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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
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
Thank you for taking the time to post.
I feel confident that bank and retirement accounts, as well as two stocks have been titled properly. I will check with the CPA about a partial Roth conversion…..I try to be mindful of tax implications to keep cash working for her.
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?
The stress is from be concerned about doing the best I can….too much in CDs? Is the medium risk brokerage appropriate? Am I being too conservative? etc.
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.
Thank you Scott
You are a blessing Colleen!
Thank you!
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.
I sold her house in 2022 and sought a CPA to file her Federal and NJ taxes. I have consolidated her bank accounts, but am reluctant to keep everything at one institution, so I have some CDs at a secondary bank. A banker recommended that I get my name on all of her banking accounts, instead of being listed as POA; I was able to do that in person with my aunt a few years ago.
After 2023 taxes were paid, I was able to project CD interest income for 2024, so the CPA was able to project what Fed taxes would be needed and that gives me some piece of mind . The brokerage account is new this year, so we’ll see how that plays out.
I feel like those Chinese jugglers that used to spin plates on poles above their heads ( old Ed Sullivan show)
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).
Aha, yes, thank you.
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.
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.
More on QCD from HD money guide:
https://humbledollar.com/money-guide/qualified-charitable-distributions/
Thank you for the HD reference. I am new to this site and appreciate your help.
The facility, Willow Valley in PA, offers tax prep help thru AARP. She would need help with 2 activities of daily living to have all of her ” rent” deductible. Amazingly her income is greater than her assisted living fees. She is still taking the standard deduction for TY 2024.
I will look into rolling the 401k into an IRA at Fidelity, thank you.
Ann has few medical expenses, which is good. If she transitions to personal care her monthly fee will double; and that should be indicative of needing help with 2 activities of daily living, which would then make all of her fees deductible.
Thank you for responding so thoughtfully, much appreciated.
“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.
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.