My Quarterly Blog Update: What's Up with Mom

That seems to be about the frequency I'm posting with lately! I really appreciate the comments from longtime readers and am glad to know you are still checking in! And it is good to hear from you about how you are doing in your own pursuits of financial stability and independence.

T'Pol, thanks for asking after my Mom. She is actually doing quite well. I invested the money in her two trusts (one revocable trust that is all hers, and one irrevocable trust, where she only gets the income but can't touch the principal) in Vanguard funds and they have been doing well enough to generate over $13,000 of income for my mom in 2018. She has been living on what she still gets from my father's pension, and her social security payments. In 2016 and 2017, she asked me for $5000 from the trust income to pay for other expenses. One year, that included my grandmother's funeral. The other year, she was moving to a new apartment. In 2018, she ended up asking me for two $5000 checks, as she had some expensive dental work. I was a little worried at first that she needed that much more-- it came at a point where she was fantasizing about moving to a larger and much more expensive apartment, and I sent her a slightly stern email querying the amount to make sure she wasn't somehow going behind my back to rent the new apartment. This was in December, and I explained to her that things were generally going well with the trusts but that the markets had just plunged and that we should be careful. I had another conversation with her where I reminded her how stressed out she had been when she was drowning in credit card debt, and that we had things under control now.
I worry that my mom doesn't understand the concept of building up a cushion for emergencies. I'm legally required to report to her on the trusts every year, and I've come up with a nice little template where I paste in a lot of charts and numbers from Vanguard showing what the assets are, how they did, and how much is being paid to her. (I do this by transferring the income from the irrevocable trust into the checking account for the revocable trust, which I also control. When my mom needs money, I write a check from the revocable trust made out to her personally.) My mom always just seems to glaze over on the overall details of the investments and just wants to know "How much did we make? How much more do we have than when we started?" Right now, the value of the trust accounts is over $130,000 more than when we started in 2015 (with about $450,000), and I worry that a number like $130,000 just makes my mom think "woo-hoo, we won the lottery!" So I keep reminding her that the funds go up and down, and that the money has to stretch itself out over quite a few more years, and that the more money we have invested, the more income we make, etc etc.
Some of that sinks in, some doesn't. Even though she is basically spending all her income except for a few thousand dollars of the trust income some years, she was on the verge of signing herself up for an apartment that would have cost her about $900 more a month! She said "oh, I'll just cut back on my budget somewhere," but she doesn't have any big areas she can realistically cut.

So overall, I would say things are pretty good, and we haven't had any fights about money, which is the best thing of all. But I'm always wary of what could go wrong! We are lucky to have the resources we do have, and as long as we are careful with them, everything will be fine.

And I do have more stories to tell, and hope to get around to posting again soon!

More on Being a Trustee

Ok, so we left off with the big package of legal documents arriving for me to sign.
First, there was the irrevocable trust document. This spelled out that my mother was putting $350,000 in this trust and waiving all rights and title to the principal forever. It names me as trustee, and talks about various ways I’m allowed to make decisions about investing the money. It says I have to distribute net income quarterly to my mother, and provide a full accounting of the trust’s transactions annually. There’s also a lot of stuff about how a the trustee can be changed later if necessary, and what happens if I die, etc. It names my sister and me as the beneficiaries and that the principal will be paid to us equally after my mother’s death.
Then there’s the revocable trust. This money still belongs to my mother during her lifetime, but I am the trustee managing it. My sister and I are the beneficiaries after she dies. This trust is just to simplify things and avoid probate when my mother dies. But it’s also a very good thing to have a trustee in control so that my mother can’t just spend all the money without consulting someone else. This may become awkward in the future if my mother wants to spend money and I don’t think she should.
The final documents in the package were my mother’s last will and testament, and a durable power of attorney authorizing me to act as her agent. The will will cover any property of hers that is not held in the name of the revocable trust. If those assets are less than $25,000, then it goes through a “simple probate” process that is easier than for a larger estate. So we’re supposed to keep my mother’s assets under her own name at less than $25,000 but of course she had last minute cold feet about putting the full amount she’d intended into the revocable trust, so she actually has more like $40,000 in her own account— or at least she did when this all happened. Who knows how much of it she’s spent by now! I keep reminding her that the revocable trust funds can be paid out to her any time but she still doesn’t want to transfer her extra cash. I asked a couple of times then decided to let it go for a while as she seemed to be starting to think I was being morbid about it!
The final item in the package was two checks from my mother’s account, one for $350,000 made out to the irrevocable trust (“The [Madame X’s Mom] Irrevocable Trust of 2015”) and one for $100,000 made out to the revocable trust “The [Madame X’s Mom] Trust of 2015.”

The irrevocable trust has its own tax ID number, which the lawyer also sent to me a few days later. Once I had that, I went to the bank to set up checking accounts for each trust. It took about an hour and a half to do all the set-up paperwork at the bank— they had to fax the documents to their legal department to make sure everything was in order, in addition to all the usual account paperwork.  But once that irrevocable trust check was deposited, it started the clock ticking for Medicaid’s 5-year look-back period, in the event that my mother ever needs to apply for it.

After the checks cleared and I’d received new checkbooks in the name of each trust, I opened a Vanguard account for each trust. I picked a variety of mutual funds, including some that have the goal of maximizing dividend income. I did put some of the money in funds that seek growth and have higher levels of risk, but I steered away from the riskiest ones, and also put some money into lower-risk bond funds. I do want to make the principal grow, but I also want to make sure the investments generate some income for my mom. I am a little worried about how the first few months will go— it’s unfortunate that the stock market has taken some plunges exactly after I invested this money, so my returns are somewhat negative so far. I personally am a pretty calm investor— I always try to look at the long term and not panic during down times, but I’m worried about how this will appear to my mom and anyone else whom she might tell. If I say “ok, mom, I took $450,000 of your money and invested it, and all I have to show is a $5,000 loss after 6 months,” she may just think I don’t know what I’m doing, regardless of whether I point out that the entire market is down, and that any other financial advisor would have been likely to have similar results. I am kind of wishing I’d weighted the portfolio even more towards the bond funds vs. the others, given that the stock market was at historic highs when I was putting all this money in. Perhaps that is what a professional advisor would have counseled… but perhaps not, and I have to keep reminding myself, and my mom if necessary, that we’re still ahead by a percentage point or two just by not having to pay someone else’s fees to manage the money.

There will be more to talk about in the coming months, as I figure out whether and when to distribute income to my mother, how to deal with tax issues for the trust, and other questions. I’ll keep you posted!

My Mother's Estate Planning: In Madame X She Trusts!

This past week, I've had to learn a few things about trusts. I'm now officially a trustee!

The whole trust issue first came up after my dad had surgery for brain cancer. We'd managed to get him to a lawyer to quickly draw up a will for the first time on an emergency basis just before his surgery. A couple of months later, he and my mom went back to a lawyer to revise the estate planning, along with my sister, and me on a conference call. The lawyer advised them to put most of their assets in a revocable trust and he drew up some documents to that effect. What I later found out, though, was that they had never actually retitled any of their accounts in the name of the trust, so it was essentially a useless exercise.

For those who don't understand what I mean, here's an version of an explanation I found online somewhere that helped me explain it. Think of a trust as an empty box. Your lawyer draws up documents that create that box. But then you have to put things in the box-- by transferring the deed to your house, or by changing the name on your bank accounts, or opening new bank accounts in the name of the trust and transferring money into those accounts.

After my dad died, my mother went back to the lawyer, and I think they set up another trust, this time just in her name. And again, no assets were ever put in the trust! I was kind of hands-off about my mother's dwindling finances at that point, as I just found it too upsetting.

