jointly with your mother there will be a new basis of the house. This plus the $500,000 exclusion would likely eliminate most or all of the tax on its sale.
Gill
Gill--I was the one quoting possibly incorrect advice. This is what I said (pasted below). Am I wrong? I may well be, so PLEASE correct me if I am, as this is the misunderstanding I have been operating under with my mother's home. I thought there was something about selling the same year the spouse died, but now I can't recall as it has been a # of years since my father died, but I thought the rest of my explanation was correct.

"My sketchy understanding is that half the house's cost basis will plus up to its value on the date of your father's death & your mother's half will equal half of the original purchase price + half of the improvements. She will now have a $250K exemption against the capital gains, but if she has been in the house a long time, a home worth $1.2 million with no improvements could still have a capital gains tax bill on $300K."

So for the home purchased for $38K, let's assume improvements bring it to $100K. Today's value of $1.2 million means that new basis would be $600K for father's half + one half of $100K, or $50K + $250K exemption for single, so $900K basis, with capital gains on $300K? Although I think the RE broker commission may be added to basis also?
Your understanding is correct. I wanted to emphasize that there is a full step up if the decedent is the sole owner or if it is community property. Also, the $500,000 exclusion is available for two years after death. There would appear to be no taxable gain in the instant situation.
Gill
Gill -- Thanks for confirming. Glad I haven't lost my mind entirely.

Can I tap your knowledge a step further....

Is there something about a person needs to live for at least two of the last five years in order to claim the capital gains exemption and step-up basis from the deceased spouse? (Asking for NY, non-community property state.) So, if an older person moved into AL but didn't want to sell the house, would she retain the exemption as long as she lived in it for two of the five years before selling?
Yes, it must have been the primary residence for two of the previous five years to qualify for the exemption. The stepup in basis happens regardless of anything else as long as it was included in a decedent’s estate. Your example is correct.
Gill

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Watty
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Re: Mom's Estate: Can you help please?

Post by Watty » Sat Sep 22, 2018 7:46 pm

Gill wrote:
Sat Sep 22, 2018 7:28 pm

....

Can I tap your knowledge a step further....

Is there something about a person needs to live for at least two of the last five years in order to claim the capital gains exemption and step-up basis from the deceased spouse? (Asking for NY, non-community property state.) So, if an older person moved into AL but didn't want to sell the house, would she retain the exemption as long as she lived in it for two of the five years before selling?
Yes, it must have been the primary residence for two of the previous five years to qualify for the exemption. The stepup in basis happens regardless of anything else as long as it was included in a decedent’s estate. Your example is correct.
Gill
[/quote]

I am not a tax guru but as I recall if the person goes into a nursing home there is an extension of the residency rule. A quick good search found this;

https://www.nolo.com/legal-encyclopedia ... 29901.html
Nursing Home Stays
For people who've moved to a nursing home, the ownership and use test is lowered to one out of five years in your own home before entering the facility. And time spent in the nursing home still counts toward ownership time and use of the residence. For example, if you lived in a house for a year, and then spent the next five in a nursing home before selling the home, the full $250,000 exclusion would be available.
One thing to check on is the definition of "nursing home" since not every place would have the level of care that would qualify it for this exemption.

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Re: Mom's Estate: Can you help please?

Post by celia » Sat Sep 22, 2018 7:55 pm

Gill wrote:
Sat Sep 22, 2018 4:14 pm
The savings account is the only matter that needs attention and almost any change would be an improvement. If that account is all in one bank you are taking considerable risk with much of it uninsured.
OP, I'm not sure you read Gill's post in the first reply as it was intended. He was alerting you that FDIC insurance only covers $250,000 per person at each bank. So when your dad was living, their joint account was insured up to $250,000 as well as any individual accounts each may have had. If the trust had an account also, I believe it was insured for $250,000 for each beneficiary. Now that your mom is single, all accounts in her name are only insured to $250,000.

I would keep the bulk of the money in CDs for various time spans. There are many offers these days where you can get at least 2% now. That is 20 times as much interest as she is now getting.
bluesclues wrote:
Sat Sep 22, 2018 6:04 pm
Thanks CRTR. I'll check on the title, but believe it is part of her living trust. Worst case, I'll have to call the attorney.
The attorney won't know unless he/she was the one who retitled the house as belonging to the trust. An easier way to find out is to check the last property tax bill or look on the country recorder's web site.

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Re: Mom's Estate: Can you help please?

