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A Better Direction? for Managing Someone Else’s Funds

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AUTHOR: C Z on 10/26/2024

I am niece and POA for my aunt who will turn 97 in November.  I am also her sole beneficiary.  She is in a nearby assisted living facility which costs around 7200 per month. Social security, two RMD’s,  an employer created annuity and bank interest provide income. Has Medicare, Plan G secondary and Well Care Part D. I purchase personal supplies for her;  write monthly checks to charities she wants to support. She had no children. I am her only niece. Sole nephew is not involved.

I manage around 1.3 million in assets and I am wondering if I am handling her money well or if I can do better.

About 350 is in a bank brokerage, medium risk; 550 is in CDs, about 400 split between an IRA at the bank and a 401K managed by Fidelity. I have about 60 in cash and maybe 30 in 2 stocks . This Fidelity account has hovered around 330 for the last 15 years, in spite of gains and losses and inevitable RMDs.

With CD rates expected to decline, I was thinking of covering her expenses by taking a big chunk out of her  401K instead of relying on interest. I really don’t want to inherit that 401K. Any red flags? Suggestions? Stay the course?

Very stressed, but very blessed.

Colleen

 

 

 

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William Perry
3 months ago

Mary Randolph, J.D., writes and edits certain books for Nolo that provide plain-English legal information books that may help you with your obligations and duties that have have taken on in caring for your aunt’s finances.

In the book 8 Ways to Avoid Probate Ms. Randolgh highlights many actions that can be taken to reduce or limit the time burdens and costs that can be avoided such as using retirement account beneficiary designations and transfer on death ownership directives on taxable financial accounts so your aunt’s assets will pass as your aunt directs without you having to go through the public and slow process of probate for many of her assets.

Nolo also has a book titled The Executor’s Guide which may help you with settling your aunt’s estate after she passes.

I would also note that the government will also be a beneficiary of your aunt’s traditional retirement accounts upon her death. Naming you as beneficiary is vital for you to be able to rollover those accounts and stretch the taxable distributions over the 10 years after your aunt’s death as required by the SECURE act. If your aunt is currently in a low tax bracket you may want to determine if your aunt, and you as eventual beneficiary, would benefit from choosing to convert some of the traditional deferred retirement accounts to Roth if she is in low income tax bracket.

I hope this helps.
Best, Bill

Last edited 3 months ago by William Perry
Scott Dichter
3 months ago

Just guessing but is some of the stress that you don’t know exactly how much you can let your aunt spend every year and still maintain a secure glidepath for her?

Scott Dichter
3 months ago
Reply to  C Z

You’re protecting her capital, at 97 that’s job 1. Your someone she can trust, that’s job 2. So I think you’re doing the right thing.

Winston Smith
3 months ago

You are a blessing Colleen!

Jeff Bond
3 months ago

Colleen – thanks for your dedication to your aunt. I hope she knows what a gem you are to take care of her like this. I agree with the earlier comments that your aunt’s tax situation will probably drive the decisions you need to make. I also like Rick’s suggestion about account consolidation. Sitting down with a by-the-hour financial advisor/CPA might be beneficial.

Jeff Bond
3 months ago
Reply to  C Z

Colleen – I think my message was less than clear. The CPA should provide some tax implication clarity on drawing from the IRA/401(k) going forward. This was meant to be in response to your comment about not wishing to inherit the 401(k).

Rick Connor
3 months ago

Colleen, good for you for taking care of your aunt. We did something similar for my wife’s widowed and childless aunt. She had so many accounts spread in many different institutions. We consolidated it to one checking account and a Vanguard account, with IRA and post-tax. This made things much simpler to grasp and make decisions.

As others have suggested, there is a possibility for significant tax savings depending on your Aunt’s health.

stelea99
3 months ago

Your aunt is very blessed to have you in her life. On the whole, I think you are doing a fine job. I have a couple of questions that might help you find tune things a bit.

Because you mentioned altering the source of cash you use to pay her bills, I am wondering about her tax situation. Normally, an assisted living facility will divide their bill between room and board charges, and actual assistance with the tasks of life such as dressing, managing meds, toileting etc. I think that if she is getting billed for 3 or more tasks, then these assistance charges are deductible as med expenses. I am guessing that her assisted living expenses are greater than her income.

If so, is she able to itemize or does she take the standard deduction? Her medical expenses including med insurance, Part B deductible, dental, drugs, and assistance charges might be larger than the std ded? If so, it would be advantages to fund the expenses that exceed her income from the IRA/401k rather than from her taxable accounts.

I would also suggest that you consider rolling her 401k into an IRA at Fidelity. Then you could use QCDs from the IRA for her charitable payments. Fidelity offers check writing from an IRA for this purpose. If you are not familiar with QCDs you could visit the Boglehead Wiki for more info.

Michael1
3 months ago
Reply to  stelea99
David Lancaster
3 months ago
Reply to  C Z

Amazingly her income is greater than her assisted living fees.”

I think this statement shows that you are doing fine.

If you are feeling stressed out as to whether you are, “handling her money well or if I can do better”, I would continue on your current track and stop sweating the details.

Jonathan Clements
Admin
3 months ago

Without knowing all the details, I suspect there’s an opportunity to improve the tax management of your aunt’s affairs. For instance, if you figure out her tax bracket, you may want to make withdrawals from her 401(k) or IRA to get to the top of that tax bracket each year. Your aunt may even be paying very little in taxes because of large medical deductions, opening up the chance for even bigger withdrawals at a low income-tax rate.

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