So the latest trip back to the lawyer was after my mother sold her house. She had proceeds from the sale of a little over $500,000, from which some capital gains would be due, since they'd originally bought it for something like $25,000. (This calculation of capital gains exemptions on real estate would be an interesting thing to delve into in another post someday!)

At this point, that money is all my mother has. She has spent all the other money that my father left. But she had gotten it into her head that my father intended for my sister and me to inherit the house, or at least some of the money from its sale. I personally never heard him say anything of the kind-- he always seemed quite aware that he'd barely be able to stay afloat while living in that house, yet he didn't want to move, and somehow I don't think he ever really thought of us as a family where inheritances would be a very relevant issue! And knowing my mother's financial habits, I certainly didn't expect there would ever be much left to inherit once she was gone.

My sister, however, seemed to think an inheritance would be a rather nice thing to have, and I can't really blame her. She thought our dad would have liked to leave something to his grandchildren. And more pressingly, she and her husband always seem to have a little more debt than they'd like. I know they paid off some credit card debt when they refinanced their house. But somehow they still have two mortgages. And then they bought a boat! They want their kids to have a really fun family life that would be very different from how my sister and I grew up, under a cloud of worry that we couldn't afford to do anything. Unfortunately, she and her husband sometimes seem to be under a cloud of worry about debt! My sister does some occasional part-time work but is has mostly been a stay at home mom for years, so they're living on one income.

So my mom decides she wants to give us about $350,000 out of the house proceeds, to be split evenly. Her lawyer said the best way to do that was to put it in an irrevocable trust so she'd have the income from it while she's alive and the principal would go to us after her death. This idea worried me, because if my mother needed to go into a nursing home, there would be a 5-year lookback period before she could qualify for medicare, and my sister and I would have to come up with whatever her income didn't cover. I personally could afford to do that if I had to, especially if I knew I'd be reimbursed for $175,000 of expenses after my mother died. But my sister would not be able to afford it.

So I thought my mom should just keep her money to pay for her own needs, although I did worry that she would just spend it all on ridiculous things-- she seems to be one of these people who see money as a hot potato to be gotten rid of when you have it! If my mom frittered away all her cash, then I'd be stuck paying for her nursing home anyway. It's not that I don't want to care for my mother, but it makes me incredibly angry that I shouldn't have to-- if my mom and dad had both made wiser financial decisions years ago, they could have lived very comfortably and taken care of all their needs without endangering my own ability to fund my retirement. If I end up being broke when I'm older, it will be my niece and nephew feeling guilty and burdened about taking care of me, and I don't want to lay that on them.

My sister's idea for protecting my mom's money was that she should just give it to us as a gift, with the understanding that it would be there for her if she needed it. I was willing to go with that except that I thought it would look really dodgy, as if we were taking advantage of our mother. And again, I could afford to just invest that money and not use it. My sister was thinking she'd use it to pay off their second mortgage, "to help them get on a more stable footing," and that if my mother needed her money, they'd just take out a home equity loan to give it back to her. I value my relationship with my sister-- I don't want to be judgmental with her, knowing that kids are a big expense I don't have, but I thought that whole plan was a REALLY BAD IDEA!

Here's the plan that we ended up with: the lawyer drafted an irrevocable trust with a provision that the principal could be used in the case of a dire medical emergency. $350,000 went into that trust. For the rest of my mother's cash, he set up a revocable trust, and a will to cover whatever isn't in that trust. She's supposed to keep her non-trust assets below $25,000 so it's covered by simple probate, and avoids some of the usual probate process. (Or something like that, I may not be getting the terminology right here.)

The thing with trusts is that you have to have a trustee. That person or institution his responsible for carrying out the terms of the trust and has the fiduciary duty to manage the assets appropriately. My mother's first lawyer insisted that this duty had to be carried out by a financial institution and brought someone in from a local bank to offer her services. I did not like this idea. I did not see why we should have a bank investing our money when it seemed perfectly reasonable to just do it myself with some low cost mutual funds. I did some research online and became even more convinced that the fees a trust company would charge didn't make sense for the amount of money we'd be investing. I also felt that money should be invested in a relatively conservative way to preserve capital, so we'd be trading potentially lower returns in a good year for lesser losses in a bad year-- this meant losing 1-2% in fees really didn't make sense. My mom's first lawyer retired and another partner took over. Maybe he was less old-fashioned about whether a girl could capably handle such things, but he agreed that I could handle being the trustee myself. So a big packet of legal documents arrived for me to sign: the irrevocable trust with my mom as the grantor, me as the trustee and my sister and me as benfeciaries; the revocable trust with my mom as grantor and me as trustee and my sister and me as beneficiaries; and a power of attorney allowing me to act on my mother's behalf.

This is getting to be a long post so I'll follow up soon with a part 2 detailing what else I've learned about my new duties as a trustee... stay tuned!

Her income monthly from Social Security and my father's pension is about $3000.

Mom is Selling Her House!

Fingers crossed that this works out, but as I write this, my mom has accepted an offer for her house. This is exciting and sad and scary. If all goes well, it will keep her from wasting all her income on maintaining a single family house. She spent thousands of dollars this past winter just on snow removal! But it does worry me a little about turning her biggest asset into cash, as cash has a way of slipping through my mother's fingers very quickly. At one point she talked about putting a lot of the proceeds in trust for me and my sister, but I am not sure if she still plans to do that. If she doesn't, I do worry that she'll start blowing a lot of cash on moving expenses, storage expenses, buying new stuff, decorating whatever new place she moves into, etc.
And it's sad to think that my childhood home won't be part of our family life anymore. It's the only home I ever knew, as I was only 9 months old when my parents bought the house. My father once said he had figured it would be a starter home, and that they'd someday move to a bigger house, but the day when he felt he could afford it never arrived.
But in some ways, the house I fondly remember is already gone. Since my father died, my mother has thrown out so many things and changed so much about the house. To me, it has barely a trace of personality or identity to it any more. It smells like floor polish, paint fumes and scented candles now, not like oriental rugs and books. It will be strange not to have a home base in my old town, though. I've always loved going back during the summer, when I could walk a half mile down to a beach where I could take an icy-cold swim, or just walk and sit and think. My mother might move back there someday, but in the near future, she'll move to my grandmother's house so she can help take care of her, and after that, she may end up wanting to live closer to my sister. My sister's house will be where I go when I say I'm going "home" to visit my family. I guess that's how it goes, this shifting over the years as you become less centered on your parents and more centered on the next generation. My niece and nephew are now their own little people, with such distinctive personalities. It hit me the other day that I only have a few more years before they vanish into the black hole of teenagerdom. I have to spend as much time as possible with them now while they are still kids, and then wait a while until they emerge into adulthood-- perhaps that is a bleak view, but I'm trying to prepare myself for a few years where they'll be uncommunicative and think I'm a big nerd rather than their fun, wacky aunt!
Here's the funny thing-- my mother copied both of the kids on her email to my sister and me about her house sale! I asked her why, especially as she was telling us not to tell anyone until the deal was done, and I thought the kids would be the most likely to blab. It turns out they watch some of those real estate TV shows, so they've been quite interested in my mother's whole process, and she trusts them not to tell.
Let's hope there is more news to tell soon!

Update on Mom's Finances

I haven't written much about my mom over the last 5 years or so since my Dad died. To make a long story short, it's been too painful and stressful to even think too much about her finances. She didn't want to take any of my advice on how to manage her money and I knew things would go badly.

Now I know just how badly they've gone.

After my dad died, my mother would have had about $350,000 in various bank accounts-- CDs, mostly. This was what was left of my dad's 401k and a life insurance payment. She also owned her house, with no mortgage.
Now, according to what my mom told me yesterday, she has about $30,000 in a bank account. She still has the house, and no mortgage. Her monthly income from my father's pension and Social Security totals a little under $3,000. She's only 70 years old.