Post by delamer » Sat Sep 22, 2018 9:08 pm

HereToLearn wrote:
Sat Sep 22, 2018 5:07 pm
The first ADT necklace we had produced a lot of false positives, so we had them send a new one. Much improved, and truly a lifesaver as she fell on the garage floor.

Unfortunate that she cannot live on one floor. Do any of her friends live in retirement homes that allow the transition to AL? Can you take her to see one? She will have a big tax bill when she sells, but unless you consider installing one of those chair lifts on the stairs, it will be very difficult to age in place.

I wish there were an easy answer. My father passed a number of years ago, but my mother just did not want to move. It was OK-ish until two years ago, but now it is a part-time job to coordinate the aides, purchase equipment to allow her to continue to live in the house as she declines, coordinate construction, deal with the LTC insurance company, order grocery delivery, etc.

Also, I agree with your price estimates, as your #s are in line with the NYC metro area costs.
Just wanted to second that arranging for and supervising 24/7 care for an elderly person in their home is no small task, even when it is affordable. And even if you and your siblings are actively involved, your mother is still going to be taken care of by strangers to one degree or another.

There may come a point where her sole interactions are with her family and/or paid care staff, which is not great for a person who is mentally sound. People need to interact with their peers.

Now is the time for her to consider moving to a retirement community where she can make friends and socialize.

HereToLearn
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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 9:58 pm

Watty wrote:
Sat Sep 22, 2018 7:46 pm
Gill wrote:
Sat Sep 22, 2018 7:28 pm

....

Can I tap your knowledge a step further....

Is there something about a person needs to live for at least two of the last five years in order to claim the capital gains exemption and step-up basis from the deceased spouse? (Asking for NY, non-community property state.) So, if an older person moved into AL but didn't want to sell the house, would she retain the exemption as long as she lived in it for two of the five years before selling?
Yes, it must have been the primary residence for two of the previous five years to qualify for the exemption. The stepup in basis happens regardless of anything else as long as it was included in a decedent’s estate. Your example is correct.
Gill
I am not a tax guru but as I recall if the person goes into a nursing home there is an extension of the residency rule. A quick good search found this;

https://www.nolo.com/legal-encyclopedia ... 29901.html
Nursing Home Stays
For people who've moved to a nursing home, the ownership and use test is lowered to one out of five years in your own home before entering the facility. And time spent in the nursing home still counts toward ownership time and use of the residence. For example, if you lived in a house for a year, and then spent the next five in a nursing home before selling the home, the full $250,000 exclusion would be available.
One thing to check on is the definition of "nursing home" since not every place would have the level of care that would qualify it for this exemption.
[/quote]

Thank you much for that helpful info, Gill & Watty.

I pulled Publication 523 to find the exact wording used in that Nolo article. The second sentence of that Nolo quote makes it sound as though one could live for one year in own home followed by five years in nursing home, as opposed to one year + four years. Sad to say, I am not sure that four or five years will be needed at this point.

From page 3 of Publication 523 (https://www.irs.gov/pub/irs-pdf/p523.pdf)
"If you become physically or mentally unable to care for yourself, you need to show that your home was your residence for only 12 months out of the 5 years lead- ing up to the date of sale. In addition, any time you spent living in a care facility (such as a nursing home) counts to- ward your residence requirement, so long as the facility has a license from a state or other political entity to care for people with your condition."

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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 10:05 pm

delamer wrote:
Sat Sep 22, 2018 9:08 pm


Just wanted to second that arranging for and supervising 24/7 care for an elderly person in their home is no small task, even when it is affordable. And even if you and your siblings are actively involved, your mother is still going to be taken care of by strangers to one degree or another.

There may come a point where her sole interactions are with her family and/or paid care staff, which is not great for a person who is mentally sound. People need to interact with their peers.

Now is the time for her to consider moving to a retirement community where she can make friends and socialize.
This is so very true. Living alone is very lonely. Small things assume outsize roles.

The years of transition where an elderly person can no longer drive herself but does not yet need full time help is a constant challenge. A change to the schedule, an illness, a specialist doctor appointment half an hour away, or a winter storm/power outage causes a cascade of problems that become crisis-like for the elderly person dependent on others. Everything is 'fine' until it is not, and once it is not fine, it is crisis mode. It is stressful.

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Re: Mom's Estate: Can you help please?

