How the AI Legalese Decoder Can Aid an Elderly Man in Managing a $500,000 Windfall
- May 10, 2024
- Posted by: legaleseblogger
- Category: Related News
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### Financial Considerations for an Elderly Relative
My 88-year-old uncle is on the verge of receiving $500,000 from the sale of his home. Currently, he is paying roughly $9000 per month for assisted living services, and he also possesses a considerable amount of savings from his pension earnings. Given this financial situation, it is essential to carefully consider the best course of action for managing this large sum of money.
#### The FDIC Protection
One common concern is the limitation of FDIC protection, which covers deposits of up to $250,000 in a single bank account. This raises the question of whether it is advisable for my uncle to deposit the entire $500,000 in one account or split it among multiple accounts to ensure full FDIC protection.
### How AI Legalese Decoder Can Help
The AI Legalese Decoder can assist in navigating the complexities of financial regulations and provide clarity on the best strategies for managing large sums of money. By using this tool, we can gain insights on how to optimize my uncle’s financial decisions, such as exploring options to maximize FDIC protection while ensuring convenient access to his funds. This technology can analyze various scenarios and provide personalized recommendations based on his specific needs and circumstances, ultimately helping to make informed and secure financial choices.
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I would be talking to an estate attorney to try and save as much of that from the assisted living people as possible.
I have no advice, but $9000/month for assisted living?! Holy cow!
HYSA are paying 5% right now. Adding a beneficiary to the account, which he should do anyway, will usually bump FDIC insurance to $500K. Check with the bank.
The FDIC issue is non-existant. There hasn’t been a bank failure/takeover for probably the last 50 years where the deposits weren’t guaranteed. If you go the bank route, it will be far simpler using just one bank.
According to social security, his life expectancy at 88 and 3 months (I used Jan 1 1936 as his birthdate) is 4.9 years.
You know his expenses are the $108K annually. Do you know how much his other sources of income amount to–the pension and social security? In other words, how much more does he need from his investments to cover the ALC cost?
I going to use an example to illustrate what I suggest. Let’s say his other income sources are $68K, so he needs 40K a year to cover the additional amount.
Target a five year cash cushion of the amount he needs, in this case $200K, which is five times $40K. Over the next year, invest the rest in a long term index fund like VTI. Do it in installments, like 10 purchases of $30K each, so you end up with something like $250 to $300K in [VTI.](http://VTI.it)
While it’s in cash have it in a money market which is paying like 5.25% these days. Over this year that will earn about $20 to 25 thousand. Let’s say it earns $25K over the rest of the year and you spend all of it, so he starts 2025 with the $500K with $200K in the money market and $300K in VTI.
You spend the $40K from the money market, but at the average of $180K and 5% rates you earn $8K. The VTI dividend pays 1.5% so that is $4.5K during 2025. So of the $40K you spend, $12.5 is replenished, so the next spend was $27.5K, and the money market is now $172.5K.
If the market has done well, sell enough shares to move the cash back to $200K, and do the same for 2026. If the market has done well, don’t do anything–because you have at least four more years of cash to cover his needs.
This method gives him 5 years of protection plus the possibility of longer term growth to cover his years past the 93 year live expectancy. He’s always multiple years from being forced to sell stocks at the wrong time, plus the growth covers inflation in the cost at the ALC.
Of course, this is just an example using numbers I made up, but you can adjust to his actual numbers and plan accordingly. This is a safe and sane way to protect his short term finances and to provide him future assets for a longer than expected life.
Good luck!
Your uncle may be part of an interesting demographic. IF his pension and investments yield about 5k a month, and this 500k yields another 2k a month, then his out-of-pocket might just be 3-4k a month. So he can live for quite a few more years before all of his resources are exhausted – and he’ll likely pass before all the money is gone.
Even at that age, the question is – what other assets does he have, and what does this new $500k proceeds *need* to be doing for him?
If it is entirely surplus to his needs, then why not invest in a stock index fund and let it ride for his heirs?
On the other end of the spectrum, if he needs to supplement his cashflow to ensure that his long term care is adequately funded for the duration, then it could be invested in individual, new issue bonds with a known/guaranteed coupon.
These bonds should be selected to obtain the best post-tax yield for his tax situation. Choose among Treasury or government agency bonds (state tax exempt) or investment grade corporates (not exempt) to find the best yield. These choices are essentially risk-free and will produce a reliable amount of annual income for a known period of time.
Putting the money in a simple bank account or a money market fund in a brokerage is “fine” as well, and that’s the reflexive answer. But today’s 5% interest will not last for the duration. If he wants to guarantee cash flow for a longer term, that’s why the bonds are recommended.
1) he should make sure he is not a financial burden to anyone (e.g. cover his own healthcare costs)
2) he should make sure his life is set up financially (e.g. has what he wants to be comfortable)
3) determine if he wants to leave a legacy or die with $0
4) make a plan for #3
Wealthfront will auto split the money so fdic coverage in their accounts are several million dollars.
He should divide the money across 2 HYSAs
To answer your question the $250,000 insurance limit is per account. You can go to fdic.gov and see faq’s and use the EDIE estimator tool to see how you can get more than the $250k to keep your banking simple.
I believe capital gains tax is charged on the portion above $250,000.
I would recommend getting a fee only financial advisor who agrees to act as a fiduciary and have him go over his finances. We do not know his income so we can’t make accurate recommendations. I believe FDIC is 250k per person per bank.
Fortunately, that should give him about 55 months of assisted living, not factoring inflation
I still don’t understand how $9,000 a month can’t pay for in home care.
We are dealing with this now with my in laws. They are going to go to fidelity and talk to them about what to do with it. Grow interest and save it. Part will go in a money market to use to live on, another in HYSA and the other part will be invested. Check to see if he will taxed on his earnings from his house. I believe you can earn 250k on profits from the sale of the house but need to pay income taxes on the rest. So he will need to talk to someone about how to keep as much of it as he can since he needs that money to live on.
250,000 FDIC insured for each bank and each account type. Source: used to work at a bank
He should definitely talk to an attorney, but putting it in two different banks to fully protect the accounts would it be a bad idea there may be other options that will provide a little bit of income, so it will last longer if he lives longer
I’d double check that he’s going to get that money. A relative had to go into a home, and the places they looked at based their payments on assets, so they had to move everything to a trust and show that he didn’t own anything.
Depends on the state, 5 year look back for assets and the assisting living is a real thing. Best advice would be to speak to an estate lawyer.
Since he already sold the house he should spend 99% of that money on whatever he wants so the government doesn’t take it.when he dies.
I hope he lives like a king for 9k
Ask about putting it into a trust.
If I were you, I would convince him to transfer the money to you.