Somehow in 5 years, she managed to blow through over $450k. I'm still reeling at trying to do the math. I know she did various renovations on the house, and some redecorating. She gave away perfectly good furniture and bought new pieces. She hired people to help her move stuff around and do painting and other minor repairs. But it's not like she gut-renovated the whole house. It's hard for me to get my head around how much all that cost, but I would guess maybe $75,000. Maybe $100,000. Her other major expense has been keeping my grandparents in a nursing home. Although they are quite poor, with no assets other than a small house and a coffee can full of small bills that my mother and her 3 siblings already spent, they'd apparently run into roadblocks in qualifying for Medicaid or any other benefits. (They live in Puerto Rico, where the laws are a bit different.) Just recently it looked like they might actually start getting some coverage due to Veteran's benefits, but for several years, my mother and her siblings have been footing the bill on their own. What's worse is that not all the siblings are contributing equally-- the one who actually has the most money has been delinquent in sending checks and arguing all the way over what kind of care my grandparents should get. Meanwhile the other siblings are dealing with disabled children or spouses with cancer and various other dramas, so my mom feels that she has to step in and do more than her share.
On top of all that, one of the siblings asked my mother for a loan of several thousand dollars to help pay for her daughter's baby shower, which is apparently going to be a rather grand affair practically on the scale of a wedding reception. That sibling will hopefully pay my mom back after a court case she's involved in is over, if the lawyers who have been working on it for years don't take all the proceeds of the settlement first.

Is that enough f**'d up drama for you? But wait, there will be more. My mom wants to sell her house and move down to Puerto Rico to my grandparents', where she can live more cheaply and take care of some of their needs herself. She insists that she will be able to live on her current income if she does this. She also insists that my father intended for my sister and me to have an inheritance, therefore she has been talking to a lawyer about how the proceeds of the house should go into some kind of irrevocable trust that my sister and I will manage, because she got it into her head that her biggest priority right now is to qualify for Medicaid when she goes into a nursing home herself. (She does have some health issues, but I don't see her needing a nursing home anytime soon, though I guess you never know.) The proceeds from the house sale could end up being about $500,000 after all the fees and taxes, perhaps a bit more.
I told my mother that the idea of us getting that kind of inheritance was insane in her circumstances, and that all my father ever wanted was for my mother to be taken care of and not stupidly bankrupt herself. She said that my sister and I could give her whatever she needed from the interest from the investment earnings of the trust, which of course we are willing to do, but if the principal is locked up for some period of time, I just know we'll end up having to dip into our own savings for other things my mother needs or wants. That is theoretically fine if we get paid back from the trust principal at some later time, but I'm not even sure my sister has savings to dip into in the meantime, and she has two kids to put through college in a few years. And even if we're just managing Mom's money to keep her from making bad decisions, that means we're going to end up butting heads whenever she wants to do something we disagree with. I don't know what's worse, the idea of my mother uncontrollably burning through half a million dollars and then being really truly broke, or the prospect of years of nasty arguments. Right now she's acting all saintly about it, saying she knows we'll take care of the money and do right by her and that this is really what she wants to do, but I can see her bitterly regretting it later if she thinks her daughters are denying her needs and forcing her to live like a pauper. The idea of her happily living on $35k a year when she's been averaging over $90k a year lately is just one more indication that my mother has no sense of financial reality. Even without the expenses of the house, I just don't see that working. Either way, she has to sell the house as it's just too expensive for her to manage, but she's already talking about all the work she'll have to do on my grandparents' house to make it a comfortable place for her to live-- like replacing the entire line connecting it to the sewer system because apparently you can't flush the least scrap of toilet paper without flooding the bathroom, which is indeed gross, but could be coped with in other less expensive ways, as they do in entire countries in other parts of the world!

So nothing has been acted on just yet, but that's what's up with me lately! Fun times ahead!

Good News: Raise, Promotion, Inheritance

A little happy news! I was promoted and got a raise of a little over 6 percent. The percentage seems a bit small for a promotion, but I wasn't going to quibble over it, especially as I've yet to be asked to do anything more in exchange for my more exalted title!
It's funny, I've often felt conflicted about my career ambitions-- on one level, I do want to make more money, do fulfilling work, and feel that my efforts are publicly acknowledged by a prestigious title. But another part of me worries about hitting what I think of as "the responsibility wall." In part, this is an anxiety about exceeding my level of competence, and failing after years of succeeding. But it's also about not wanting to work too hard! I have a life outside my job, and I want to have time for activities I enjoy and not feel like work consumes all my energy. It's an issue I'll continue to mull over, but for the moment, I guess I have the best of all worlds!

It actually feels like a bit of a milestone-- I've reached a level in my career that I wasn't sure I'd ever attain. And although my total compensation including bonus has been over $100k for a few years now, this is the first time my actual salary will rise above $100k-- I'm not sure why this means anything to me, but it does!

One sad thing about my promotion is that I can't help wishing it had happened before Great-aunt Minnie died. She was the first person I would have wanted to tell, because I know how proud of me she would have been. Quite coincidentally, I also just got word via my sister that it looks like my share of the inheritance may be around $15,000, which means Minnie's total estate must have been over $180,000, even though she never owned a home. I'm even more impressed that Minnie managed to have so much money saved at the end of her life, and I feel very lucky to benefit from her wisdom and generosity in this unexpected way.

The Cost of Being Gay

The New York Times has a very interesting analysis on the higher costs gay couples (or unmarried heterosexual couples, in some cases, though they of course have the option to marry) may face for things like health insurance for a partner, having a child, etc. Their calculation for the worst case lifetime loss? Almost half a million dollars! Of course the numbers will vary depending on each individual situation, and same-sex couples fare better on federal income taxes because without their marriages being recognized, they aren't subject to the "marriage penalty."
Here's one example:

Health Insurance

In our worst case, the lower earner’s employer did not provide health insurance and her partner’s employer didn’t cover domestic partners. So the lower earner had to buy coverage on the private market, while the higher-earning partner provided coverage for herself and the two children. All this cost the gay couple $211,993 more than their heterosexual married counterparts, who were able to take advantage of the higher-earner’s family coverage.

In our best case, health coverage cost the gay couple $28,595 more. We assumed both gay partners were eligible for employer-provided coverage. The higher-earner’s employer also provided domestic partner coverage, which covered her partner for the five years she stayed at home. When she returned to work, she used her own employer’s insurance.

Even though the couple paid nearly $29,000 more in premiums than an identical heterosexual married couple, it was cheaper than using domestic partnership coverage throughout because of the onerous tax implications, according to Mr. Williams of the Tax Policy Center. A nondependent partner’s coverage is taxable income, and she can’t use pretax dollars to pay the premiums, according to Todd A. Solomon, a partner in the employee benefits department of McDermott Will & Emery in Chicago.

But as the article points out, it may not always be about the money: the emotional cost of not having one's relationship recognized and validated is something you can't budget for.

Finances and the Family: The Earlier Generations

Thank you all for your advice and kind wishes after reading my last post. Obviously the family finance issue is on my mind a lot, and one of the aspects I was mulling over last night was how these things slide from one generation to the next: my mother's finances will affect mine, and mine could affect my niece and nephew. But what about the earlier generations? How did my grandparents' finances affect my mom and dad?

