Heritage Asked September 2010

My mother is selling her home and will recieve approximately $40,000. She is 70-years-old. Can she protect this money to retire on, since this is all she has?

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EXPERT Ralph Robbins Sep 2010
There should be no tax consequence to the sale of the home which means that all of the money can be put to work. Assuming she is not currently receiving Medicaid benefits she can do with the funds as she pleases.

If the goal is "retirement" please be aware that there are thousands of "investment professionals" that would love to get a hold of her money.

These days, the "investment du jour", in other words the "investment" that pays the highest commission and therefore is being agressively sold to seniors is the "Equity-Indexed Annuity".

Whatever you do DO NOT LET HER PURCHASE ONE OF THESE ANNUITIES! I do not have the time to go into details here but suffice to say state after state has received thousands of complaints from consumers about these product.

My suggestion is that you "ladder" CD's at the bank. The concept is this: Take the $40k and divide it into 5, $8k pieces. Take $8k and buy a 1 yr or 2 yr CD. Take the next $8k and purchase a 2 yr or 3 yr CD. Take the next $8k and purchase a 3 or 4 yr CD, etc.

This will...

1. Keep mom's money as safe as possible.

2. Provide a higher yield than just purchasing a short term CD with all of the funds

3. Provide "fresh" money each year from an expiring CD to purchase a new CD at the then current rate. (Rates will most likely be going higher over the next few years, we can't stay at zero forever, can we?).

4. Provide liquidity in the event she needs money some will always be available with very little penalty.

DO NOT buy stocks for obvious reasons.
DO NOT buy bond mutual funds. When interest rates go up the value of the funds will be CRUSHED.
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toadballet1 Sep 2010
First of all thank you Ralph Robbins...your posts are always so informative and helpful.
When my Mom sold her home her tax advisor suggested creating a "living trust" to protect her assets. As Ralph mentioned she should not have a tax liablity for the sale of her home (I believe that is if this is the first home she has sold.) Once inside the trust the funds can be invested. The safest (and FDIC insured) is what Ralph suggested above. "Laddering" your CDs also gives you access to funds in emergency because one will always be maturing soon. When you form a trust, your Mom will have to appoint a "trustee." The trustee makes all the decisions concerning funds inside the trust, although, ultimately a will would provide instructions to the trustee in the event of a death.
You also need to consider whether your Mother would need Medicaid services in the future. There is currently a 5-year "look back" period on all assets. I think the trust protects these assets.
Ralph is this correct?
Lilli
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195Austin Sep 2010
I believe the trusts also have a 5 yr. look back period that was what we were told many years ago Mr. Robbins could you address this for us.
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toadballet1 Sep 2010
...thanks Ralph for the clarification. This type of planning needs to be thought of well in advance - especially for protection of assets.

I am also glad you mentioned "catching" all assets and deciding whether they should be in the trust or not. For example, one could place most of their assets under a trust, but leave a personal checking account outside of the trust.

My personal view is that trusts protect vulnerable seniors from the hands of those who wish to "separate" them from their income.

Ralph, could you please address the following:
1. Can assets be held in the trust after a grantor has passed? My mother has concerns about my sib's spouse. She wishes that assets be passed directly to my sib. Can she make this designation?
2. How does the trustee disperse assets from the trust after the death of the grantor? Is there any "paperwork" that needs to be done?

Thanks again,
Lilli
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pamzimmrrt Nov 2013
We are selling the home my parents have lived in for over 40 years. Not thier first home. we will clear about 230,ooo. Mom is stressed about how much taxes they will owe (home in Pa, now living with us in MD) Someone told me they can still avoid heavy taxes on this due to thier age and length of time in home. Any advice?
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