It has been a while since I’ve written about my mother’s financial situation because seeing the full picture of the train wreck that it is has taken time since my father’s passing. I think we now can see it – and it’s not a pretty picture.
We lived in a fantasy wackadoo financial world, and I never realized this until seeing the hard numbers after my father passed away last year. Sadly, there was a time when there was a significant amount of family wealth–but since my father retired early and then went on disability around age 55 and then got cancer and was told he had 2 years to live and then lived for 8 more, the money disappeared. Well, it was spent, and it was mispent.
My mother isn’t entirely at fault for this. Did she spend the money? Yes. But my father was abusive to her and not only would not let her be involved with the household finances but also told her that the financial situation was fine and she would be set for life. He told me that he had $50,000 set aside for my wedding and another $50,000 for my sisters (I would have never spent $50k had I understood the actual financial situation, and I do feel guilty about this and also want to help as much as I can at least up to that amount over time, but I can’t even afford a house right now so it seems like now is not that time – but down the road, should my mother be out of money, by then hopefully I can help.) Anyway, it was either one big fat lie or my father was delusional (and who knows what the strong cancer drugs did to his mind in those years, let alone his standard aging process.)
I’ll never know what happened. I know from around 2005 to 2018, my parents lost a significant chunk of wealth and it didn’t have to be that way. I know that I will always feel guilty for not stepping in sooner to really push them on their financial situation. I don’t know if I could have helped as my father, until close to the end of his life, kept this information to himself–he even did his own taxes (which was part of the problem–as he DIDN’T end up doing them for a few years) — and everything is clearer in hindsight but I just am not sure if I could have done anything at the time to help avoid this nightmare. Regardless, it’s too late to go back and change things. All I can do is try my best to help the current situation.
The current situation is that:
- my father’s supposed “paid” taxes were actually three years of unfiled, unpaid taxes, with two of those years having major amounts owed and massive penalties on top of these amounts – to the tune of $60k+
- my father was unable to handle dealing with his certain death, despite having 10 years of living with a terminal illness, so my mother had to, the day after he died, race around to find a burial site and pay top dollar for their plots and the service, etc. This cost $30k. I couldn’t bring myself to push for cremation, even though I know it would have been cheaper. The $30k was also due to my mother picking a nicer cemetery (since she’d be buried there too!) and not having time to shop around. Then there was the reception after the funeral… it wasn’t at the fanciest place but everything adds up when you have a lot of people and last minute expenses.
- So it turns out there was no money out of the IRA (just $400k in there, more on that in a bit) to pay that $30k, then put on my mother’s credit card. My uncle (father’s brother) kindly let her borrow the money to pay it, but she owes him it back by 2020, which is right around the corner. All this happened before realizing there was such a massive tax bill due!
- my father (and mother) took out a home equity loan to the tune of $200k on a home valued $500k (which was paid off!!!) in order to add on to their house, renovate bathrooms, who knows what else. My mother has no idea what everything cost and sadly there are no records that we can find (which is shitty, because it makes her have to rush to sell the house, see next bullet – though maybe this is a good thing.) Anyway, there’s a $200k home equity line of credit that is tapped with variable interest that’s about $650 a month right now interest only that will be $1600-$1800+ starting May next year when she has to pay principle and interest…
- I didn’t realize this, but after your spouse dies, you have 2 years to sell your house to get the $500k capital gains exclusion… after that time it goes back to $250k. If my mother and father kept good records of all the work they had done to the house over the years, this wouldn’t be an issue–but, shockingly, these records are no where to be found. My father supposedly, messy as he was, kept all his papers – so I’m hoping they will turn up somewhere, but so far, no luck in finding them…