I've mentioned before that my mother grew up quite poor, with parents who divorced when she was a teenager. Her father was a barber-- he died a while back, and I never knew him well enough to know anything about how he spent what little money he made. Her mother is still alive, and seems to live very simply on a small income, I guess from Social Security, plus occasional checks sent by my mother and her 3 siblings. She is remarried, and lives in a small house that her husband bought. The mortgage is paid off. My step-grandfather supposedly has a few thousand dollars saved, but he won't tell anyone where it is-- as in, it's not in a bank, it's just in a coffee can buried in a closet or something. I don't think my mother's parents ever had much spare cash-- but nor did they have debts, as far as I know.

As for my father's parents, I don't think I've ever gotten around to writing much about them, and they are quite a different story.

My father's father was a lawyer. His parents were poor immigrants so he put himself through college and law school. He may have been the only one of their 9 children who got an advanced degree, though one of his older brothers was also successful and was actually in the House of Representatives for a term or two back in the 1930s. Probably because of this government connection, my grandfather ended up working for the Veteran's Administration. I don't know how much money he made-- a decent amount, I'm sure, but nothing like what we hear about corporate lawyers making today. My father has expressed some resentment about the fact that my grandfather volunteered for the Navy during World War II despite being well over the age where he'd have been drafted-- if he'd stayed home, his political connections might have led to an appointment as a judge, but by the time the war was over, his brother was out of office and had no strings to pull.
My father's mother also came from immigrant parents of what I guess you'd call a white-collar working class background (her father was a machinist but became some sort of supervisor). My grandmother graduated from high school but never attended college. She never worked until after my grandfather retired, when she did some part-time clerical work for her sister (who has an interesting story herself, which I'll have to tell later.)

But here's the kicker: my grandparents had 6 children, my dad and 5 sisters. They put them all through college and may have made some contribution to graduate school/law school costs for at least one or two of them. (3 of my father's sisters have advanced degrees.) Can you imagine paying for all that in today's world, on a middle-class government lawyer's salary? Education just cost less back then, and though all the kids went to Ivy League/Seven Sisters colleges, most of them were able to live at home while going to school, which must have been a big savings. And I suppose my grandfather would have paid for some weddings too, though I imagine they'd have been small.

How else did they make ends meet? My grandparents definitely had a depression mentality, and never threw out a scrap of food. But they weren't crazily frugal-- my grandfather gave my grandmother plenty of jewelry, and he played golf (though at a public course, not as a member of a private country club), and they had a comfortable house in an expensive area. They didn't really travel much, but I remember them taking a couple of winter vacations. I'm sure there were many years when money was tight, but by the time they were retired, they had a nice life.

My grandfather went into a nursing home and lived there for a few years til he died at the age of 90. My grandmother continued to live at home for about 13 more years, with part-time care from an aide for about 2 or 3 of those years. Then she went into a nursing home for about 9 months before dying at the age of 94. In the later years of her life, she gave each of the 6 children a few thousand dollars a year, and after she died, they each got a share of the proceeds from the house-- it sold for about $500,000 at the top of the real estate market, so each of the kids ended up getting over $80,000 in the end. (This inheritance makes up almost 1/3 of my father's current net worth.)

It just boggles my mind that they managed to raise so many kids and live so long and pay for nursing home care yet still not run out of money. My grandfather may have had a really good government pension. Maybe he invested well. He definitely left everything set up for my grandmother after he died, with some kind of annuity in her name. I would not say my grandparents were wealthy, but they were definitely prosperous.

The "American Dream" is for that kind of prosperity to increase in each succeeding generation, not evaporate. Yet that evaporation is what seems to be happening in my family. My parents have savings now, but they'll likely be gone well before they're even in their 80s, and then they'll have to tap the equity in the house. My sister and her husband are in their mid-30s with credit card debt and have probably barely made a dent in retirement savings or college funds for their kids. Our family's situation could be far worse-- some of stories told by commenters on this site make me feel like I have no right to complain. I guess it's just sad to look back at those early generations, on both sides of the family: their hard work after starting from nothing, their frugality, their willingness to live with less. They passed on an amazing gift to us, a gift that went well beyond money itself. I think they'd be sad to see that gift wasted.

Family Stress

I'm writing this after spending most of my weekend feeling some combination of angry and nauseous. My mother called to say that my dad, who'd been doing really well lately, was back in the hospital because he took a fall on the driveway and broke his shoulder. After my mother gave me the medical update we were just sort of catching up on other things. She told me they'd finally finished having the exterior of the house painted and mentioned that she also wanted to expand the downstairs bathroom to add a shower. Although this idea actually makes some sense, there are reasons it may not be possible and I also reminded my mother that we'd had this big discussion about the budget and that she really needed to hold off on any major projects for a while because they're running out of money too fast.

Well, I know it probably wasn't the best time to have mentioned it (though you'd think it was also probably not the best time for my mother to be regaling me with tales of home improvements), and sure enough, Mom kind of blew up at me, saying, more or less, that she didn't care about the money and was going to do these things no matter what I said... that they'd have to sell the house someday and it was important for it to have curb appeal... that she was stressed out from taking care of my dad and that decorating and renovating the house are her only pleasures in life... that somehow or other all the money stuff would work out because things just always do.
I started to remind her that things don't "just work out" and that she would be broke within a few years if she wasn't careful, but I realized I had to just shut my mouth and get off the phone or I'd say things I'd regret.

I was kicking myself afterwards and feeling guilty and doubtful. I felt like there was too much going on and I shouldn't have said anything about money until a calmer time. It's not like I want to harass my mother about her spending. I just want her to have a decent, comfortable life as best she can. And I began to wonder if maybe I was being too harsh. Maybe I'm too conservative, and was not taking into account that some of her expenses will lessen over time. Maybe things would work out.

I was mulling over all this until the next day when my sister ZZ and I were texting each other while she was at the hospital with my dad. I mentioned that our mother had an amazing ability to obsess about the house's curb appeal while her husband was in the hospital, and ZZ texted back:

F'ing serious?? Stupid driveway estimate why hes in hospital

Suddenly I didn't feel so guilty any more and was just angry. One of my mother's home beautification plans was to repave the driveway . Of all the items on her wish list, this was the craziest-- the driveway is fine except for a couple of minor cracks, and spending even a relatively low amount like $2,500 to repave a driveway is just stupid given that she is on track to potentially run out of savings and lose half her current income before she hits the age of 70. But despite telling me she'd hold off, she was apparently forging ahead, and I guess just shopping around for lower estimates. And I guess my Dad must have wanted to see what was going on and talk to the contractor and that's where he was when he fell. I guess my Mom felt guilty about it and wanted ZZ not to tell me how it happened.

I felt like I was in some kind of emotional butterchurn for the rest of the day, but in the end what upset me the most was that I felt my trust had been abused. My mother has had such a checkered history with money, but I used to think my dad was partially to blame for a lot of it. He treated her like a child; he was secretive about their finances, and never gave clear messages as to what they could afford and what they couldn't, other than to constantly complain that my mother spent too much. My mother became convinced that he was a rich miser who was witholding cash just to torture her.

So when my father got sick and I started organizing the family finances, I kept trying to clearly explain things to her. I walked her through all the bank accounts and bills. I drew up a budget and showed her exactly how much their income was vs. their expenses, and how the deficit was made up by drawing on their savings, and how many years those savings would last. And when I re-did the budget a couple of months ago, I sat her down again and showed her exactly what was going on. I didn't just tell her she was spending too much money. I didn't really tell her to do anything. I just explained to her that this was her current reality and that she needed to make some choices, and that if she could make some modest cutbacks now, it would save her from having to make devastating cutbacks later. I thought I could trust her to take this seriously if she felt like she was in control.
But now I feel like I've been lied to and that trust has been betrayed. I'm back to feeling like my mother is a drug addict or an alcoholic who swears they've cleaned up their act but keeps falling off the wagon.

