Need help with mother’s annuity

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Topic Author
planesman
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Joined: Mon May 13, 2019 3:29 pm

Need help with mother’s annuity

Post by planesman » Mon May 13, 2019 4:20 pm

Hi everyone. New to bogleheads.

I have some investing experience with equities and traditional and Roth IRAs. But I have little knowledge of annuities.
My mom remarried when dad died about 22 years ago. Her current husband is still living but in poor health. Mom is in good health at 88 years old. I recently learned that when her husband dies, she will not be eligible to receive health insurance and pension payments from his former emplyer. Her only income will be social security of $1300/mo. Neither of them has long term health care insurance.
The only investment is each of them has a $100,000 premium annuity with their seperate children as beneficiaries. I believe the interest is 3% with 1.25% annual management fee. Not a good deal. There must be a variable portion beacause the annuity has gained 33k since they were opened in July 2012. After 6 years there is no settlement charge. The present value of mom’s is about $134k and cash out value approx $133k. She can start receiving payments when she is 91!
If she lives to be 101, the total payments amount to less than the amount she would get if she just cashed out now. I guess my question is what is best way to invest the $133k and do I need to get the assets out of her name? I thought I would put in an account under my name and invest it for her future use but then Any gains could raise my personal income tax by putting me in a higher tax bracket. I don’t know what to do. Any advice would be greatly appreciated.

Thank you!

PS Should this be in the non-investing personal finance sub forum?

Dottie57
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Re: Need help with mother’s annuity

Post by Dottie57 » Mon May 13, 2019 5:14 pm

planesman wrote:
Mon May 13, 2019 4:20 pm
Hi everyone. New to bogleheads.

I have some investing experience with equities and traditional and Roth IRAs. But I have little knowledge of annuities.
My mom remarried when dad died about 22 years ago. Her current husband is still living but in poor health. Mom is in good health at 88 years old. I recently learned that when her husband dies, she will not be eligible to receive health insurance and pension payments from his former emplyer. Her only income will be social security of $1300/mo. Neither of them has long term health care insurance.
The only investment is each of them has a $100,000 premium annuity with their seperate children as beneficiaries. I believe the interest is 3% with 1.25% annual management fee. Not a good deal. There must be a variable portion beacause the annuity has gained 33k since they were opened in July 2012. After 6 years there is no settlement charge. The present value of mom’s is about $134k and cash out value approx $133k. She can start receiving payments when she is 91!
If she lives to be 101, the total payments amount to less than the amount she would get if she just cashed out now. I guess my question is what is best way to invest the $133k and do I need to get the assets out of her name? I thought I would put in an account under my name and invest it for her future use but then Any gains could raise my personal income tax by putting me in a higher tax bracket. I don’t know what to do. Any advice would be greatly appreciated.

Thank you!

PS Should this be in the non-investing personal finance sub forum?
Why would you put it in your name? It is hers.

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Stinky
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Re: Need help with mother’s annuity

Post by Stinky » Mon May 13, 2019 8:17 pm

planesman wrote:
Mon May 13, 2019 4:20 pm
Hi everyone. New to bogleheads.

I have some investing experience with equities and traditional and Roth IRAs. But I have little knowledge of annuities.
My mom remarried when dad died about 22 years ago. Her current husband is still living but in poor health. Mom is in good health at 88 years old. I recently learned that when her husband dies, she will not be eligible to receive health insurance and pension payments from his former emplyer. Her only income will be social security of $1300/mo. Neither of them has long term health care insurance.
The only investment is each of them has a $100,000 premium annuity with their seperate children as beneficiaries. I believe the interest is 3% with 1.25% annual management fee. Not a good deal. There must be a variable portion beacause the annuity has gained 33k since they were opened in July 2012. After 6 years there is no settlement charge. The present value of mom’s is about $134k and cash out value approx $133k. She can start receiving payments when she is 91!
If she lives to be 101, the total payments amount to less than the amount she would get if she just cashed out now. I guess my question is what is best way to invest the $133k and do I need to get the assets out of her name? I thought I would put in an account under my name and invest it for her future use but then Any gains could raise my personal income tax by putting me in a higher tax bracket. I don’t know what to do. Any advice would be greatly appreciated.

Thank you!

PS Should this be in the non-investing personal finance sub forum?
Does your mother need the income that could be generated by the $133,000? If her only income after her husband passes away is $1,300 per month of Social Security, I assume that the answer is "yes".

Certainly you want for the invested proceeds to be invested conservatively. You also need to be sure that she doesn't outlive her funds. The way to get the largest monthly income with payments guaranteed for life is to do a 1035 exchange into a single premium immediate annuity (SPIA).

Many insurance companies don't offer SPIAs to people who are age 88. I checked the Vanguard annuity tool, and found just one company that would quote for a female age 88. That quote, assuming $133k deposited and assuming payments for your mother's life, with a minimum of 5 years of payments, would give her a monthly income of $1,553. That company would also sell her a SPIA with a lower monthly payment of $1,193 per month, with payments for her life with a minimum of 10 years of payments.