- the house is a money sink. This is the hardest for me because I grew up in that house and I’m so emotionally attached to it. I know a house is a house is a house and the memories made in it will never go away once it’s sold, and people sell their childhood homes everyday and it’s not like we could own the house forever—but that doesn’t change how hard selling the house will be for me. I don’t have a great memory… but when I’m back in those walls, my childhood comes flooding back, the good and the bad of it, and I feel like time isn’t slipping away quite so fast. I also dreamed of having my children visit my parents there–it’s a great “grandmas house” — to spend lazy summer days playing in the backyard on vacation as my mother watches my kid(s) run around… it’s just readjusting the plans I had and mourning the loss of my father, my childhood, my past. It has to happen sometime–why not now? But I don’t feel ready for it. I’m so not ready for it I’m wondering if there is a non idiotic way I can purchase the home and rent it back to my mother–just so she has access to the cash and we still keep the home in the family for another few years. I know I can’t even afford my own home living in The Bay Area BUT this would motivate me even more to keep my job and earn more money. The house is worth $500k-ish, and that’s actually affordable. If I can’t buy property here, then is it horrible to own property elsewhere?… but it’s in a high tax state and the taxes on that house are killer, and so is managing the property… it’s not a HUGE house but it’s certainly not small, and the land is expensive to take care of. It doesn’t make sense, but that doesn’t stop me from daydreaming about buying the house and helping my mom stay there for another few years and still get the $500k in capital gains exclusion in time…
- In the years of financial recklessness, my parents purchased a “snowbird” condo in Florida. My father told my mother this was always going to be a vacation home, so they purchased a 2br/2ba condo for $60k and fixed it up for another $40k (or so I’m told) paying cash on this (which kills me because it was yet another expense that led to having to pay a bazillion dollars in taxes since all the money was held in the IRA and my dad then somehow failed to pay the right amount those years) — he could have taken a mortgage to buy the property and not paid for it all up front. He could have taken me up on my offer to pay for my wedding or at the least to pay for some of it since I had access to money and he could pay me back over time, if he really wanted to pay for the whole thing. But he was too prideful, or his brain was broken, or both. I wish I could ask him what the hell he was thinking. But they bought they condo. That $100k in cash, with tax penalties for taking the money out of the IRA and not filing/paying on time, probably ended up costing them $200k. I am not sure how to figure out how much money was lost by simply failing to manage the money left wisely due to it being in “tax advantaged” accounts, and I’m not sure it matters now–but I know there was a substantial amount lost because of extremely poor management.
- The good news is that my mother set up the condo in Florida to meet her liking, and she seems happy there. It’s unclear if she will be happy living there full time since most people in the community go home for the summer and I worry she will be lonely. At least she is the type to be happy anywhere there is a pool and people willing to listen to her stories. But in the summers there it will be extremely hot and the pool area will be rather empty. Her sister also now lives in Florida but a 2 hour drive from her condo. I worry about her being alone, or more alone then I ever imagined she’d be. There’s nothing wrong with retiring to Florida (certainly tax wise it’s a good idea) but how can I manage to help her as she ages without other family close by to check on her, etc? And no money there to help put the proper support system in place?
- My father was talked int putting an annuity with a death benefit in his IRA by a Bank of America rep. I talked to the rep after my father’s death and he shared why he thought it was a good idea (I’m unsure, but too late for it to matter.) My mother did get a ‘death benefit’ payout in the IRA, which is now sitting in cash, which is a problem, because of the $400k in the IRA, only $100k is in investments and the rest is sitting in cash – and I’m sure to afford her life the rest needs to at least be in bonds or something that is making money but it’s not. We want to hire a CFP but after working with my CFP (more on that in another post) I’m not sure what CFP is the right option as they’re quite expensive and CFPs typically don’t manage tax issues, or other weird issues like the ones my mother is facing. They can certainly run an analysis of when she’ll run out of money and when she has to sell the house, but we still don’t have the final tax bill so it’s hard to even run those numbers yet.