Post by HereToLearn » Sat Sep 22, 2018 10:10 pm

celia wrote:
Sat Sep 22, 2018 7:55 pm
Gill wrote:
Sat Sep 22, 2018 4:14 pm
The savings account is the only matter that needs attention and almost any change would be an improvement. If that account is all in one bank you are taking considerable risk with much of it uninsured.
OP, I'm not sure you read Gill's post in the first reply as it was intended. He was alerting you that FDIC insurance only covers $250,000 per person at each bank. So when your dad was living, their joint account was insured up to $250,000 as well as any individual accounts each may have had. If the trust had an account also, I believe it was insured for $250,000 for each beneficiary. Now that your mom is single, all accounts in her name are only insured to $250,000.

I have a question about this.

I thought that an FDIC-insured account has two beneficiaries would have $500K insured, even though there is only a single account owner.
https://www.fdic.gov/deposit/deposits/faq.html

Q: Can I have more than $250,000 of deposit insurance coverage at one FDIC-insured bank?
A: Yes. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank. For example, a revocable trust account (including living trusts and informal revocable trusts commonly referred to as payable on death (POD) accounts) with one owner naming three unique beneficiaries can be insured up to $750,000. See the Your Insured Deposit brochure for details.

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celia
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Re: Mom's Estate: Can you help please?

Post by celia » Sat Sep 22, 2018 11:28 pm

HereToLearn wrote:
Sat Sep 22, 2018 10:10 pm
I have a question about this.

I thought that an FDIC-insured account has two beneficiaries would have $500K insured, even though there is only a single account owner.
https://www.fdic.gov/deposit/deposits/faq.html
On the referenced page, the last question and answer has a link to a "calculator" that tells how much of your accounts are insured:
Q: Can I check to see if my accounts are fully covered?

A: Yes, you can get detailed information about your specific deposit insurance coverage by accessing the FDIC's Electronic Deposit Insurance Estimator (EDIE) and entering information about you accounts. You can also call the FDIC at 1-877-ASK-FDIC (1-877-275-3342) and ask to speak to an FDIC deposit insurance specialist.
Using the info in your question, I enter an account owned by one person with two beneficiaries and saw that the account was insured for $500,00.

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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sun Sep 23, 2018 1:29 pm

Watty wrote:
Sat Sep 22, 2018 5:15 pm
bluesclues wrote:
Sat Sep 22, 2018 4:57 pm
Yes, I will definitely check on the beneficiary designations & talk with her about adding me to the accounts if she is willing. She simply cannot deal with computers and if nothing else, I can keep an eye on things electronically as she ages.
Also be sure that there are credit freezes on her credit report and that you know how to lift them in case credit reports are needed to move into a nursing home.
Excellent point! Thank you for that Watty!!

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sun Sep 23, 2018 1:30 pm

delamer wrote:
Sat Sep 22, 2018 9:08 pm
HereToLearn wrote:
Sat Sep 22, 2018 5:07 pm
The first ADT necklace we had produced a lot of false positives, so we had them send a new one. Much improved, and truly a lifesaver as she fell on the garage floor.

Unfortunate that she cannot live on one floor. Do any of her friends live in retirement homes that allow the transition to AL? Can you take her to see one? She will have a big tax bill when she sells, but unless you consider installing one of those chair lifts on the stairs, it will be very difficult to age in place.

I wish there were an easy answer. My father passed a number of years ago, but my mother just did not want to move. It was OK-ish until two years ago, but now it is a part-time job to coordinate the aides, purchase equipment to allow her to continue to live in the house as she declines, coordinate construction, deal with the LTC insurance company, order grocery delivery, etc.

Also, I agree with your price estimates, as your #s are in line with the NYC metro area costs.
Just wanted to second that arranging for and supervising 24/7 care for an elderly person in their home is no small task, even when it is affordable. And even if you and your siblings are actively involved, your mother is still going to be taken care of by strangers to one degree or another.

There may come a point where her sole interactions are with her family and/or paid care staff, which is not great for a person who is mentally sound. People need to interact with their peers.

Now is the time for her to consider moving to a retirement community where she can make friends and socialize.
Thanks delamer. I am grateful for your perspective on this.

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bluesclues
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Re: Mom's Estate: Can you help please?

Post by bluesclues » Sun Sep 23, 2018 1:34 pm

Thanks to everyone who took the time to review the OP and reply. Your perspectives and advisement are much appreciated.

I will be rereading this thread a few times to ensure I've digested all the insight, nuance, and details.
Will also be sharing this with the sibs and Mom for family discussion.

With gratitude, BC

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