Of course, the downside of a SPIA is that there are no funds left for your mother's estate (except for any guaranteed payments due after her death). But you will have maximized her income during her life, which may be your goal.
It's a GREAT day to be alive - Travis Tritt

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arcticpineapplecorp.
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Re: Need help with mother’s annuity

Post by arcticpineapplecorp. » Mon May 13, 2019 8:36 pm

there's some unknowns here. It sounds somewhat like a deferred annuity if she can't start getting payments until 91 (though that seems later than expected. Many deferred annuities I thought started paying at 85. Of course the payments at 91 will be higher naturally). You think it's variable because it shouldn't have earned $33k so far (if earning only 3% per year for 7 years)? Is that it?

Could she have purchased an indexed annuity that was promised to give her the return of the market with none of the risk? There's a guy in my area on the radio who spouts this non-sense and I believe those annuities don't pay out right away. They're very popular (for insurance salesmen) because of the high commissions.

One thing to consider about cashing it out is usually a part of annuity payments may be taxable and other portions not. I'm not sure what would happen (tax-wise) if you cashed the whole thing. But is this annuity wrapped in an IRA by chance? Insurance salesmen love to tout their annuities as providing tax benefits (deferral) though many who put annuities in their IRAs already had that tax deferral, but are now paying hefty fees for that tax deferral they already had.

You also cite beneficiary info. What exactly would be paid to beneficiaries? That part of principle not paid out over their lifetime as an income stream?

If you can get more info, that'd be helpful.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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planesman
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Re: Need help with mother’s annuity

Post by planesman » Tue May 14, 2019 9:30 am

Thanks for all of your responses and questions.

Dottie57
I’ve heard stories of long term care expenses depleting the assets of those who didn’t plan ahead, leaving the burden of payment on the family. I’m not sure how much medicare pays since I have not looked into it yet. I should have asked about getting assets out of her name as a means of having more control over the use of it for her care.

Stinky
Does your mother need the income that could be generated by the $133,000?

Yes, she will need more income than what social security provides. She still owns the house and 80 acres of pasture from original homestead. $1300/month will not cover living expenses, real estate taxes, insurance, future health and long term care costs. Thanks for suggesting the SPIA. I will look at the contract tonight and reply with more details.

Arctic PA corp

The annuity contract allows for withdrawals, probably with fees. The contract states payments to begin 10 years from contract start. There are 4 options to choose from. Single, Joint with survivorship options, choose a time period, and choose a payment amount. Sorry for lack of detail (going by memory).

The annuity is not wrapped in an IRA. I’m assuming the gain would be taxable but not the principal. I will get more details from the actual contract this evening regarding payout options and beneficiaries.

At this point, my goal is to maximize her return while preserving capital. I understand investing conservatively but 3% is ridiculous. Some companies pay that much and more in dividends alone. I’m not familiar with Vangaurd or any other companies funds but there must be something that would work to provide income and allow more liquidity than an annuity.

BarbBrooklyn
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Re: Need help with mother’s annuity

Post by BarbBrooklyn » Tue May 14, 2019 11:43 am

Medicare does not pay for long term care. It will pay for 20 days of rehab after a qualifying 3 day hospital ADMISSION ( NOT observation). From day 21-100 there is a copay of about $160 per day that many supplement plans will pick up IF the patient is making progress in therapy.


MEDICAID will pay for long term care after assets are depleted. There is a 5 year look back in most states on asset transfers.

You would do well to schedule a consultation for your mom with a certified eldercare attorney to discuss the best plan for her.

It also seems impractical for her to own such a large property with steep upkeep costs. Does she see the sense in downsizing? A one level condo or an Independent Living community where she'd have activities, meals and not have to do housekeeping or hire out yard work?
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

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planesman
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Re: Need help with mother’s annuity

Post by planesman » Tue May 14, 2019 2:07 pm

Thank you BarbBrooklyn for medicaid/care info!

They also have an apartment in town as of two years ago when her husband’s spine issues could not be fixed and he began deteriorating. He doesn’t do any work at the farm anymore but mom needs the space, beauty, and outside work gardening and mowing for her sanity. This will be her last year on the big ztr mower since her vision is getting bad. But you are right. He will soon need to go to an assisted living facility and she will go with him. All us boys live hours from the farm so we will have to find someone to take care of it or try to sell it to someone in the family. Renting it out would prohibit access to the house for those family members who still use it for recreational activities. The primary residence is protected from creditors, right? If we sell....yes I need to talk to an attorney. Would a CFP be better since there are investment questions as well?

BarbBrooklyn
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Re: Need help with mother’s annuity

Post by BarbBrooklyn » Tue May 14, 2019 3:09 pm

So, look. I'm not an expert by any means.

Protected from creditors or from MERP? (Medicaid reimbursement). Very different issues.

If stepdad needs NH/AL covered by Medicaid, mom becomes the " community spouse" with some protections in place. You need to find out if their state has a Medicaid waiver program that funds AL.

