Helping Mom with retirement asset allocation & estate planning

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Topic Author
TheAlamo
Posts: 6
Joined: Mon Feb 01, 2021 9:03 pm

Helping Mom with retirement asset allocation & estate planning

Post by TheAlamo »

My Dad passed away in 2019. He was a day trader. I am helping my mom (68 years old) get all his various accounts into solely her name. His online brokerage accounts have much more money than either I or she knew about.

She has two online brokerage accounts:
1. Approx. Value: ≅ $97,800 (11% of the account is in NUGT, I assume the rest is just sitting in a money market account)
2. Approx. Value: ≅ $2,945,000 (78% of the account is in TECL, 16% is in FAS, 3% is in EDC)

Obviously these positions are way too volatile for her. I have asked her to set up an appointment with a fee-only financial advisor, and hopefully she will get that done soon. She is planning on working for approximately 7 more years or so. I was thinking about telling her to put everything in a target-date fund. Is there any downside to that? I would like to make this as simple as possible for her.

Also, does it make any sense to sell these positions in pieces (I was thinking like 1/4 at a time over the course of this year)? Tech stocks have been getting hammered the past week or so and I don't know if selling it all right now is a great idea. (I know that I'm not supposed to "time the market" but I've never been in a position to want to try).

Tax implications: The December 2021 Statement from the online brokerage says:

Cost Basis: ≅ $3,270,200
Unrealized Gains: ≅ $700K
Unrealized Losses: ≅ ($14K)
Funds Deposited/(Disbursed): ≅ $92K
Income/(Expense): ≅ $12K
Securities Received/(Delivered): ≅ $2,907,000

I know very little about taxes but I assume if we sold her position in NUGT et al she would have to pay taxes on the "Unrealized Gains", correct? I suppose the benefits of putting her money in more safe/conservative positions outweigh the negative of paying the taxes? Can we avoid the taxes by putting some or all of the money into an IRA?

RE: Estate planning - when does a trust make sense? She has real estate in Texas, Maryland, and Virginia. Her plan is to sell all her property located outside Texas in 7 years when she retires but does it make sense to get a trust set up now?

Thank you for any guidance y'all can provide!
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bhwabeck3533
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Location: Baldwin County, AL

Re: Helping Mom with retirement asset allocation & estate planning

Post by bhwabeck3533 »

TheAlamo wrote: Wed Jan 26, 2022 9:03 pm
RE: Estate planning - when does a trust make sense? She has real estate in Texas, Maryland, and Virginia. Her plan is to sell all her property located outside Texas in 7 years when she retires but does it make sense to get a trust set up now?

Thank you for any guidance y'all can provide!
My guess is most Baby Boomers elect going with a Will (and named executor) rather than a Trust. When most assets are tied up in legitimate investment accounts, the TOD to beneficiaries language is pretty straightforward and avoids probate.

Your Mom's situation may require a Trust with multi-sate real estate holdings. Also, you do not mention siblings, with which a Trust may be warranted. My Dad (passed in 2014) and Mom, still living at age 95, set up a Trust at the local bank many, many years ago and I am glad they did. I have four siblings and the Trust Dept at the bank is the "referee".
niagara_guy
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Re: Helping Mom with retirement asset allocation & estate planning

Post by niagara_guy »

I agree that having the majority of assets in a few stocks is risky and should be avoided. Selling assets that have appreciated will result in capital gains tax (either long term or short term if held less than 1 year). Maybe you can sell assets that have a loss or low capital gains first?

I can't figure out how much she has but it's enough I would get professional help from a tax advisor (maybe a CPA), maybe a fee only advisor and an estate attorney.

Avoid the high cost 'advisors' that will charge her very high fees like AUM fees. My preference is to use low cost index funds for stocks and bonds from Vanguard, Schwab or Fidelity. She can only contribute to an IRA if she is working and should be doing this (and a 401k as well if available).

I use last years tax software to model my current years taxes (usually do it in the fall) to decide what to convert to Roth and what taxable assets to sell. It will probably be well worth the effort to do this (maybe your tax advisor will help?) to minimize the tax burden. I would discuss this with a tax advisor.
RetiredCSProf
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Re: Helping Mom with retirement asset allocation & estate planning

Post by RetiredCSProf »

Your Mom should be getting a stepped-up basis on the capital assets if these holdings are in taxable accounts. The cap gains/losses should be the difference between the FMV at the time of inheritance and the current value. Does the brokerage statement reflect that time frame? I am unclear whether the brokerage received a death certificate at the time of your Dad's passing and if they transferred the accounts into your mother's name at that time.

There may also be a stepped-up basis on the real estate if owned jointly by your parents or if owned solely by your father.

Your Mom needs a trust.
Topic Author
TheAlamo
Posts: 6
Joined: Mon Feb 01, 2021 9:03 pm

Re: Helping Mom with retirement asset allocation & estate planning

Post by TheAlamo »

My mother and I met (virtually) with an independent "fee only" financial advisor who wants to charge an "Annual Advisory Fee" of 0.60%. This seems crazy to me. The TD Ameritrade "financial consultant" wanted to charge a similar fee.