Of course I keep telling myself that it's not MY money. But it's my father's money too, and he is too sick to control anything anymore, and I know that he would agree with me on all this if he had the mental energy to listen to any of it. And ultimately, if my mother really does burn through all her assets including any proceeds from selling the house, which I wouldn't put past her at all, then it will be my money that's at stake because I can't just let my parents starve. And then I see this chain reaction-- I'm trying to save all this money for my own retirement because I won't have anyone else to take care of me, and if that doesn't go according to plan because I'm supporting my parents, then will my niece and nephew be left holding the bag someday because they have to support me? I know that is getting a bit too gloom and doom and I can't imagine it would come to that, but it's hard not to feel angry about all the WASTE. My parents were never rich but they would have had enough money to have a perfectly comfortable retirement, and I don't understand why my mother prioritizes cosmetic enhancements to the house over things that would actually improve her life, like hiring someone to clean the house or help bathe my father.

I really don't know if I'll ever be able to get through to my mother. Part of me wants to just give up and let her suffer the consequences. Part of me wants to stick to my guns and tell her that she'd better not repave that driveway if she ever wants me to set foot on it. And then there are the crazy, desperate plans: could I send a letter to every contractor within a 20 mile radius of home and beg them not to return my mother's calls? Would it be worth the money to hire a lawyer to prove my mother is so insane as to be incompetent so I can take control of her bank accounts and somehow prevent her from doing all these crazy things to the house? But maybe other events will intervene: it's looking more and more like my dad could be in a nursing home soon, which means their money will evaporate a lot faster than even my mother can spend it. Will that be the thing that finally makes her wake up? Who knows... I just don't know how I'm going to deal with this.

Gift and Estate Taxes

In the post on my parents and Medicaid, I said that after my father's death, my mother might want to give my sister and me cash gifts up to the maximum allowed amount. Commenter Moom asked if we really needed to limit ourselves to that maximum because my parents' estate would be too small to be subject to the estate tax anyway. I thought the maximum annual amount still applied because my sister and I would have to pay taxes on it if it was over that amount-- but I just looked into that a bit more, and it seems I was wrong:

No tax payable by the person receiving your gift or
bequest. Generally, the person who receives your gift
or your bequest will not have to pay any federal gift tax or
estate tax because of it. Also, that person will not have to
pay income tax on the value of the gift or inheritance
received.

But in general, the person giving a gift does have to pay taxes on it unless it meets certain criteria:

Gift Tax
The gift tax applies to transfers by gift of property. You
make a gift if you give property (including money), or the
use of or income from property, without expecting to
receive something of at least equal value in return. If you
sell something at less than its full value or if you make an
interest-free or reduced-interest loan, you may be making
a gift.
The general rule is that any gift is a taxable gift.
However, there are many exceptions to this rule.
Generally, the following gifts are not taxable gifts:
• Gifts, excluding gifts of future interests, that are not
more than the annual exclusion for the calendar
year,
• Tuition or medical expenses you pay directly to a
medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

The annual exclusion amount for 2008 was $12,000.

[IMPORTANT NOTE: coming back to Medicaid issues again for a minute, you have to remember that this gift limit only relates to taxation. For the purposes of Medicaid eligibility, you can't give away any money at all other than maybe a few hundred dollars here and there.]

I won't get into any details about the estate tax--for 2009, your estate has to be $3.5 million or more, so it is relevant to only a tiny percentage of people, and certainly not my parents, alas! But you can read more about gift and estate taxes in the IRS document linked below.

IRS publication 950, Introduction to Estate and Gift Taxes

My Parents' Medicaid Eligibility

Returning to the subject of Medicaid: after the previous post talking about general Medicare and Medicaid issues, here's more on the specific case of how my parents might pay for a nursing home... please, as you read this, remember that these are not the words of an expert. They are the words of someone who has tried to research the issues and who has spoken to a lawyer a few times, all while being stressed out and confused and grasping at anything she can do to feel like she's helping her parents deal with a terminal illness-- in other words, I may be wrong about a lot of things, but this is how I'm muddling through.

As discussed before, when it comes to nursing homes, Medicaid is for people who don't have the cash to pay for it themselves. But because the cost of nursing home care is so astronomical, you don't have to be "poor" to need Medicaid, especially if you're married-- Medicaid acknowledges that the spouse who's not in the nursing home still has to have money to live on.
In the example of my parents, who are married, they will have to spend quite a lot of their own money before they qualify for Medicaid, but not all of it. The spouse who goes into a nursing home can keep a small amount of money for him or herself-- about $2,000 plus about $60 a month in income in my parents' case, I think. (If you're not married, that is literally all you get to keep. Medicaid will put a lien on your estate for repayment from anything that is left from the sale of a house, etc.)
The other member of the couple, referred to as the "community spouse," can keep the couple's house (at least if it's worth under $500k) and car. The couple can also keep enough money to cover burial plots and funeral expenses. Beyond that, the community spouse can retain income and assets up to an amount determined by the state you live in-- this is referred to as the CSRA, Community Spouse Resource Allowance. Where my parents live, my mother can keep up to about $110,000 worth of cash assets-- that may sound like a lot, but not if she has to live on it for 20 years. She'd also get to keep some portion of my father's pension and Social Security income, up to another state-determined amount referred to as a MMMNA, minimum monthly maintenance needs allowance. I had a hard time getting straight answers on how much this would be-- apparently housing is expected to be about 30% of it, and in my parents' state, the maximum may be about $2,500 a month, but it wasn't totally clear.
My parents house is probably worth around $400,000 or maybe less, so they don't have to worry about that. The rest of their assets are around $350,000. Subtract the $110,000 my mother can keep, plus about $20,000 for their funerals & burial, plus maybe $25,000-30,000 for a new car bought with cash, once the current one's lease is over. There are also some repairs and renovations needed for their house, which can be an allowable way to spend down your money, though the lawyer said it would be better to do all that before my dad went into a nursing home. All in all, my parents are probably left with at least $150,000 they'd have to spend before qualifying for Medicare while both of them are alive. Given that a nursing home can cost about $90,000 a year, the money wouldn't last all that long.
One thing my mother can do is use that $150,000 to buy an annuity that is in her name only-- that would then be income that she'd be able to keep more of, as opposed to an existing asset that has to be spent up front. But otherwise, there is nothing she can legally do to keep that money from being required for a nursing home before Medicaid kicks in. Theoretically, she could give away some of that money, or put it in a trust, etc. But these are all considered non-qualifying transfers that are subject to a 5-year lookback. If my parents' records were reviewed and any non-qualifying transfers were found in the past 5 years, my father's Medicaid eligibilty would be delayed by a number of months equaling the total amount of those transfers divided by the monthly cost of his care. Given that my father's entire life expectancy is far less than 5 years at this point, it would be crazy to mess around with this, even if my sister and I just used any money we'd been given to make up the gap of paying for the nursing home. But also, with that life expectancy, he might not live in a nursing home long enough to even spend down $150,000 and have to apply for Medicaid.

What about after my father is gone? My mother is still only in her mid-60s, so hopefully she will have many years to live. It should also, hopefully, be more than 5 years before she needs a nursing home. If she wants to transfer money to my sister and me, she can start giving us the maximum annual gift allowance amount each year, and we could somehow put the house in our names so she'd be in a position to qualify for Medicaid sooner.

The other thing that the lawyer advised us to do was for my parents to put all their assets in my mother's name only, and create a will that leaves everything to my sister and me, bypassing my dad. This is completely opposite to what my dad originally thought of doing, because of my mother's money management problems. And it's a change from the trust the lawyer recommended at first. His thinking was that if in some freak accident my mother ended up dying before my father, then all the assets wouldn't be my father's, leaving them to potentially be spent down to almost zero on a nursing home. It puts my dad in a risky position, because he's left with nothing, and has to trust that my sister and I would use the money to look after him. And I do worry a bit about my mother having sole control of all that money. But we're all trying to tackle this together, and in the end, we all believe that we'll take care of each other.

