$290,000 could get used up if Mom lives 30 years more

So son can worry less about his inheritance

Dollars & Sense

January 13, 2002|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

My mother, who is 62, lives on disability. She is selling her house and probably will receive about $290,000 after commissions and expenses. This is all the savings she will have; what should she put it into? Certificates of deposit, annuities, bonds? A corollary to this question is: What would be the most intelligent arrangement for her to be able to leave something for me and my children when she passes away?

You have a lot on your plate right now when it comes to helping your mother. So let's make some more room by removing one issue you probably don't need to worry about: your potential inheritance.

That money is really not a lot to live on when you consider that your mother might live 30 more years. A few years in a nursing home could wipe out her whole kitty.

The AARP recently conducted a survey that showed many people vastly underestimate how much long-term care costs, and greatly overestimate the amount of government aid available. The reality is that nursing homes cost $40,000 to $70,000 a year or more, and the government pays for such care only for the indigent.

Your mom is in a difficult position. She'll need some growth to be able to maintain her purchasing power as she grows older. But because this is all the money she has, she also needs safety. Her best bet might be a diversified portfolio of mutual funds that's heavier on the bond and cash investments than on stocks, or a few stock mutual funds along with a portfolio of CDs with differing maturities.

Tread carefully if you're considering annuities. One type of annuity - an immediate annuity - can offer your mom a guaranteed stream of income. In exchange for giving an insurance company a lump sum, she would receive monthly checks for the rest of her life. But she typically would lose the ability to tap her funds in an emergency. Also, the payments might not keep up with inflation, and the income ends when she dies.

The other type of annuity - a deferred annuity - could be even more problematic. Instead of getting a check every month, her money would be invested tax-deferred for the future. But chances are her income is too low for her to get much from the tax benefits of a deferred annuity, and she probably would face surrender penalties that could make it difficult for her to access her money in an emergency.

You and your mom should talk with a qualified financial planner who can review her situation in depth and offer specific suggestions, including the pros and cons of various investments.

If your mom is able to leave you anything, she can do so fairly easily by making you the "pay-on-death" beneficiary on her accounts. Assets left through a pay-on-death designation avoid probate. You should have no trouble getting a pay-on-death designation form from a bank, and many brokerage companies' mutual funds also provide the forms. In California and Missouri, she could leave you her car using a pay-on-death form.

My wife and I purchased whole life insurance policies in July. Our combined annual premium is $651. The death benefit on me is $8,900. My wife's death benefit is $10,647. Are these good policies for us? I am 46 and my wife is 45.

If you really need life insurance, it's hard to imagine that those amounts would be sufficient.

First, determine whether you actually need insurance. Do you have minor children or elderly parents who rely on your income? Would your spouse be able to pay the bills without your income - and vice versa? Are you likely to face a big estate tax bill?

If your answer to those questions is no, then you might not need life insurance.

If your answer to any of those questions is yes, then you should determine how much insurance you need. Visit www.latimes.com/money and click on Insurance 101 for a guide.

You might find that you need more insurance than you can afford if you stick with your whole-life policy. In that case, you should explore term insurance, which provides coverage without the investment component that's built into the cash-value policies you have.

We have seven married children and 18 grandchildren. Gift buying is overwhelming, so we send cash for birthdays, Christmas and special days such as baptisms. This easily runs $4,500 a year. Can this be used as tax-deductible gifts on our income tax?

Oh, wouldn't that be lovely? But, no, gifts to your family are not considered to be tax-deductible charitable contributions, no matter how needy the recipients.

Liz Pulliam Weston is a columnist for the Los Angeles Times, a Tribune Publishing newspaper.

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