Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

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Topic Author
ranipola
Posts: 3
Joined: Thu Jun 30, 2022 4:37 pm

Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by ranipola »

My very first post was a request for financial and retirement planning including portfolio review. My situation is slightly uncommon as unfortunately, my spouse passed away in Jan 22. My financial literacy until now has been at the level of a middle schooler, so I am trying to get a handle on the finances and plan for the future. My questions are both immediate and forward-looking.

Personal Situation:
Age 54. Spouse is the sole earner and passed away recently. Ample assets to live and bequeath to children (shown below). Two sons - elder one working and independent. Younger one has one more year of undergrad college, after which he will be independent.

Emergency funds: Covered
Debt: No debt, CC paid off every month
Tax Filing Status: Head of Household for next 1-2 years. Single after that
Tax Rate: No earnings going forward other than capital gains/dividends (about 30k of earned income in 2022)
State of Residence: CA (2022), MO after that
Age: 54

Desired Asset allocation: Roughly 50:50

Joint Taxable Brokerage: 2.6m total (35%)
1.8m (24%) Cash
800k Stocks (11%) 6000 AAPL

His 401k/IRA: 1.5m total (20%)
300k (4%) Cash
1.16m Stocks (16%) 20000 OXY
60k - Unknown

SEP IRA: 30k total
30k Stocks 225 AAPL

Checking Account: 1.2m total (16%)
1.2m (16%) Cash (500k from life insurance payout for spouse and 500k received from primary residence sale)

Foreign Real Estate: 2m total (27%) (No debt)
2.0m (27%) (Planning to sell during next 2-3 years)

Retirement Income:
Spouse has 74 social security credits.

College Education Expenses: $75k total for next 1 year, until son is out of college
Living Expenses: $5000 per month = $60k per year

GOALS:
Generate enough living expenses from the portfolio for life
Protect the assets (keep up with inflation, protect from lawsuits and or squandering)
Tax management including estate tax issues..etc
Bequest estate to descendents after death

ISSUES/QUESTIONS:
Planning to employ Vanguard financial advisor for portfolio allocation and consolidation. Initial thought is to go with 50:50 stock/bond allocation after emergency funds.
1. How to sell off individual stocks (AAPL and OXY) and minimize capital gains taxes. All the stocks are held for long-term so will generate LTCG of 20% (Assume 50% of the current value is capital gains).
2. How much to hold in cash for living expenses? What should be the withdrawal strategy
3. GIven that there is no earned income, is it possible to take advantage of reduced health care premiums (Currently paying $1250 for single person). Any other low income financial benefits which can be availed?
4. When to start withdrawing Social Security
5. Does it make sense to do Roth conversions for the IRA and reduce eventual RMDs?
6. All assets are in a trust currently. How to ensure that assets are protected and passed on to children
7. How to reduce estate taxes..etc for the descendants

Thanks for your comments and suggestions
-RP
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David Jay
Posts: 14587
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by David Jay »

Welcome to the forum!

First off, let me say that your spouse left you very well provided for. Your retirement accounts and taxable accounts will easily provide you with a great life. A super conservative withdrawal rate would be 2%, or more than $100,000 a year. And this is not even considering your offshore real estate holdings.

Let me answer #1: There are no tax consequences for selling inside a retirement account such as a 401K/IRA or SEP. Taxes are only due when you take money out of those accounts (called a distribution). I strongly feel you should sell the OXY shares inside your spouse's 401K/IRA plan, 20% of your portfolio is much too much to hold in a single stock, regardless of the quality of the company. The $30,000 of AAPL in the SEP is tiny, less than 1% of your portfolio so you can leave that alone for now and deal with it later. I would probably sell it at some point, but only to simplify your accounts.

Selling stock in the joint taxable account will create a tax liability, but long term capital gains (if you are not taking any distributions) will be low enough that your capital gains tax rate may be zero. If that is the case, I would "fill up" your zero percent capital gains each year with sales of some of the AAPL in your taxable account. You don't need to worry about this right now, but as you approach the end of the year you may even want to fill up the 15% capital gains bracket with some additional AAPL sales. This is especially true as you will be filing: Married Filing Jointly (MFJ) for 2022.

Take it slow, your cash reserves are adequate for more than 10 years living expenses. Don't jump into anything, you need time to adjust to your new situation.

[edit] I just read where you say that "all assets" are inside a trust. Does this include your checking account? Does this include the proceeds from the retirement accounts (401K/IRA and SEP)? This changes the taxation answers that I provided above.

It is likely that the best course of action is to involve an estate attorney to advise based on the specifics of the trust.
Last edited by David Jay on Sat Jul 02, 2022 7:34 pm, edited 1 time in total.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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David Jay
Posts: 14587
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by David Jay »

With regard to #4:

4. You will not be eligible for a SS benefit until age 60 at the earliest (widow's benefit), so you should put that at the bottom of your mental "check list". You should probably wait until age 67 to claim, but those decisions don't have to be made for 5+ years.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Wiggums
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Joined: Thu Jan 31, 2019 7:02 am

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by Wiggums »

Very sorry for your loss. I agree with the advice given by David Jay. You have sufficient cash which is important. You mentioned a Roth conversion. With the tax rates lower thru 2025, given that you can file MFJ this tax year, and stocks are down, you should consider a Roth conversion. This is taxed as ordinary income.