So that is my somewhat scattershot explanation of our situation, as I understand it. I feel really lucky that my parents do have savings and that they want to leave some kind of inheritance to my sister, her kids, and me. It's not fun dealing with all this stuff, but it's far better than having no money and no options.

Fessing Up to Family Money

Check out World of Wealth, for what I think is a totally unique post in the personal finance blogosphere, at least from what I've seen. MEG's blog is always quite frank and personal, and now she has disclosed something that few people are brave enough (or lucky enough) to admit:

So here it is: my family gives me money. I'm not talking about the garden variety plane ticket home, $100 for "dinner," help with the rent money. I'm talking about estate planning, gift tax avoiding, maximum annual gift exclusion money.

There were lots of comments on the post, mostly congratulating her for obviously being a hard-working, sensible person who hasn't become lazy and spoiled by her family's generosity (it's worth pointing out that she's only in her mid-20s). One commenter wanted to know how much of MEG's net worth came from her own earnings vs. her family's wealth, which she answered in a follow-up post:

Only about $20,000 of my net worth has been saved by me personally, half of which is my 401k at work. Without my family's assistance I may have been motivated to save more - or unable to even save that much due to loans and other obligations. Who knows??

Since her net worth is currently around $317k and was as high as $390k earlier this year, I would guess she must have gotten close to $300k in family gifts, which is pretty amazing. I almost can't imagine what I'd do if I'd been given that kind of money. She's used a lot of it to buy investment properties and max out retirement savings accounts, which is very admirable.

And yes, I'm so jealous I totally want to slap her!
(Only kidding about the slap, MEG!)

General Thoughts About Medicaid and Medicare

The posts about my parents' estate planning has brought up a lot of interesting questions and comments about Medicare and Medicaid that deserve to be addressed separately... so here goes!

Many people have pointed out that there is often confusion between these two government plans: Medicare is a federal government health insurance program that covers all people over age 65. It covers hospitals and doctors, etc, when you're ill, but it doesn't cover nursing home care. The exception to this is when the patient is in a hospice program: if your doctor says you have less than 6 months to live and you're just getting palliative care for a terminal illness (as opposed to treatment aimed at curing that illness) then Medicare covers at least part of the cost of a nursing home.

Medicaid is a health program for people with low income and resources, of any age. But because of the increase in health care costs, many people turn to this program to help pay for nursing home care. In the case of many middle-class families like mine, any savings and assets can be wiped out very quickly by self-paying the $90,000 or so a year a nursing home can cost, so people who would never have been considered "low-income" can end up qualifying for Medicaid. Also, many families may wish to leave their assets to their children or charities, rather than using all of them to pay for the costs of a nursing home. Any estate planning lawyer will discuss what you can and can't do to keep assets within your family and still qualify for Medicaid.

This is where people start to talk about whether this is cheating. A commenter mentioned the phrase "tragedy of the commons," which is absolutely appropriate here. The term is often illustrated by an example from from centuries ago, when there were common lands on which anyone could let their animals graze. All the farmers knew the grass on the common land wasn't enough to feed everyone's sheep, but instead of each farmer thinking "ok, it will be better for all of us if I only let a few of my sheep graze on that land," they each said "I'd better send all my sheep over there and let them pig out before all the other farmers cheat me out of my share!" And of course the result is that the common land becomes barren and everyone shares the pain.

In our country today, it's much the same: everyone is looking out for themselves and trying to benefit as much as they can from public resources, which ends up depleting those public resources and increasing the tax revenue needed to pay for them. But no one wants to be the chump who volunteers to renounce those benefits. I don't like our health care system, but until it changes, I want my family to get the same benefits out of it that everyone else takes. I want them to use whatever legal strategies are available. I don't think there is any great moral high ground to be gained by not doing so.

The reality is that one way or another, my parents will have to spend a lot of their own cash on nursing home care-- they can't escape it, and they probably wouldn't want to even if they could. As another few commenters mentioned, not all nursing homes accept Medicaid, and those that do aren't necessarily very nice. As I understand it, some nursing homes only accept Medicaid patients. Some nursing homes don't accept Medicaid at all. Then there are some who may not initially accept a patient who can't self-pay, but would accept Medicaid later if that patient runs out of money. This is what seems to be the case with the nursing homes in my parents' home town. They are nice nursing homes-- I used to volunteer in one of them, and I remember it being a clean, comfortable, cheerful place where the residents seemed well cared-for. My parents would have to self-pay for at least a couple months to get in, but then they could apply for Medicaid once their funds start running low. In the next post, I'll bring this topic back to the details of our personal situation and lay out a possible scenario of what they'd be expected to pay before qualifying for Medicaid.

Questions on the Estate Planning Post

An anonymous commenter asked some good questions about my recent posts on my parents' estate planning:

How much time did you spend with the lawyer?
Did your sister's husband's uncle lawyer charge for his service?
Did you find the 2nd lawyer from the bar's referral service?
What are the fees and services that s/he provided?
Did you split the bill with sister, or had parents pay the lawyer bill.

For the first lawyer, my brother in law's uncle, the cost was $500, and he spent maybe a total of an hour and a half with us. The first visit was on a Saturday afternoon, then we went back the following Tuesday to sign everything in the presence of a notary public. This was done in a big rush to have something in place before my father's surgery, and it was not the kind of full discussion this lawyer normally would have had with a client. I also believe we were getting a discounted "friends and family" rate but I don't really know for sure. Under the circumstances, we weren't doing any price comparison shopping!

The second lawyer was one that had been recommended to my father by a friend of his. I wasn't able to attend this appointment in person-- I participated via speaker phone. It took closer to 2 hours for the initial meeting to discuss and explain the various options. I think my parents are going back tomorrow to sign everything. I'm not sure what the fee will be, but I expect it to be more expensive, as setting up a trust is a bit more complicated than a simple will, I believe. It may also depend on whether the lawyer's bookkeeper helps my parents carry out the actual transfer of their bank accounts to being held by the trust-- the only reason for them not to do this part themselves is that my dad might not feel well enough to leave the house. I'll see what the final cost turned out to be and post a follow-up.

In both cases, my parents are paying the bills.

A couple other comments on the post are worth noting here:

It seems like there's a conflict of interest with your parents' lawyer. A lawyer in this situation should probably only be representing one spouse, not both spouses, especially if there are issues like the ones you're describing. If possible, I'd look into getting your mother her own lawyer and having those two and your father and his lawyer sit down together to figure things out.

Yes, the second lawyer noted that it would be a conflict of interest for him to set up anything that took control out of my mother's hands, since he is representing both of them as a married couple. My parents are not divorced and have never even been legally separated-- they have tried to just work their problems out between themselves, for better or worse. At this point, my dad has backed down from his earlier desire to give me and my sister control, and on some level I think that is the morally right thing for him to do. Despite all their troubles, my mother rushed back to take care of him when she found out about the brain tumor, and she is devoting herself to his care around the clock. She should deserve his trust-- now we just have to make sure she earns it by trying to stay on a budget.

As regards my statement that we'd just have to bit the bullet when it came to paying nursing home costs as it was probably too late to protect any assets before Medicaid's 5-year look-back kicked in, Bugbear said

I disagree that you just need to suck it up. I would set up the revocable trust in the offchance that it will be 5 years before dad needs it.

