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Helping an Elderly Parent Invest

Jan 22, 2016 3:21:53 PM
Author: Scott Hanson

Scott and Pat help Dan determine if purchasing a fixed annuity is the right option for an Alzheimer's-stricken father-in-law.

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Read Full Audio Transcript:

Pat: Dan, thanks for joining us.

Dan: How're you doing, Scott and Pat?

Scott: Wonderful.

Dan: My question has to do with my father-in-law who's 78, who's been diagnosed with Alzheimer's. And he sold his house recently. Basically, he's got $323,000 to play with. As I said, he's moved in with my wife and I. He's been with us for about a year since my mother-in-law passed away.

Scott: Oh, I'm sorry.

Dan: Thank you for that. And he's a pretty healthy guy, other than this darn dementia stuff. But he's got a pretty decent portfolio, but I'm concerned about some of the allocation and it looks to me like only 16% of his entire, basically, $1 million portfolio is in fixed income. And I'm a little concerned about that.

Pat: Okay. Can we...?

Dan: Yeah?

Pat: Dan, step back for a minute.

Dan: Yeah.

Pat: You started by saying he had $323,000.

Dan: That's from the sale of the house.

Pat: Okay.

Dan: That's what's left, yes.

Pat: And what else does he have? So that's in cash.

Dan: That's in cash.

Pat: And there's $1 million?

Dan: Well, he's got about a million in various assets, as well as about $5-6000 a month retirement and social security.

Scott: Okay. So from an income standpoint, he's fine.

Dan: That's correct.

Scott: Even if he requires some additional care, he has assets and income to cover those costs, correct?

Dan: Yes, and he's got a long-term care policy.

Pat: Oh, okay. And what's that long-term...?

Dan: And my wife and I.

Scott: Okay, yeah. A loving son, yeah.

Pat: So tell us a little bit what your concern is about the portfolio?

Dan: Well, I'm concerned about sticking another $323,000 in with his current advisers, which are out of North Carolina, and having them put in stocks and bonds and things. I thought that perhaps we ought to try something a little more smart money, a little more safe money. And we were talking with another adviser, and they basically talked about a fixed deferred annuity as one option, and another was they referred to it as an annuity tool with a death benefit. And he's already got almost 42% annuities as it is.

Scott: Oh my gosh, no more annuities. No more annuities.

Dan: Exactly! Thank you.

Pat: I didn't even think you could buy a deferred annuity on a 78-year-old. What's the benefit of the deferred annuity? Nothing.

Dan: Well, no, well, yeah.

Scott: A higher yield, tax deferred, so you end up paying the tax.

Pat: You're going to pay the taxes not him, yeah?

Dan: Right, right.

Pat: How many beneficiaries are there in the estate?

Dan: Three.

Pat: Here's one of the things is, when I look at portfolios like this and you look at a 78-year-old man and you realize, look, you're not going to use all this money in your lifetime. Maybe an aggressive portfolio is appropriate. Maybe because what you're really doing is managing the money for the heirs, right?

Dan: That's what I'm seeing as well, correct.

Scott: That's right.

Pat: So the danger in this is that the heirs need to be on board with that, because you have a fiduciary responsibility to manage the money in the best interest of your father-in-law, not in the heirs', right?

Dan: You know, you're exactly right. Unfortunately, it gets more complicated. My father-in-law has that power of attorney that is not my wife or the other siblings, it is his sister-in-law; primarily, to avoid any bias, because he's living with us.

Pat: Got it.

Dan: I don't want to have any appearances. So I asked her whether she would do it, and she's willing to do it.

Pat: Okay.

Dan: So he needs to figure this out.

Pat: Is your sister-in-law in close proximity to you in terms of where you live?

Dan: Correct, yes.

Pat: Okay. So you got to go to a guy or a lady you trust and say, "Just tell me what's going on here." Right?

Dan: Right.

Pat: "Just tell me, is this good, is it bad? How aggressive?" Maybe they stress test the portfolio. "How am I paying for it?"

Scott: Don't buy any more annuities for crying out loud!

Pat: But don't buy any more annuities. My natural inclination, Dan, if I met you on the street and you said...

Scott: On the street.

Pat: "Hey, this is it."

Scott: "Hey, can I talk to you for a minute?" "Aren't you that guy on the radio?"

Pat: I'd be inclined...

Dan: I would run the other way.

Pat: Oh, thanks, Dan.

Dan: I'm kidding. I was only kidding.

Pat: I would be inclined to actually drop the $323,000 into a bank account. That's what I'd be inclined to do.

Scott: Yeah. Me too.

Dan: That's where it is right now. Exactly what I...

Scott: Particularly the complications. You're the son-in-law. Then you've got the sister-in-law. Odds are, with Alzheimer's who knows how long it could take, correct?

Dan: Exactly.

Scott: It could be a very long time; it could be a shorter time.

Pat: But the reality is he may not need any of this and you may decide, hey, you've mentioned he had long-term care. What's that coverage? What's his income now? Maybe it's 8 or $10,000 a month. That could pay for a skilled nursing facility.

Dan: Right.

Scott: If we get to that point.

Pat: And you could say, "All right. Now we've got $1.3 million we need to invest. Hey heirs, let's get together and talk about this. How aggressive do you want this to be?"

Dan: Right.

Pat: And maybe you say, "Hey, maybe it's the middle of the road." Maybe it's 60% equity, or 50% equity.

Scott: Thirty percent.

Pat: Thirty percent.

Scott: Whatever.

Pat: And that's what you need to do.

Dan: Okay, that makes sense.

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