AA for funds earmarked for parents' care

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
CPW
Posts: 2
Joined: Mon Sep 10, 2018 9:24 pm

AA for funds earmarked for parents' care

Post by CPW » Mon Sep 10, 2018 9:52 pm

Hello Bogleheads, I've been lurking for a while. Hopefully I can get some wisdom on my situation.

I have a taxable account (at Fidelity) with a low to mid six figure amount that is set aside in case my parents will need additional funds toward the end of their lives. My parents are approaching 70, healthy, have pensions and a large nest egg.

The funds in my account are the result of gifts from them that I have set aside in case they need for any reason over the course of their lives. They do not anticipate me needing to spend any of this money on their care, but who knows what the future holds. Currently the majority of the funds are in a TSM fund, some in a single stock, and a bit under 20% in cash. I'm debating whether to pot the cash into TSM or if I need to diversify into another asset class. Mentally I keep this money separate from my other investments, but I also want to be tax efficient overall. Any recommendations?

For reference, the rest of my investments are approximately the same value as this account and consist of traditional, Roth, and about $40k in a different taxable account. I'm currently 100% equities and plan to get into bonds when I get a few years older. 22% federal bracket, my state has a flat income tax. And because I'm sure it will come up, we have very good, open, trustworthy family dynamics around all of this.

Thanks in advance for any advice.

JBTX
Posts: 4089
Joined: Wed Jul 26, 2017 12:46 pm

Re: AA for funds earmarked for parents' care

Post by JBTX » Mon Sep 10, 2018 10:42 pm

CPW wrote:
Mon Sep 10, 2018 9:52 pm
Hello Bogleheads, I've been lurking for a while. Hopefully I can get some wisdom on my situation.

I have a taxable account (at Fidelity) with a low to mid six figure amount that is set aside in case my parents will need additional funds toward the end of their lives. My parents are approaching 70, healthy, have pensions and a large nest egg.
Having such a large earmarked fund for parents who are otherwise very secure is admirable, but unusual and probably not necessary. I wouldn't invest it differently than your own desired asset allocation, because chances are it is going to stay with you.
The funds in my account are the result of gifts from them that I have set aside in case they need for any reason over the course of their lives. They do not anticipate me needing to spend any of this money on their care, but who knows what the future holds. Currently the majority of the funds are in a TSM fund, some in a single stock, and a bit under 20% in cash. I'm debating whether to pot the cash into TSM or if I need to diversify into another asset class. Mentally I keep this money separate from my other investments, but I also want to be tax efficient overall. Any recommendations?
As I indicated above, I would allocate it as if it were your own...it is. It is very unlikely they will need it. I wouldn't recommend holding individual stocks - although I'd be judicious about realizing capital gains. Not sure why you are sitting on 20% cash, but we don't know your age. I would probably diversify into some bonds and/or international stocks.
For reference, the rest of my investments are approximately the same value as this account and consist of traditional, Roth, and about $40k in a different taxable account. I'm currently 100% equities and plan to get into bonds when I get a few years older. 22% federal bracket, my state has a flat income tax. And because I'm sure it will come up, we have very good, open, trustworthy family dynamics around all of this.

Thanks in advance for any advice.
Again, I'd probaby have some in international and some in bonds, depending on your age. Hopefully you are maxing out tax advantaged opportunities, and not forgoing those to put them in taxable account for your parents that they will likely never need.

CPW
Posts: 2
Joined: Mon Sep 10, 2018 9:24 pm

Re: AA for funds earmarked for parents' care

Post by CPW » Mon Sep 10, 2018 10:54 pm

Thanks JBTX. All of the funds in this account came from gifts from my parents. I'm not contributing to this. I'm contributing to my tax advantaged space as much as I can with my own earned income :happy And I'm not sitting on cash. It was a recent addition to the account, and I'm hoping to get some insight into anything I should do differently than what I have been.

User avatar
BL
Posts: 8350
Joined: Sun Mar 01, 2009 2:28 pm

Re: AA for funds earmarked for parents' care

Post by BL » Tue Sep 11, 2018 7:16 am

I like your having some in cash-like fixed income for sudden needs and lower risk, especially since you don't have any in your own AA. Maybe check out some state tax-free possibilities such as I-bonds or other federal MM or treasury bills or bonds.

Prime MM pays 2.08% taxable now so is not bad for cash. 1-yr CDs approach 2.5%.

Dandy
Posts: 5405
Joined: Sun Apr 25, 2010 7:42 pm

Re: AA for funds earmarked for parents' care

Post by Dandy » Tue Sep 11, 2018 7:30 am

If you are targeting that money for your 70 year old parents possible later care then it seems to make sense to invest as a 70 year old. That probably means a relatively conservative, asset preservation allocation. Since they seem to be in good financial shape it doesn't seem to have to be extremely conservative. Somewhere like 35-50% equities.

stan1
Posts: 5991
Joined: Mon Oct 08, 2007 4:35 pm

Re: AA for funds earmarked for parents' care

Post by stan1 » Tue Sep 11, 2018 8:06 pm

One thing this may trigger is a good conversation with your parents about their wishes and abilities to plan for their future care (if that hasn't already happened). If you don't know their net worth and income streams it seems like you really should have a heart to heart about their estate plans to include gifting money to you especially since you are saving it. You may also need to help one parent with finances if one becomes hospitalized even for a few weeks.

My in laws have given us and sister in law each low six figures over the last 30 years but they have over $1M in assets remaining for their own care. They are 94 and 90. Even with a large RMD for a 94 year old and both being in assisted living the value of their investing accounts are still growing. They can afford to give gifts so we say thank you and cash the checks. If they had half the net worth ($500K) we'd be very forceful about "no gifting".

Post Reply