Although I'm still on the fence about whether we should do more to protect my parents' assets and make them eligible for Medicaid sooner, with a revocable trust it's a moot point. Assets in a revocable trust still are fair game for nursing home payments. If you want to protect assets, they have to be in an irrevocable trust, and the 5-year look-back still applies, which means you could get stuck with the bill for a nursing home, yet not be able to touch the assets you would need to pay it. The purpose of a revocable trust is not Medicaid planning-- it's just an alternative to a will and power of attorney, which prevents the trustees from having to go to court if you're declared incompetent by a doctor, and keeps the trustees/heirs from having to go through probate court when you die. You can still spend your money however you want, and you can change the trust at any point-- as I understand it, it's a good all-around plan with no disadvantages other than that it may be a bit more expensive to set up than a will. If you have more extensive assets or want to shield assets from Medicaid, a revocable trust would only be one part of your estate planning. But once you get into irrevocable trusts, you have to really be sure you know what you're doing, as that money will be permanently out of your control and you won't be able to touch the principal.

I picked up a copy of The Complete Book of Wills, Estates & Trusts-- I should have read it long ago, but I'm going to delve into it soon, and will hopefully be able to share some more useful information on this topic. In the meantime, check out this paper recommended by commenter Tom. I haven't read all of it, but it seems to have a pretty good explanation of Medicaid eligibility on pages 16-23.

Estate Planning Update

My parents and sister and I had another session with a lawyer to try to figure out how my parents should best prepare themselves for the future. As I wrote a couple months ago, my father had done no estate planning whatsoever and at the age of 74, was totally without a will or even a health proxy a few days before having to have surgery for a highly malignant brain tumor-- not good. I frantically tried to help him get his affairs in order. Because of my mother's debt troubles in the last few years, my father did not want her to be able to blow all their money. The lawyer we saw before his surgery didn't have time to set up any sort of trust, but to try to comply with my father's stated wishes, he ended up drawing up a will that basically disinherited my mother. In retrospect, this was a dumb idea, as you can't just disinherit a spouse without going through probate and if my dad had died with that will in effect, it probably would have led to exactly the sort of complications we were trying to avoid.

Also, it caused some stress with my mom. She was upset that we didn't trust her (though that lack of trust is arguably justified.) And it did look kind of bad-- we were rushing this through with my dad under a lot of stress, and it all happened before my mother could get home to be with us when he went in for surgery.
Recently, we went back to a different lawyer to revise the whole plan. Since my mom's been back and taking care of my dad, I guess she convinced him that his earlier impulses were wrong. The new lawyer seemed a bit suspicious that my sister and I had been trying to stiff her, which we weren't, but of course it is his job to think that way and advise both my parents as a couple as to what is best for them.
To make a long story somewhat less long, new plan is to set up a revocable trust, with both my parents as trustees/beneficiaries and my sister and I as successor trustees in the event that neither parent is competent. All their assets will be held in this trust-- it just simplifies matters if anything happens, without restricting how they can use the money.

Other options we discussed were some sort of irrevocable trust. At first I had thought that might be a way to protect some of their assets from being at risk if they needed a nursing home, and I thought it would just give my sister and me control of the money but let us spend it however necessary to ensure our parents' comfort. But it turns out we'd only be able to spend the income from that money, not the principal. My parents don't have that kind of money-- they'll need to spend down the principal towards the end of my mother's life most likely.
As for the whole Medicaid/nursing home issue, it's very complicated. And it's hard to know when the right time is to try to protect your assets. When I wrote about this previously, some commenters questioned the ethics of trying to shield assets and make Medicare [typo-- I meant to say Medicaid, as a commenter points out below] pay for a nursing home. As far as I am concerned, if the tax laws allow for legal ways to do this, I don't have a problem trying to take advantage of it. My parents aren't rolling in money and though they have enough now to live in reasonable comfort, their savings could be decimated if one of them was in a nursing home for a year or two. They've paid their share of taxes over the years

Right now, the person most at risk for that is my Dad. He's got very serious health problems and his treatments are making him weaker and weaker. I don't know how long my mother will be able to care for him at home even with help from visiting nurses. But Dad's life expectancy is pretty short-- it would be really good news if he lived more than another couple of years. If he needed a nursing home, the lawyer told us, the assets required to pay for it would not include the house, since my mom still would be living there, and she'd get to keep half of his income. But by his math, that left about $150,000 of savings that would have to be used to pay for nursing home expenses before Medicaid kicked in. That would cover maybe 2 years, as nursing homes can be over $80,000 a year. (My dad never had any long-term care insurance, and he'd certainly never be able to get any now!)

If my dad was expected to live longer, it might make sense for my parents to put some money in an irrevocable trust, or give some money to my sister and me in smaller increments, but with the 5-year lookback for Medicaid, it doesn't make sense right now. We just need to suck it up and pay the big bucks to a nursing home if it comes down to it. As for my mom, she's still in relatively good health, and she's 10 years younger than my dad. It's a bit early to think about nursing homes for her, but over the next few years, I'll be thinking about whether it would make sense for her to take any additional precautions to protect her assets.
Meanwhile, I have strongly cautioned her not to make any financial decisions without consulting me! She says she can be trusted and is an adult who can take care of things for herself: "I'm not stupid!" she protested, when she found out Dad had wanted my sister and me to control things. And she's not stupid, but she has no experience with these matters, and during the conversation with the lawyer, she was totally confused and kept getting things wrong after repeated explanations, and afterwards she herself said the experience made her "feel stupid." I can't help but worry that she would make the wrong decisions or be taken advantage of.

I do want to keep researching all these issues, and I will need to revise the budget I created for my parents with all this in mind. I wish I could be writing this post as someone who has all the answers and is offering a clear explanation to help others, but unfortunately I'm in no position to do that! Please remember that I'm not an expert-- I'm just telling my story as it happens, as I make mistakes and try to learn from them. Every situation is different so please make sure you get your own legal advice if you are facing these questions in your own life!

Giving Money to Dogs

Much has already been written about Leona Helmsley's decision to leave $12 million to her dog, and I didn't see much need to jump into the fray. But I was on a business trip this week which gave me a chance to catch up on some out of date New Yorker magazines, and I had to quote this passage from an article ("Rich Bitch", by Jeffrey Toobin) about the legal issues surrounding bequests to animals:

One philosopher [Jeff McMahan, who teaches philosophy at Rutgers] draws a distinction between the needs of [Helmsley's dog] Trouble and those of dogs as a whole.... "To give even two million dollars to a single little dog is like setting the money on fire in front of a group of poor people. To bestow that amount of money is contemptuous of the poor, and that may be one reason [Helmsley] did it.

"But to give such a large sum of money to dogs generally is not frivolous," McMahan went on. "I think it shows some misplaced priorities, but many bequests do. In a world where there is starvation and poverty, you can say that it's wrong to give money to universities, or musuems, or, worst of all, to divide it up for your children and heirs who are already rich. Welfare for dogs is better than more pampering of the rich. It may indicate misplaced moral priorites, but it 's not frivolous or silly...."

Do you agree?

Wrap-Up on the Health Crisis Posts

I wanted to thank everyone again for all the supportive comments on this series. It's been hard dealing with what's happening to my Dad and what it means for our family, but it has helped to share it with all of you.
As you can all tell from reading the posts, this has been a whirlwind time full of more questions than answers, some of which include:

• What does Medicare cover?
• What does supplemental insurance cover?
• What kinds of things should you think about when making a will?
• How do you pay for a nursing home?
  
• When is it appropriate to set up a trust, or transfer assets to children?
• How do you budget to make sure your retirement savings last long enough?
• How do you cope with managing things for a parent who hasn't dealt with any of this stuff?
  

I have not yet been able to educate myself on all the issues enough to really be writing any how-to or advice posts, I'm just trying to show you what it's like to be caught in the midst of this, and hopefully encourage people to investigate these things for themselves in advance, well before it's ever needed. Believe me, once you are in the thick of it, you will feel so stressed out and emotionally drained that you won't really want to deal with it.