- Taxes. Do we hire a lawyer or enrolled agent to help with attempting a penalty abatement and lower-cost-per-month payment plan? Another substantial expense and I’m not sure it’s worth it – I mean, it’s worth it if we can get the penalties abated and a good payment plan, but it seems like either we can do this ourselves or the IRS won’t allow this. My father apparently had a number of years where he already had a bad history of payment on time, so the IRS may just disallow our abatement request. However, I’m hoping with proper documentation on my father’s illness and also my mother’s documented abuse record, there’s a chance they’ll take off some or all of the penalties. Do we really need to spend $5000 on a lawyer to do this? I feel like I can probably help here and save that $5000, but if it doesn’t work my mother may blame me (even if it wouldn’t have worked with a lawyer) and if it does, but partially, then how will we know if we got the “best” deal? But all his money – $5000 for a tax lawyer, $5000 for a CFP, etc etc, needs to come from somewhere and that requires taking more out of the IRA. I’m trying at this point to help her avoid taking too much out of the IRA.
- The good news – if there is any good news – is that my father did have a sizable pension and made sure to take the one that would provide lifetime income for my mother. That, with social security, amounts to something like a $50k-$70k salary before tax. A single person SHOULD be able to live on that income just fine…
- But my mother is horrible at budgeting. That is to say she refuses to budget. I have her set up with a Mint account and I’m watching and documenting how much she spends on everything each month. She has definitely reduced her spending A BIT but I can’t get her to stop buying clothes “on sale” and spending on unnecessary items. Right now she is spending about $40,000 more than she earns per year, give or take as I’m not sure what her total tax liability is for this year. With $400k in the IRA, she is going to be in credit card debt in a few years at this rate. It will slow a bit once she gets the full SS amount (see blow), but not enough. Really the only way to stop the bleeding is to sell the primary house…
- This is ESPECIALLY important this year because we have decided (and I’m not sure if it’s the right decision) to wait until she turns 66 to take the full survivors benefit for social security. If the math we ran was right, it will take about 17 years till break even on this choice – so it might not make any sense at all. I think it’s a pile of shit how social security works in that you’re supposed to get the same amount whether you live a long time or not long as all as long as you properly estimate when you’re going to die–because that’s an easy thing to guess.
- My father made other bad money moves that have left residual issues. A few years ago my sister got into a car accident that wasn’t her fault. She earns minimum wage and although my parents paid for her car in full she didn’t have the type of insurance on it that would pay out in the case of a hit and run. Well, she was in a hit and run and her car was totaled. She was willing to pay a certain amount for a new car (about $10,000) but my father decided that $10,000 was not enough to get a car that was “safe” he would pay $5000 on top of that for her to get a certified pre-owned Toyota Corolla. That certainly was nice of him to do, and would make sense if he had the money to spend in the first place. He did decide not to pay for this in cash entirely and instead to take out a low interest loan offered by the dealership, you know, while he had a terminal illness… without thinking what happens to the non-transferable warranty or Gap insurance he paid for in the purchase price when he died. So now another issue is figuring out what to do with my sister’s car… about $6000 is left owed on it, and my sister has been dutifully making monthly payments on the % she owes, but apparently once the person on the loan dies it’s necessary to pay off the loan with the estate (so I’ve read) or take a new loan out to pay off that loan. My sister assumes my mother will pay off the loan and she can pay her back, which is fine except that will require taking $ out of the IRA to do and that will cost more than $6000. So I suggested my sister look into how much a new loan would cost (I assume the interest on a loan — if she could get one — would be quite high.) I told her find out what this would be and then let’s talk. I could possibly loan her the $ at a much lower interest rate. Maybe I should just give her the money at 0% interest rate (and I might) but I’m trying to strategically figure out where I should be offering money to help with the whole mess across the board, while also trying to save for a down payment and afford my life. I don’t mind loaning her the money and maybe even for 0% interest but I want her to take the steps of figuring out how much it should cost her to get a loan and at least be an adult about this.
- My sister finally moved out of the house and in with her boyfriend and she got a job that pays shitty but at least has benefits. So my sister is no longer living rent free (with high utility bills) in my mother’s house, so that will bring down costs a bit, but I’m worried about my sister’s financial well being in the long run. She has no retirement savings and isn’t listening to me when I’ve told her to put aside more money for emergencies and such. I ran her budgets and I know it’s tight and she thinks I don’t understand living in relative poverty but she can be making better decisions overall and I’m hoping eventually she listens to me so I can help her start on the path to financial security. I’ve always said I would never let her end up on the street and I definitely wouldn’t, but I want her to at least take responsibility to try to manage her money better. She doesn’t have any debts outside of the car situation, so that’s good, but she also doesn’t have enough money in an emergency fund and it’s different now that my mother can no longer afford to help her out if needed. I can, as long as I don’t own a house and I keep my job, but I really want her to try as hard as possible for it not to come to that. It’s not like she spends a fortune on things, but when you make that little you have to be even more cautious with your budget.
