He has maxed out life insurance (no more premiums), has TIAA investments. He wants all his money to be "available" and in the same place. Would stipulate tax withholding before cashing in.
My dad is in the process of doing the same thing. He was part of a huge group notified by his life insurance company that a third party vendor was responsible for a security breach. He no longer trusts the insurance company to keep his information or money safe and is closing the account and putting it in to another bank. He won't listen to me but has agreed to call his tax guy for potential issues before he does this. He is convinced that he doesn't have much time left at 91 and that this will "make it easier" for me as his POA and executor of the will. For the record I want no access to those funds but now I do have to wonder if someone is trying to bamboozle him. He has always been very private about his finances but he definitely has begun to spend hours every day obsessively going over financial records.
My FH knew a elderly man who had been very private about his finances. In his 90s he started to obsess over his statements. Then began to show anyone, including the cleaning lady, yardmen etc. Definately not good. 😬
Obsessing in private is much safer - but it wouldn't hurt to stay wary of who else could be looking.
Cashing in his life insurance could be a taxable event if there is any gain. The death benefit proceeds of a life policy are tax free.
His investments are most likely earning a higher rate of return than a savings account, which have been earning zilch for decades. And the owner of an investment can usually request distributions at anytime, so availability is usually not an issue.
Unless he needs a butt-ton of cash really quickly, this doesn't sounds like a good idea.
As a tax attorney and CPA, my gut reaction is, "No No No, it's not a good idea." But I don't know all the facts, so I highly suggest you contact an elder law attorney and/or financial planner. There are potentially significant adverse tax and estate planning impacts that need to be considered.
The prevailing guideline is that as you age, you should be putting your money into more conservative investments to ensure that you have that supply of money and it would not be lost due to economic fluctuation. However, there are quite a few studies that say that if one goes too conservative, then your money will not be able to keep up with the cost of inflation over the long haul.
Also of consideration is, your Dad's current health, what his expenses will be in the future, his other assets (e.g. house), and the amount of money that is up for discussion.
I know nothing about life insurance other than the proceeds are taxed if you paid for it with pre-tax money and not get taxed if you used after tax money. Then when it comes to taxes, the state tax laws also have to be factored in the decision.
So those "normal" considerations aside, the reason why your Dad might be wanting to consolidate is because of simplification. My Mom, at 97, had 5 CDs with varying maturities, and a checking account. She's always prided herself in the fact that she has been "smart" about her money. One day, she got tired of all the accounts and wanted to see just one number. She no longer cared to look at interest rates or rate of return. She just wanted one number and that number was supposed to come from her checking account. This was one of the huge flags to us that she might be dealing with dementia. The banker and I convinced her to allow her CDs to continue. However, she continually grumbled that all those accounts were too much trouble.
At the time, I asked the banker how common my Mom's attitude was amongst older people. He said it was very common for older folks to come in, with their children, close out all the accounts and leave the bank with cash.
Continuing the story one day, she looked at her checking account statement and saw that the account balance was about $13,800. She was ready to terminate ALL her CDs (late penalties and all) just to get the amount to something a lot higher. At the time, that money would last her for at least 4 months. I managed to finally figure out what was going on with her and moved some money from her savings account (not CD) to her checking account...and all became quiet once again. I switched over to paperless statements, moved the money out of her checking account and into a higher yielding instrument at the same bank and have managed all her money since.
I have heard of other stories when the parent will consolidate all the money into a checking account, then immediately start spending it all (because the number is so big), never once thinking about future living expenses.
Now that my Mom is in moderate dementia, she frequently asks how much money she has because she wants to give it all away while the kids can enjoy it. Never mind that all these kids have very good-paying jobs, plus houses, plus fully paid for cars, etc. The irony of her money is that next year, we will have to sell her condo (instead of renting it out) just to pay for her stay in MC. She was hoping to pass on the condo to her grandchildren and doesn't consider the condo as part of her wealth.
So getting back to your situation, fraud and scams aside, there are many factors going into your decision. I can see why your Dad wants to go completely to savings. However, depending upon his life expectancy and expenses, I can see why you might be hesitant to do that. If he has enough money, you could do a CD ladder, or you could do treasury bonds or something similar.
My suggestion would be to talk to a financial planner or banker, who will look at income and expenses and his investments and make a recommendation. The one thing that you should take care of before he dies is to make sure that all the investment accounts are titled properly so that the money doesn't get "locked up" upon his death.
"Dad" is 101. There is essentially no more future to plan for. The challenge is preventing him from doing something in his remaing months that will cost potentially tens or hundreds of thousands of dollars to his heirs.
Let me give a separate comment on the tax liabilities: my uncle kept telling my father that the hospital costs would run hundreds of thousands of dollars. This was based on my aunt's illness and their insurance. My father cashed in a lot of his investments based on this info. My father's insurance paid for more of the costs, and his final illness was much shorter than my aunt's. After he was gone, my mother was stuck with a $10K tax bill because he'd cashed in so many things. Consider it a second opinion.
Why was your mom stuck with the bill? Was she POA and was responsible or? I just wondered because I have known other financial issues get dropped on the children’s lap which I do not think is right at all.