And the tough thing is that you never know how much time you'll have. My father's prognosis sounded quite positive at first, but further discussion with the doctors was very sobering: they removed most of a large glioblastoma (yep, just like Ted Kennedy), but even with the radiation and chemo treatments he'll soon be undergoing, the life expectancy with this kind of highly malignant tumor is often only a year or two.

So now, there's another thing to think about, as suggested by one of the oncologists: what has Dad always wanted to do? Should he spend a little mad money on a trip or some other treat for himself, to help him enjoy the time he has left? I think he's still a little too much in shock to think clearly about it, and I'm not sure he's in the frame of mind where having some kind of last fling would really help. I think we're all a bit in shock right now, somehow trying to be optimistic and resigned at the same time. It's tough.

Posts in this series:
Yikes, family health crisis!
More info on the crisis and what I needed to do
Organizing my father's finances
Attempts at estate planning
How Mom felt about all this
Details on Dad's Finances
What About Me?

Details on Dad's Finances

Quick background for anyone who hasn't been following this series:

Yikes, family health crisis!
More info on the crisis and what I needed to do
Organizing my father's finances
Attempts at estate planning
How Mom felt about all this

Now for the details on my father's actual financial situation:

I had no idea what to expect when I started diving into my dad's finances. I figured he'd always made a good income working for a large company, but I knew his salary was never huge. Given how he'd always talked about money, I knew he made efforts to save for the future. I also knew that he had inherited a share of the proceeds of selling my grandmother's house after she died a few years ago, which I figured had to be close to $100,000.

But on the other hand, I knew my mother had blown a lot of cash in recent years. And I knew that he was always complaining about how much money she spent in general. He was always worried about surviving after retirement-- he had put off retiring for as long as he could, and was still working part time to try to bring in extra cash. I also knew that he'd had to take out a second mortgage on the house when my sister and I were going to college, and had no idea whether that was still being paid.

So which was it? Was my dad well-off, or was he broke? It was a total mystery. But here's what I figured out:

Home Equity: my father had paid off the primary and secondary mortgages on his house, and owns it free and clear. He estimated its value at about $400,000-- it's in a desirable community with very good public schools, but the house itself could use some renovations, and is very small, though it has a decent-sized yard. FYI, my father, at least, has no interest in living anywhere other than in this house, so the only way to get any money out of the home would be a HELOC or a reverse mortgage. If he died, my mother might consider moving to a condo but she might also want to stay in the house for as long as possible.

401k: he has about $180,000 in a 401k account. This doesn't seem like much, but keep in mind that he also has a defined-benefit pension plan.

Bank #1: a credit union associated with his employer, where he has a checking account, about $30,000 in a CD, and about $50,000 in a money market fund earning less than 2% interest. (We'll be doing something about that!)

Bank #2: another local credit union, where he has about $80,000 in various CDs.

That's it. He has no life insurance policy, so there would be no additional cash upon his death. But his total net worth is about $740,000.

As for his income, his pension nets out at about $2,750 a month. That's after some taxes and health insurance premiums are deducted. He also gets a Social Security payment of about $1,250 a month. Then his various accounts are earning some interest, say maybe $2,000 or so a year. So his total yearly income is about $50,000 net-- not bad at all. Unfortunately, if he died my mother would only get half of his pension, and I'm not sure how much Social Security she'd get.

So how would their income and assets cover their spending? Here's a budget I drew up:

	Mom and Dad	Mom only
Income:
Pension (net)	$ 33,024	$ 16,512
SocSec (net)	$ 15,024	$ 7,512
Interest	$ 2,000	$ 2,000
Income not counting withdrawal from savings	$ 50,048	$ 26,024
Withdrawal from 401K	$ 10,000	$ 10,000
Withdrawal from Other Savings*	$ (1,438)	$ 8,686
Expenses:
Fixed:
Car Lease 05 Subaru**	$ 3,800	$ -
Car Lease 08 Subaru	$ 3,300	$ 3,300
Car Insurance	$ 1,400	$ 700
Property Taxes	$ 4,000	$ 4,000
Income Taxes	$ 3,000	$ 3,000
Heating Oil	$ 5,000	$ 5,000
Water & Sewer	$ 800	$ 800
Electricity	$ 1,000	$ 1,000
Home Phone	$ 800	$ 800
Cell Phone Mom	$ 1,050	$ 1,050
Cell Phone Dad (prepaid plan)	$ 100	$ -
Internet	$ 360	$ 360
Cable TV	$ 900	$ 900
Landscaping	$ 5,000	$ 5,000
Property Insurance	$ 1,100	$ 1,100
Health Insurance***	$ -	$ -
Variable:
Food: eating out	$ 600	$ 600
Food: groceries	$ 7,500	$ 5,000
Food: wine	$ 1,200	$ 200
Gas	$ 2,000	$ 1,200
Medical: Co-pays for visits	$ 500	$ 250
Medical: Medicines	$ 500	$ 250
Dental	$ 500	$ 250
Clothing	$ 1,500	$ 1,000
Entertainment	$ 500	$ 300
Books	$ 500	$ 100
Music	$ 1,000	$ 200
Gifts	$ 3,000	$ 2,000
Hair/grooming	$ 1,500	$ 1,000
Home Repairs	$ 2,000	$ 2,000
Household supplies	$ 300	$ 300
Laundry/drycleaning	$ 400	$ 150
Magazines, newspapers	$ 1,000	$ 400
Travel	$ 1,500	$ 1,500
Miscellaneous other	$ 1,000	$ 1,000
TOTAL EXPENSES	$ 58,610	$ 44,710

Notes:
In general, all the stuff in italics is just my estimation, not really based on detailed analysis of my parents' actual spending
*The "withdraw from savings" field was a calculation, to see how much would be needed after spending all the income. With Dad's full pension and these budgeted expenses, the number is negative because he actually wouldn't need to withdraw any more from savings beyond the $10,000 from the 401k. The $10,000 is just my estimate of what he'd have to take as a required minimum distribution each year anyway.
**While my mother has been away, my sister and her husband have been using her car. If one of my parents was to die, I assume we'd just give up that car, or my sister would start paying for it herself.
***Right now, my mother's insurance is deducted from the gross amount of my father's pension. She'll be eligible for Medicare next year, so the costs would probably change anyway, if my dad's retiree coverage can get her some kind of supplemental insurance.

Based on this budget, if both my parents are living, they should be able to survive just fine to a good old age. There are bound to be additional large expenses like major dental work, renovations to the house, etc., but some of the variable expenses will decrease as they get older too. (And really, a 74 year old man with diabetes shouldn't be drinking $100 worth of wine every month!!)
But if my father was to die, my mother would have to be quite cautious about her expenses to make sure her money would last. On her lower income, she'd have to draw more from savings, and on this budget, the savings could be depleted in 20 years or so. My mother is only 64, and though her family doesn't have as much longevity as my father's, hopefully she will live past 84. Again, her spending habits may change over time. And none of what I've calculated here even considers the possibility of paying for a nursing home or assisted living facility. But I guess that is where the house comes in-- that $400,000 equity could be tapped to cover further expenses.

At first, I was worried that my parents didn't have enough money, but I feel better about it now. If my mother is let loose on the bank accounts, her spending habits could lead to problems, but otherwise, my parents have a comfortable but not extravagant lifestyle. They aren't into traveling or any expensive hobbies, really, and they should have sufficient assets to live simply for many years to come. But again, many of these calculations are based on my own guesswork-- I'll be doing more research into their actual spending history to make sure this budget is realistic, and I'll talk to both my parents about whatever I find out.