- There is so much crap in the house that selling it will be a nightmare. My father has always been a “collector” of (likely) worthless stuff — paintings and sculptures from art shows, baseball figurines, records and CDs and DVDs, books, and who knows what else. Maybe some of it is worth something but selling it all and determining if any of it is worth more than pennies on the dollar is going to take more time than it’s worth. Once he was diagnosed with terminal cancer his collecting definitely increased. I get it – he was dying and collecting was a hobby and maybe helped him feel like he wasn’t in such a horrible position. Still, I wish there was some fiscal logic in the behavior those last years the my parents should have been downsizing anyway, not buying more stuff.
- My father almost built an additional storage unit in the back of our house (the house already has 3 attics!) as my mother is a hoarder and has run out of room for stuff. Did I mention I’m not looking forward to cleaning out the house to prepare it for sale?
- My parents spent a lot on making the house accessible and livable for my father. This wasn’t necessarily a bad thing, but the amount of years of use vs the probably better thing to do of selling the house years ago and moving to an accessible building just is sad when you look at it from a sheer numbers perspective. Even if they did want to stay, they could have more wisely spent those dollars, and less of them, to make it livable but not to the point of spending way more than the house will ever be worth.
- Meanwhile, parts of the house are falling apart. The oven has been broken for years. Who knows when a new roof is needed (not my mother, that’s for sure.) There will be costly updates before selling the house likely that weren’t handled with all the money spent on additions and renovations.
- He paid for years into long term care but ended up not using it at the end because to use it he would have to admit he was dying soon and he never could. He also wanted to be home and the LTC policy did not cover the full amount of in home care, so I think he knew he didn’t have the money to use it- but unfortunately was unable to have an honest conversation about this – so his last months were spent first in the hospital, then in rehab, and then for a horrible few weeks at home where my mother could not properly care for him, and then his condition worsening (who knows if it would have been better if he never went home or had actual in-home care), and then back in the hospital and then back in a different rehab where he died. That whole process is a long blog post or a book of trauma which haunts me and makes me feel sick every time I think about it. But from a financial perspective, it was just extremely sad that he didn’t use his long term care policy when he needed it most. Meanwhile he stopped paying for my mother’s LTC policy years ago because he said it was “too expensive.” Well, now it’s too late to get her one (probably) and she probably will be the one who needs it. I’m terrified of what happens as my mother ages. She may be a looney toon but she’s still my mother and I want to make sure she’s as ok as one can be in her senior years.
- My father constantly mentioned wanting to pass money down to his children (myself and my sister) and while at this point I do not expect that, it’s still sad that he made this comment time and again (esp for my sister since he saw her as incapable of taking care of herself) and now there’s basically nothing left. I don’t know how to advise my mother on this as I don’t want to have anything to do with whether or not she cares to pass money down to her children (and I certainly don’t feel like I have the right to anything) but I am worried about my sister and I also just think it’s sad that this was so important to my father but he failed to set things to up to make sure it happened. As a parent now, and one who hopefully accumulate substantial wealth, I want to make sure my child(ren) are set up to be ok even if the world goes to shit.
Well, I’m sure I’m forgetting and/or not seeing other financial issues that will come up. Thus far we’ve successfully filed 2015-2017 taxes (and have an extension on 2018) so that’s step 1. Baby steps. I see the light at the end of the tunnel here, once the taxes and loans are paid off, and the main house is sold. I think her Florida condo, as a full time dwelling, should help her get to at least break even for a few years, and hopefully she can even save some of the pension and social security money at some point to increase her investments and stretch out what’s left of the IRA.