We retired at 56. Having less funds/accounts will make it easier to track your finances (long term) as you get older. The good news is that you only have very minor tweaking to consider. Your portfolio will conservatively generate more than your expenses which is outstanding. There is no rush to do anything other perhaps take advantage of MFJ if you sell anything in taxable.
Last edited by Wiggums on Sat Jul 02, 2022 8:01 pm, edited 3 times in total.
"I started with nothing and I still have most of it left."
doobiedoo
Posts: 880
Joined: Fri Jul 23, 2021 1:10 pm
Location: Southern CA

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by doobiedoo »

David Jay wrote: Sat Jul 02, 2022 7:26 pm With regard to #4:

4. You will not be eligible for a SS benefit until age 60 at the earliest (widow's benefit), so you should put that at the bottom of your mental "check list". You should probably wait until age 67 to claim, but those decisions don't have to be made for 5+ years.
First of all, my condolences. I lost my spouse at 62. As another widower told me, "It feels like half of you is missing".

Take the SS Survivor benefit when you are eligible at age 60. There is almost no advantage to waiting. Unlike regular SS, survivor benefits only increase ~1% a year if you wait.

Also there is a 1-time SS death benefit of $225. It's not much, but claim it.
https://www.ssa.gov/benefits/survivors/ifyou.html

Aside from these 2 things, I generally agree with David Jay's suggestions.
iamblessed
Posts: 1808
Joined: Sat Jun 09, 2018 11:52 am
Location: St. Louis

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by iamblessed »

Sorry for your loss. When I had a loss like that reading two chapters of the Bible every day helped me a great deal. 2022(this is your last year for MFJ) is your chance to sell all AAPL and OXY for the total stock market since we are in a bear. That is what I would do this year. When the market gets out of the bear then maybe buy bonds in the 401k/IRA's. At the same time buying more stocks in the taxable account. Just some ideas to think about. That is what came to my mind when I looked it over. The only thing that might be bad is the trust tax rates. https://smartasset.com/taxes/trust-tax-rates
Topic Author
ranipola
Posts: 3
Joined: Thu Jun 30, 2022 4:37 pm

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by ranipola »

David Jay wrote: Sat Jul 02, 2022 7:03 pm Welcome to the forum!

First off, let me say that your spouse left you very well provided for. Your retirement accounts and taxable accounts will easily provide you with a great life. A super conservative withdrawal rate would be 2%, or more than $100,000 a year. And this is not even considering your offshore real estate holdings.

Let me answer #1: There are no tax consequences for selling inside a retirement account such as a 401K/IRA or SEP. Taxes are only due when you take money out of those accounts (called a distribution). I strongly feel you should sell the OXY shares inside your spouse's 401K/IRA plan, 20% of your portfolio is much too much to hold in a single stock, regardless of the quality of the company. The $30,000 of AAPL in the SEP is tiny, less than 1% of your portfolio so you can leave that alone for now and deal with it later. I would probably sell it at some point, but only to simplify your accounts.

Selling stock in the joint taxable account will create a tax liability, but long term capital gains (if you are not taking any distributions) will be low enough that your capital gains tax rate may be zero. If that is the case, I would "fill up" your zero percent capital gains each year with sales of some of the AAPL in your taxable account. You don't need to worry about this right now, but as you approach the end of the year you may even want to fill up the 15% capital gains bracket with some additional AAPL sales. This is especially true as you will be filing: Married Filing Jointly (MFJ) for 2022.

Take it slow, your cash reserves are adequate for more than 10 years living expenses. Don't jump into anything, you need time to adjust to your new situation.

[edit] I just read where you say that "all assets" are inside a trust. Does this include your checking account? Does this include the proceeds from the retirement accounts (401K/IRA and SEP)? This changes the taxation answers that I provided above.

It is likely that the best course of action is to involve an estate attorney to advise based on the specifics of the trust.
Thank you David. Very helpful!
Topic Author
ranipola
Posts: 3
Joined: Thu Jun 30, 2022 4:37 pm

Re: Portfolio Review and Financial Planning: Asset protection, tax management and bequeath assets

Post by ranipola »

doobiedoo wrote: Sat Jul 02, 2022 7:55 pm
David Jay wrote: Sat Jul 02, 2022 7:26 pm With regard to #4:

4. You will not be eligible for a SS benefit until age 60 at the earliest (widow's benefit), so you should put that at the bottom of your mental "check list". You should probably wait until age 67 to claim, but those decisions don't have to be made for 5+ years.
First of all, my condolences. I lost my spouse at 62. As another widower told me, "It feels like half of you is missing".

Take the SS Survivor benefit when you are eligible at age 60. There is almost no advantage to waiting. Unlike regular SS, survivor benefits only increase ~1% a year if you wait.

Also there is a 1-time SS death benefit of $225. It's not much, but claim it.
https://www.ssa.gov/benefits/survivors/ifyou.html

Aside from these 2 things, I generally agree with David Jay's suggestions.
Thank you!
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