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HIGHLY INTELLIGENT people sometimes don’t know much about investing. Still, they can have a misplaced confidence in their own abilities and feel certain they require no help. In the end, it’s often their adult children who sort things out—which, in this particular case, meant me.
Five years ago, my 84-year-old mother and 85-year-old stepfather moved from the mountains of Colorado to Georgia to live closer to my wife and me. For more than 20 years, they’d loved the Colorado mountains and skiing high-country powder, but it was time for them to move on.
Like many in their generation, they were stubborn and independent. They declined all my offers to help them sell their house, work with the moving company and drive across the country. Needless to say, there were a few hiccups with the move.
Fortunately, they made it to Georgia safely. They opted to live in a 55-plus community about 50 miles from our home. My mother said she didn’t want to live too close to us.
About a year in, it became apparent that both their physical and mental health were declining. When I asked if they had current wills, I was told they were located somewhere in the house. When I suggested to my stepfather that it might be time to appoint a power of attorney, he replied, “What for?”
Since my wife and I both work in health care, and so were especially at risk of infection during the early months of the pandemic, we didn’t visit my mother and stepfather between February and May 2020. But each week when we talked on the phone, they said everything was fine.
When we next visited them in person, however, I learned that several bills hadn’t been paid—including their auto and homeowner’s insurance policies. Later, I found out that their utilities had been turned off at different times for lack of payment. I was able to get their bills paid, but they still insisted that there was no need to give me power of attorney.
In summer 2020, my stepfather fell and fractured his left femur. While lying in a hospital bed, awaiting surgery on a floor filled with COVID patients, he decided that he did want me to be his power of attorney. It also became clear that my mother’s dementia was worse than we’d been led to believe. Over the next few days, we hustled to get powers of attorney and advance directives signed and notarized for both of them.
After successful surgery and eight weeks of rehab, my stepfather joined my mother in an assisted living facility near us in September 2020. Unfortunately, he passed away from old age at age 89 in 2021.
My stepfather was a retired physician who enjoyed tracking his investments and the value of his extensive wine collection. But there was also an unknown in his portfolio. In 1999, my parents created an irrevocable trust through an insurance company on the advice of a financial advisor who was also an attorney.
For almost 20 years, my stepfather paid between $16,000 and $19,000 a year to the insurance company through his financial advisor. The beneficiaries of the trust included my stepbrother, brother and me. I tried to learn what the trust was for on several occasions, but my stepfather always told me that it was “for taxes” and didn’t elaborate.
Despite my appointment as his power of attorney, the insurance company wouldn’t give me any information regarding the trust’s holdings—because I wasn’t a trustee. Complicating matters further, his old financial advisor had been disbarred and sentenced to 32 years in prison in 2005 for stealing millions from the trusts and estates of his elderly clients.
My stepfather’s subsequent financial advisor, who was also the next trustee on record, had passed away—without naming another trustee before his death. It took me 18 months of working with my attorney and going through the necessary legal steps to finally have myself named as trustee.
After all that time and significant legal fees, I was able to determine that the trust was indeed legally valid. Unfortunately, it held a universal life insurance policy then worth $700,000. If those premiums had been invested instead in a low-cost index fund earning a 10% average annual return for 20 years, the amount of the trust would have been significantly greater—perhaps $1 million or more. My stepfather was a brilliant physician. Sadly, he relied on the poor advice of a shady financial advisor.
Scott Martin is a semi-retired family medicine physician associate (previously known as a physician assistant) and has been practicing medicine for the past 18 years. His previous career was in academia doing research and teaching at the University of Georgia. He and his wife enjoy traveling and spending time with family.
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Thanks for sharing. Many important lessons here.
Understand the reasons for the powers of attorney, but how did you manage to have your mother sign if it was evident she had dementia or even some cognitive decline?
Good question. In 2020, her cognitive decline was mild compared to today. After my stepfather fractured his femur in 2020 and requested that I be his power of attorney while in the hospital, my mother realized that it was time to appoint me as her power of attorney. Later in 2020 while preparing to sell their home, I found legal documents from several years ago that appointed me as the POA if either of my parents were not able. Unfortunately, today she does not remember my name.
I read your article and the movie quote from Cool Hand Luke,What we’ve got here is… failure to communicate came to mind. The problems you have had would certainly have been less of a problem had they communicated openly and accepted offers of help.
You have taken on an extraordinary obligation for your mother and stepfather to deal with their end of life issues and dealing with the trust they created. I had some thoughts after reading your article and offer them not as a criticism but to hopefully help you with the path forward.
When your stepfather told you the trust was created “for taxes” I would guess he was not talking about income taxes but was referring to estate taxes. In 1999 when the trust was created the federal lifetime federal estate exclusion was $650,000 and if the taxable estate exceeded that amount the federal estate tax was 55% on the excess. Ouch! It was common estate planning in 1999 for the wealthy to create an irrevocable trust and put in assets that were not planned to go to the surviving spouse (which spousal exemption was and currently remains unlimited) to avoid federal and maybe state estate taxes, if any. Very common to do this with cash gifts to a trust whose sole asset is a life insurance policy. For the assets of the trust to not be included in their estates your mom and father-in-law could not have any incidents of ownership in the trust so typically such an irrevocable trust would, after creation, purchase a second to die insurance policy and upon death of the last to die spouse the non taxable life insurance benefit is paid to the trust and who then distributes the benefit to beneficiaries. Often a federal 1041 trust return is needed in the final year of the trust. No estate tax and no income tax is due if everything is done as planned assuming no tax law change. To achieve no incident of ownership and avoid estate inclusion neither your mother or stepfather could be the trustee. Typically, an adult beneficiary is named trustee and the trust document names contingent trustees with a bank named as the default trustee in the event no one otherwise named will serve as trustee. Appears this was not done when the trust was drafted.