Applying for Medicaid when there is a community spouse involved is NOT a DIY project. You need a lawyer who actually understands Medicaid. Not one who promises to " hide the money".

It seems to me that a CFP would be the worst person you could talk to right now. You need an eldercare attorney BEFORE stepdad needs full time care. Community property state? Some states count ALL of the spouse's assets when you apply for Medicaid.

Does stepdad have the income stream to pay for AL? Have you looked into what AL costs near them? Be sure you ask if the facility charges for a la carte extras like Medication management fees, etc. Some places, we found, quote you a very attractive price, which is just for room and board. Any "assistance" you need (toileting, showering, medication management, medication reminders) are part of a "package" (sort of like buying a new car and being offered the "options package".

There's a good website called Agingcare.com. lots of very knowledgeable folks. There is also a book by a lawyer named Gabriel Heiser that is well spoken of with regard to Medicaid planning. Check your library.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Topic Author
planesman
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Re: Need help with mother’s annuity

Post by planesman » Wed May 15, 2019 6:36 am

BarbBrooklyn thank you so much for the suggestions. I will definitely check out that website and start looking for an elder care attorney.

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Nate79
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Re: Need help with mother’s annuity

Post by Nate79 » Wed May 15, 2019 7:16 am

Do I understand correctly that her husband's annuity will go to his children instead of his wife if he dies? If so that seems like a bad idea when she may need the money to live on.
Thank you BarbBrooklyn for medicaid/care info!

They also have an apartment in town as of two years ago when her husband’s spine issues could not be fixed and he began deteriorating. He doesn’t do any work at the farm anymore but mom needs the space, beauty, and outside work gardening and mowing for her sanity. This will be her last year on the big ztr mower since her vision is getting bad. But you are right. He will soon need to go to an assisted living facility and she will go with him. All us boys live hours from the farm so we will have to find someone to take care of it or try to sell it to someone in the family. Renting it out would prohibit access to the house for those family members who still use it for recreational activities. The primary residence is protected from creditors, right? If we sell....yes I need to talk to an attorney. Would a CFP be better since there are investment questions as well?
Why is the recreational needs of the family members above the income needs of your mom? Perhaps the family members should financially support your mom if they believe she shouldn't sell or rent her land to support her well being.

Topic Author
planesman
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Re: Need help with mother’s annuity

Post by planesman » Thu May 16, 2019 11:45 am

Nate79


Thanks for responding!

Yes, the husband has chosen to leave any remaining annuity benefit to his children after his death. I don’t agree with it, but that is what they wanted.
Without going into great detail, the income stream from renting a small pasture and old farmhouse would be minimal after expenses. Selling is the preferred option, and I would not hesitate to sell to support her.

Broken Man 1999
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Re: Need help with mother’s annuity

Post by Broken Man 1999 » Thu May 16, 2019 6:17 pm

Selling the farm and moving to the in-city apartment might be beneficial to your mother. She would be closer to others, not isolated in a rural setting.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

BarbBrooklyn
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Re: Need help with mother’s annuity

Post by BarbBrooklyn » Thu May 16, 2019 7:38 pm

Broken Man 1999 wrote:
Thu May 16, 2019 6:17 pm
Selling the farm and moving to the in-city apartment might be beneficial to your mother. She would be closer to others, not isolated in a rural setting.

Broken Man 1999
+ 10
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Topic Author
planesman
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Re: Need help with mother’s annuity

Post by planesman » Mon May 20, 2019 11:55 am

Thanks for the replies!

I’m confident the housing issue will work itself out due to spouse’s health issues. Seems I’ve let this get a little off topic. Haven’t figured out what to do with cashed out annuity funds yet but I’ll keep learning until I do. Appreciate all the advice and friendly suggestions.

Kagord
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Re: Need help with mother’s annuity

Post by Kagord » Mon May 20, 2019 4:03 pm

Seeing this a little late.

Getting the assets out of her name, keep in mind:
1. Gift Tax
2. Medicaid 5 year look back, as mentioned previously by Barb

+1 on the Elder Care Atty, worth a free consultation at least, IMHO, hopefully you find a good one, get a POA if she doesn't have one.

megabad
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Re: Need help with mother’s annuity

Post by megabad » Mon May 20, 2019 5:37 pm

I think speaking with an eldercare attorney that is knowledgeable about estate planning as well is a great idea. I would likely not move the assets out of mom's name given her advanced age, but I am not an expert.

Also...
planesman wrote:
Mon May 13, 2019 4:20 pm
88 years old.
planesman wrote:
Tue May 14, 2019 2:07 pm
This will be her last year on the big ztr mower
High five.

Topic Author
planesman
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Re: Need help with mother’s annuity

Post by planesman » Tue May 21, 2019 9:06 pm

Kagord

Thanks. I agree and I have POA.

megabad

If we were all experts, we wouldn’t have so many great forums!

For sure she won’t quit until she is physically unable. Was always high energy and very active.

A friend suggested going to the assisted living facility to get more info about services and payment options. That would also be a good precursor for the attorney visit.

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