My plan as of now is to:

1. Call TD Ameritrade and see if I can get her basis adjusted to my father's date of death (as RetiredCSProf suggested);
2. Sell off the positions in NUGT, TECL, FAS, EDC, etc and put the money in a Target-date fund from Vanguard (I am thinking Vanguard Target Retirement 2030 Fund VTHRX or similar as niagara_guy suggested);
3. Start shopping for a CPA since she will likely have capital gains in 2022 with this plan;
4. Ask her to meet with an estate planning attorney to discuss either a will or a trust.

Does that sounds reasonable? Should I do these in a different order? Like should we meet with the CPA first?

Also, it seems disingenuous to advertise yourself as a "fee only" financial advisor and then want to take a percentage of the assets under management each year as the fee.

Thank y'all for any guidance you can provide!
mengo
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Joined: Fri Sep 18, 2015 11:10 am

Re: Helping Mom with retirement asset allocation & estate planning

Post by mengo »

Target date funds aren’t ideal for a taxable brokerage account. You probably just want to hold the component parts separately, and your mom may want to balance stocks vs bonds across all accounts including tax deferred retirement accounts.

Regarding the later point, i think generally people on these boards would suggest for her to increase the amount of bond holdings in her retirement account so as not to earn too much additional income from the taxable brokerage account due to bond funds.

It should all be described on on this sites wiki.

When helping my mom with a similar (much more modest) situation, she decided to use Vanguard’s Tax Managed Balanced Fund… not ideal (in part because there are no opportunities for tax loss harvesting), but simple and good enough for my situation.
RetiredAL
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Location: SF Bay Area

Re: Helping Mom with retirement asset allocation & estate planning

Post by RetiredAL »

TheAlamo wrote: Thu Feb 03, 2022 5:04 pm My mother and I met (virtually) with an independent "fee only" financial advisor who wants to charge an "Annual Advisory Fee" of 0.60%. This seems crazy to me. The TD Ameritrade "financial consultant" wanted to charge a similar fee.

My plan as of now is to:

1. Call TD Ameritrade and see if I can get her basis adjusted to my father's date of death (as RetiredCSProf suggested);
2. Sell off the positions in NUGT, TECL, FAS, EDC, etc and put the money in a Target-date fund from Vanguard (I am thinking Vanguard Target Retirement 2030 Fund VTHRX or similar as niagara_guy suggested);
3. Start shopping for a CPA since she will likely have capital gains in 2022 with this plan;
4. Ask her to meet with an estate planning attorney to discuss either a will or a trust.

Does that sounds reasonable? Should I do these in a different order? Like should we meet with the CPA first?

Also, it seems disingenuous to advertise yourself as a "fee only" financial advisor and then want to take a percentage of the assets under management each year as the fee.

Thank y'all for any guidance you can provide!
No one else picked up on these being leveraged ETF's.

IMO, sell them, yesterday!
Last edited by RetiredAL on Thu Feb 03, 2022 5:28 pm, edited 1 time in total.
NotWhoYouThink
Posts: 3595
Joined: Fri Dec 26, 2014 3:19 pm

Re: Helping Mom with retirement asset allocation & estate planning

Post by NotWhoYouThink »

TheAlamo wrote: Thu Feb 03, 2022 5:04 pm My mother and I met (virtually) with an independent "fee only" financial advisor who wants to charge an "Annual Advisory Fee" of 0.60%. This seems crazy to me. The TD Ameritrade "financial consultant" wanted to charge a similar fee.

My plan as of now is to:

1. Call TD Ameritrade and see if I can get her basis adjusted to my father's date of death (as RetiredCSProf suggested);
2. Sell off the positions in NUGT, TECL, FAS, EDC, etc and put the money in a Target-date fund from Vanguard (I am thinking Vanguard Target Retirement 2030 Fund VTHRX or similar as niagara_guy suggested);
3. Start shopping for a CPA since she will likely have capital gains in 2022 with this plan;
4. Ask her to meet with an estate planning attorney to discuss either a will or a trust.

Does that sounds reasonable? Should I do these in a different order? Like should we meet with the CPA first?

Also, it seems disingenuous to advertise yourself as a "fee only" financial advisor and then want to take a percentage of the assets under management each year as the fee.

Thank y'all for any guidance you can provide!
Actually, that is the definition of a fee-only advisor. They charge a fee to manage the assets rather than a commission on each trade. The term gets routinely misused on this forum, which confuses people when they hear and use the term out in the real world.

Sounds like most of these stocks are not in an IRA if you are worried about taxes. In that case, a target date fund might not be the best, Vanguard famously had some significant capital gains distributions in some of their target date funds this year.

Do you want to take the risk and responsibility of managing your mothers assets? Sounds like you weren't previously involved, and maybe you don't want to be the one your mother blames if the market drops, or calls twice a day when the financial markets are in turmoil.

I don't have a dog in the fight about which investment house is best, although I've heard good things about the Vanguard Personal Advisor Service. But if she has no interest of confidence in managing her assets, then turning it over to a pro who will charge a fee might be better than letting her go it alone, or taking on the job yourself.