There is a problem in that the cash gifts to a trust have to be present interest gift for them to count as a gift eligible for the annual exclusion. In 1999 and in the following years taxpayers are required to file a gift tax return to report any gift of a future interest (regardless of amount). In 1999 no gift tax return was due if gifts to a single donee was $10K or less. Gifts to a trusts typically require an annual crummey letter to each future beneficiary to convert the future interest to a present interest. A 1968 landmark case “Crummey v. Commissioner – 397 F.2d 82 (9th Cir. 1968)” created this power and typically the trustee of the trust sends those annual letters and maintains the signed waivers. A Crummey letter allows a future beneficiary to receive the current year gift to the trust as an immediate distribution or waives receiving the gift currently. Typically everyone waives current distribution. Nothing in your article indicates that any crummey letters have ever been issued therefore there may be a failure by your mom and father-in-law to file gift tax returns for 20 years. All gifts by your mom and stepfather for all years would need to be considered in the annual gift amounts.
Typically, if there are any skip generation beneficiaries of the trust then a gift tax return is due regardless of Crummey letters being obtained as there is also a separate generation skipping tax reporting on the federal 709s.
Current tax law estate exemption increases have greatly reduced those taxpayers owing estate tax or required to file a federal 706 at death but the above comments are only the tip of the iceberg of complex issues for those with estate and gift tax filing obligations.
In my opinion it is way past time to get rid of
gift and estate taxes. I agree completely that needed estate documents and powers should be prepared, updated as needed and that you check your beneficiary designations every year.
Best, Bill
Thank you for the detailed information Bill! I have learned a lot of what you described over the past few years on my own, but you have provided more valuable information. I did receive the Crummey letter every year that my stepfather made a gift to the trust. I didn’t know the letter had a specific name. My stepbrother, brother, and I always waived the current distribution. I never knew what it meant at the time and just waived it as my stepfather recommended.
As William Bernstein says ” ACT AS IF EVERY STOCK BROKER, FINANCIAL ADVISOR, AND INSURANCE SALESMEN IS A HARDENED CRIMINAL.” Tobias says in his book, “TRUST NO ONE” with your money we assume
Been ripped off by all 3 ha.
Some of your story aligns with mine and my parents. The big difference was the annuity through a financial adviser who was also an attorney. My dad distrusted all attorneys. When I started the role of executor of his estate, I met with the attorney who created his will and trust. I commented that I was surprised he took the steps to create the documents because he was so distrustful of attorneys. All he said was “your father made that abundantly clear”.
I, too, found your phrase, “misplaced confidence in their own abilities and feel certain they require no help.” very true. We were fortunate that my father-in-law, who introduced us to investing, gave us recommendations for good advice.
Your article also points to making your own plans, with help, so someone else doesn’t make them for you.
Wow I can relate to dealing with a mother and stepfather with such issues. Mine, however were broke and both had dementia. We got Dad in a VA nursing home where he lived for 8 1/2 years. Mom lived 5 years in assisted living.
Your mother is still alive. I guess whatever money is left will be paying for her now. I know how expensive that is. We were able to find assisted living for her that was subsidized by Medicaid.
Good article, Scott. I agree with Rick’s words. Our experience on the caretaker side has motivated my wife and me to be conscious of having things organized for ourselves. Also, though our daughter is still a teen, we have already begun the process of transparency and education to prepare her for her future role.
Thanks, Scott, for emphasizing the importance of streamlining investments and good elder care/estate planning.
Your story triggered flashbacks for me, to being the executor of my father’s estate. My story involved an unfunded trust, an attorney who seemed more interested and adept in his side-gig as a performing clown, and an ancient tax accountant who made clients wait while he moved his car to avoid parking tickets. Although finding new help might have been preferable, for multiple reasons I couldn’t do this. The bright side? I learned much about funding trusts and doing estate taxes, such that I came to trust myself in the knowledge and could help whisper the professionals to a satisfactory outcome for the heirs.
Oh, and my father’s meticulously planned powers of attorney and last wishes? His eight-years of Alzheimer’s involved a delicate step-family situation that precluded enacting the powers. And a golf course was built in the formerly remote location he had wished his ashes strewn.
It makes me smile now to think how my dad and I would have laughed about all this if he could have known. He was a great believer in Murphy’s law and had a wonderful sense of humor.
I just had to comment on your flashback descriptions. As someone once said, “you can’t make this stuff up.”
Scott, thanks for sharing your story. I applaud you for not giving up despite resistance from your mom and stepdad. My experience with aging parents and in-laws have convinced me that a well-constructed, organized, and communicated estate plan is a tremendous gift we can give to our children. Your opening point, that smart people do very stupid things sometimes, is so true.
Scott, sorry for your experience. Thanks for sharing it in this great article.
I take away a very important message from this article, and it isn’t the often read one of talking to our parents, etc. That’s important of course, and you did your best.
What jumps out at me is that this intelligent, highly educated person who thinks they know about money and investing could be any one of us.
Henceforth I’m going to remind myself of this every time I open Humble Dollar.
Yet another reason to keep things simple so we don’t get ahead of our skis and leave ourselves or those we care for with a bunch of trouble.
Stay Humble.