No. Your question makes this seem like it's a bit out of place for him. He's made it this long and all of a sudden wants to make a change where all his assets could be accessed and drained pretty quickly? All it could take would be one convincing scammer and *bam*. Something seems off.
Not really a good idea. There will be a huge tax bill. Better to cash out just what he needs or wants if there is something he wants to buy or do. Otherwise, why generate a huge tax liability all at once? It’s his $, but sounds like a questionable plan if he is trying to keep his investments growing and avoid taxes. He should consult with a trusted financial advisor or tax attorney unless he has made his mind up. I am thinking he doesn’t understand the financial implications? One more thing. Are you absolutely certain that some scammer is not influencing him to do this? I spent my professional career fighting scammers and believe me, they can convince seniors to do crazy things and give up their last dime. Make sure that is not happening. It is surprising to many family members that their LO can be convinced to follow the lead of a scammer and hide it from their family.
Depending on the amount of his life insurance policy, he will get practically nothing by cashing it in. And I agree, he is getting far more interest on his money in investments than he will get from a savings acct. Like said, he maybe able to draw from his investments. And there will be taxes. We cashed in bonds a few years back because they were over 30 yrs old to invest them. The interest we made was 60k and we paid 13k if that to the IRS.
Unless an elder lawyer knows the tax laws, I don't think he can help. Maybe a Tax CPA can tell Dad why this would not be a good idea. I would at least have a professional talk to him first. Also, one of the signs of cognitive decline is the person worrys about their money.
Obsessing in private is much safer - but it wouldn't hurt to stay wary of who else could be looking.
His investments are most likely earning a higher rate of return than a savings account, which have been earning zilch for decades. And the owner of an investment can usually request distributions at anytime, so availability is usually not an issue.
Unless he needs a butt-ton of cash really quickly, this doesn't sounds like a good idea.
The prevailing guideline is that as you age, you should be putting your money into more conservative investments to ensure that you have that supply of money and it would not be lost due to economic fluctuation. However, there are quite a few studies that say that if one goes too conservative, then your money will not be able to keep up with the cost of inflation over the long haul.
Also of consideration is, your Dad's current health, what his expenses will be in the future, his other assets (e.g. house), and the amount of money that is up for discussion.
I know nothing about life insurance other than the proceeds are taxed if you paid for it with pre-tax money and not get taxed if you used after tax money. Then when it comes to taxes, the state tax laws also have to be factored in the decision.
So those "normal" considerations aside, the reason why your Dad might be wanting to consolidate is because of simplification. My Mom, at 97, had 5 CDs with varying maturities, and a checking account. She's always prided herself in the fact that she has been "smart" about her money. One day, she got tired of all the accounts and wanted to see just one number. She no longer cared to look at interest rates or rate of return. She just wanted one number and that number was supposed to come from her checking account. This was one of the huge flags to us that she might be dealing with dementia. The banker and I convinced her to allow her CDs to continue. However, she continually grumbled that all those accounts were too much trouble.
At the time, I asked the banker how common my Mom's attitude was amongst older people. He said it was very common for older folks to come in, with their children, close out all the accounts and leave the bank with cash.
Continuing the story one day, she looked at her checking account statement and saw that the account balance was about $13,800. She was ready to terminate ALL her CDs (late penalties and all) just to get the amount to something a lot higher. At the time, that money would last her for at least 4 months. I managed to finally figure out what was going on with her and moved some money from her savings account (not CD) to her checking account...and all became quiet once again. I switched over to paperless statements, moved the money out of her checking account and into a higher yielding instrument at the same bank and have managed all her money since.
I have heard of other stories when the parent will consolidate all the money into a checking account, then immediately start spending it all (because the number is so big), never once thinking about future living expenses.
Now that my Mom is in moderate dementia, she frequently asks how much money she has because she wants to give it all away while the kids can enjoy it. Never mind that all these kids have very good-paying jobs, plus houses, plus fully paid for cars, etc. The irony of her money is that next year, we will have to sell her condo (instead of renting it out) just to pay for her stay in MC. She was hoping to pass on the condo to her grandchildren and doesn't consider the condo as part of her wealth.
So getting back to your situation, fraud and scams aside, there are many factors going into your decision. I can see why your Dad wants to go completely to savings. However, depending upon his life expectancy and expenses, I can see why you might be hesitant to do that. If he has enough money, you could do a CD ladder, or you could do treasury bonds or something similar.
My suggestion would be to talk to a financial planner or banker, who will look at income and expenses and his investments and make a recommendation. The one thing that you should take care of before he dies is to make sure that all the investment accounts are titled properly so that the money doesn't get "locked up" upon his death.
My father's insurance paid for more of the costs, and his final illness was much shorter than my aunt's. After he was gone, my mother was stuck with a $10K tax bill because he'd cashed in so many things.
Consider it a second opinion.
Something seems off.
I think it’s not dad, but OP who wants to do it. I think OP wants access to the assets.
Unless an elder lawyer knows the tax laws, I don't think he can help. Maybe a Tax CPA can tell Dad why this would not be a good idea. I would at least have a professional talk to him first. Also, one of the signs of cognitive decline is the person worrys about their money.
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