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)
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.
- 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.
Thank you so much for any insights you can provide! BC