What is one of the safest methods to insure a conservative growth from my savings and avoid losing my estate in case of injury or sickness?
I am 66 years old and retired with a monthly income of $5,400 from a pension and Social Security. I have $250,000 in savings and $25,000 in a mutual fund. My house is paid for and worth about $125,000. I have a 15-year term life policy of $100,000. I have no debt. I intend to leave money for my two children. What is one of the safest methods to insure a conservative growth from my savings and avoid losing my estate in case of injury or sickness?
You have a good question, but it is a little challenging to answer without knowing more information. But here are some things to consider:
- How do you define "conservative" - some people think "no risk," while others think I could risk 40% of my portfolio and feel conservative. If you are thinking, "it's not my risk, it's my kid's risk," then that brings more complexity into it.
- A follow up to that is what risk do you need to take? You mentioned that you have $5,400 in monthly income, does that give you plenty of cash flow and you can put some of that aside for future needs?
- Is any of this money in savings or a mutual fund deemed an IRA or Roth IRA or is it all after-tax (AKA non-qualified) money? Will you have to take any distributions at age 70.5?
- When you say you want to avoid losing your estate, are you saying you would prefer to not use your assets to provide for your care if you were to become injured or sick? Would you live with one of your two kids that you mentioned if something were to happen to you and you would pay them out of your savings for that? Would you consider a hybrid long-term care policy that would act as a life insurance policy if you didn't need it for long-term care? Your answers would allow for better direction.
- How is the house titled, do the kids own it and you have life use? Do you want it that way? Do they want the house at some point? There are pro's and con's to this - so it's important to work with an estate planning attorney if you are interested in gifting them the house (or anything else).
- Different states have different rules on inheritance and Medicaid (i.e. spend-down), so that will drive some of the suggestions too.
I know this doesn't answer your question directly, but I hope it gives you additional food for thought.
You’re probably going to have to set up a trust. There are two basic types, revocable and irrevocable.
An irrevocable trust has the benefit of providing protection of your assets from creditors and lawsuits. But it also means that you as the grantor of the trust no longer own the assets within it. The trust is run by an independent trustee, but it can be made for the benefit of the you as the grantor.
Also, since the assets in a revocable trust will be moved out of your name, they will not be part of your estate for estate tax purposes. Although your asset levels are well below the estate tax threshold. That also means you should be able to move money into an irrevocable trust without incurring gift taxes.
If you set up a revocable trust, you will not only retain control over the assets within it, but you will also have the ability to cancel the trust should you decide to do so at a later date. But be aware that a revocable trust doesn’t protect your assets from creditors or lawsuits, since the assets are still owned by you. You may also incur capital gains taxes when you move appreciated assets into a revocable trust.
One other important point with revocable trusts…The money in the trust cannot be protected from nursing homes.
The advantage with either is that you will be able to specifically designate the transfer of trust assets to your heirs, in a way that is more certain than with a will.
If you plan to consider either type of trust, sit down with the trust attorney and discuss your options and the implications of each.
One thing you can’t predict is the health. Unless you have a good long-term care (LTC) insurance, your house could be in jeopardy. Although it’s an exempt or non-countable asset when you’re filing for LTC services via Medicaid, states still could get the house through an estate recovery posthumously.
One idea could be suitable for your request of “one of the safest methods to ensure a conservative growth” is a fixed annuity. Your investment can grow, albeit at a lower return than the stock market, but it takes the investment risk out of your mind and transfers it to the insurance company to manage. Furthermore, if you never use it, it could be a death benefit for your children.
Personally, I would have a face-to-face talk with a financial planner and determine what percentage of your savings you’re comfortable with to invest in the market. I then put the rest in a CD-ladder, i.e. invest your money to a 3-, 6-, and 12-mo. CD, so that your money still works hard for you even it’s not participating the market. Lastly, the money invested in a taxable account can enjoy a step-up basis for your children, which is used as an estate planning tool to minimize the tax. Best!
There are two questions here, so I will break them up to give you an appropriate answer. How do I avoid losing my estate in case of injury or sickness? You would be best served by speaking with an estate planning attorney as this would be accomplished by setting up a trust. Once a trust is created it can be invested in a variety of ways, which brings us to your next question. What is one of the safest methods to insure a conservative growth? Risk Parity, which forms the foundation of the most successful hedge fund in history, Bridgewater. You can read more here (https://www.bridgewater.com/resources/our-thoughts-about-risk-parity-and-all-weather.pdf) . Please reach out if you would like to learn more about how our firm employs a strategy based on these principals to help clients protect wealth without resorting to the use of insurance products.
Please note, this is not an investment recommendation or legal advice. It is provided for informational purposes only and you should consult with a professional about your particular situation.