Don't think you mentioned if you have siblings. If you do, then I triple my advice on not managing her finances.
Topic Author
TheAlamo
Posts: 6
Joined: Mon Feb 01, 2021 9:03 pm

Re: Helping Mom with retirement asset allocation & estate planning

Post by TheAlamo »

OK - I sold all the positions in the ETFs and put the money into VTMFX.

I am having a hard time convincing her she needs a financial advisor and an estate-planning attorney. Any advice on that?

Thank you for all of your help so far!
HomeStretch
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Re: Helping Mom with retirement asset allocation & estate planning

Post by HomeStretch »

If your mom is competent and rejects your advice, there is not much else you can say or do as the decision is hers.

Her state likely has forms online available for a durable power of attorney (DPOA) and healthcare representative/directives. Your mom can complete them and have them notarized which does not require an attorney. This is of course not a complete estate plan.

I personally would not make financial transactions on behalf of my parent without a properly executed DPOA. So if your mom wants help, she’ll need to execute a DPOA or do it herself.
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JoeRetire
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Re: Helping Mom with retirement asset allocation & estate planning

Post by JoeRetire »

TheAlamo wrote: Tue Feb 15, 2022 12:24 pm My Dad passed away in 2019.
Sorry for your loss. My Dad passed in 2019 as well. Glad he didn't have to deal with the pandemic.
OK - I sold all the positions in the ETFs and put the money into VTMFX.
Why VTMFX?
I am having a hard time convincing her she needs a financial advisor and an estate-planning attorney. Any advice on that?
How old is mom?
Is she able to make these sorts of decisions on her own?
it seems disingenuous to advertise yourself as a "fee only" financial advisor and then want to take a percentage of the assets under management each year as the fee.
Nothing at all disingenuous of a fee only financial advisor charging a fee. That's basically the definition.

If mom can do it herself, perhaps she doesn't need an advisor. If mom needs only an hourly fee-only fiduciary financial advisor, then perhaps that's the way to go, and she can avoid the assets-under-management fee. But if mom needs lots of help, the fee for a good fiduciary advisor may be money well spent.
This isn't just my wallet. It's an organizer, a memory and an old friend.
GaryA505
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Location: New Mexico

Re: Helping Mom with retirement asset allocation & estate planning

Post by GaryA505 »

TheAlamo wrote: Tue Feb 15, 2022 12:24 pm OK - I sold all the positions in the ETFs and put the money into VTMFX.

I am having a hard time convincing her she needs a financial advisor and an estate-planning attorney. Any advice on that?

Thank you for all of your help so far!
You'll get a lot of criticism of VTMFX here, but for a one-fund solution for an "older" person you could do a lot worse. It avoids any need for rebalancing, and in retirement you only have one thing to sell when you make a withdrawal. I personally don't own any (yet), but I'm considering using it in the future to simplify things for my heirs.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
Topic Author
TheAlamo
Posts: 6
Joined: Mon Feb 01, 2021 9:03 pm

Re: Helping Mom with retirement asset allocation & estate planning

Post by TheAlamo »

Hello again all,

I am trying to figure out if my mom has tax liability for the moves I helped her make earlier this year. On the TD Ameritrade site I clicked on "Realized Capital Gain/Loss Report".

It says:

Long-term Gain: 1,467,661.58
Long-term loss: -1,727,212.07
Long-term net: -259,550.49
Long-term proceeds: 3,010,729.13
Long-term cost: 3,270,279.62

Just from looking at that, it looks like she had a long-term loss of 259,550.49 (rather than a gain she would need to pay taxes on).

Another thing I noticed from the document is that the "open date" for some of the securities is listed as my Dad's Date Of Death while others are listed as before that. Is that worth talking to TD Ameritrade about? I thought Mom would get the step-up in basis on all accounts (joint and individual) but maybe only on accounts Dad owned in his name only?

Mom is going to talk to a CPA this month but I don't know what to tell Mom to ask the CPA. Any tips? Can I just ask her to show him the "Realized Capital Gain/Loss Report"?

I think she would meet with a fee-only financial advisor as well although I haven't made that appointment yet. I assume it would be beneficial to do that before the end of 2022.

Any help y'all can give me would be much appreciated!
RetiredCSProf
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Joined: Tue Feb 28, 2017 3:59 pm

Re: Helping Mom with retirement asset allocation & estate planning

Post by RetiredCSProf »

TheAlamo wrote: Thu Dec 08, 2022 6:45 pm ...
Another thing I noticed from the document is that the "open date" for some of the securities is listed as my Dad's Date Of Death while others are listed as before that. Is that worth talking to TD Ameritrade about? I thought Mom would get the step-up in basis on all accounts (joint and individual) but maybe only on accounts Dad owned in his name only?
...
I am not an accountant, but I think the step-up basis on jointly held accounts is state-specific (community-property state versus not). If community property, then she would get a full step-up in basis; otherwise, a half-step up in basis.
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