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Elderly Parents


My parents are retired, living in another state.  They have a sizeable investment portfolio and are financially comfortable. However, as they are getting older, they are having trouble keeping up with their finances.  Last year they missed making some credit cardpayments, very unlike them.  Late on taxes too, incurring penalties.  I would help them, but I just live too far away.  Is there a service that a bank offers to retirees to help in managing their money? Does it cost a lot?



Your parents should look into establishing a living trust.

They would transfer their investment assets into the trust, which then would be managed by a trust department or trust division, such as us.  We would remit income to them as needed, file tax returns, and pay bills if they so desired. We could continue to provide this financial service even if one of your parents became incapacitated.  The trust could continue to operate through both of their lives, and it would avoid probate at their deaths.  

The annual fees for our trust service are determined as a percentage of the size of the trust.  We do not earn commissions on sales, and we are not paid for generating transactions.  Our fees grow only if the value of the trust grows.


Article ©2024 M.A. Co. All rights reserved. Used with permission. 

Tax or penalty?

An executive owned shares in an ESOP and had a nonqualified deferred compensation arrangement.  After a corporate reorganization and his termination, the executive agreed to accept a payment of $26 million to his IRA in satisfaction of his claims.  The transfer was reported on his income tax return as an IRA rollover contribution.

The IRS didn’t see it that way, as payments from the deferred comp were not eligible to be rolled over.  Some $25 million was held to be an excess IRA contribution, subject to a payment of 6% to the government every year until the amount was disgorged from the IRA to be fully taxed as ordinary income.

Is the 6% payment an additional tax, or is it a penalty for the bad behavior of making an excess contribution?  The distinction is important, because the taxpayer in this case claimed that the IRS had not followed its own required procedures for imposing penalties.  Unfortunately for him, the Tax Court held that the 6% is an excise tax, so those procedures are not required.


Article ©2024 M.A. Co. All rights reserved. Used with permission. 

Your Social Security benefit start date

In an actuarial sense, it doesn’t matter when someone starts to receive their Social Security benefit.  An earlier start means a lower monthly benefit, a later start increases the monthly payment at the cost of skipping years of benefits.  The two approaches are balanced for those who live to their life expectancy.  For every individual, however, there are considerations that go beyond the actuarial, beyond the math.  A recent study from the National Bureau of Economic Research explored some of those reasons [Social Security Claiming Intentions: Psychological Ownership, Loss Aversion, and Information Displays, available online at].

According to the researchers, more than half of Americans claim their Social Security benefits before reaching their full retirement age.  One important reason may be that 40% of Americans age 55 to 64 have no retirement savings at all, and so they need the money. But they might be still better off by staying longer in the paid work force, delaying their retirement, thereby building a larger retirement benefit both by paying more Social Security taxes and avoiding the benefit reduction that comes with an early start.  These additional, more emotional factors were identified by the researchers.

Sense of ownership.  Although Social Security is a pay-as-you-go system, with payouts largely funded with payroll taxes on current workers, it has always been presented as an earned benefit.  It is therefore not surprising that many people in the study agreed that “The Social Security benefits that I receive will come from the money I contributed.”  Those who had the strongest sense of ownership in their benefits were the most likely to claim their benefits before their full retirement age.

Loss aversion. Many people fear losses more than they value gains, as has been well documented in studies of investor behavior.  Among those in this study, those with the highest loss aversion were most likely to start benefits early, to reduce the chance of failing to recoup their tax payments.

Expectations of longevity.  On the other hand, those who expected to live a long time tended to start their benefits later, perhaps out of fear of outliving their retirement resources.

Information availability.  To give respondents a better sense of what is at stake in the decision, they were provided illustrations of cumulative benefits.  For example, a retiree who started receiving $1,339 monthly at age 62 would accumulate total payments of $353,500 if he or she lived to age 85.  If the same retiree waited to start collecting $2,395 monthly at age 70, the cumulate total at age 85 would be $402,360.

Such information has been shown to influence people, making them more receptive to annuity purchases for augmenting retirement income.  Paradoxically, in this case, the group that was shown the higher total accumulation became more inclined to claim early, giving up the possibility of that higher accumulation.

As interesting as these findings may be, for most people family and financial circumstances will be more important drivers of the retirement start date.  We can help you evaluate that decision.


Article ©2024 M.A. Co. All rights reserved. Used with permission. 

A cautionary tale

The Wall Street Journal published a lengthy story on the travails of a family that owns an art trove worth an estimated $1 billion (“The $1 Billion Art Collection That’s Tearing a Family Apart,” February 3, 2024).  The most critical factor concerns execution of a new will under unusual circumstances.

Morton Nuemann became wealthy in the 1920s, and began collecting art.  His son Hubert joined the endeavor, and shifted the emphasis in collecting to modern art.  Early works by Man Ray, Miro, and Picasso were acquired.

Hubert married Dolores Ormandy in 1954, and the couple had three daughters.  They separated in 1989, but never divorced.  The couple continued to attend art fairs together, and Dolores insisted on the family celebrating holidays and birthdays together.

In February 2015, Dolores fell and broke her hip in her apartment.  It was twenty minutes before a neighbor heard her cries for help, and notified the middle daughter, Belinda.  Dolores was rushed to the hospital.  According to Belinda, while waiting for her surgery Dolores asked that her estate planner be contacted.  The next morning, Belinda called the attorney.  

According to later court testimony, Belinda told the attorney that Dolores no longer wanted to treat the three daughters equally, as provided in her earlier will.  The attorney spoke to Dolores, who confirmed the change in planning objectives.  A new will was drafted that day and brought to Dolores to sign before the surgery.  It named Belinda as the sole executor of Dolores’ estate.

A week later, while still in rehab, Dolores asked again to meet with her estate planner.  She wanted 10% of her estate to pass to her oldest daughter, and $1 million to the youngest daughter. The estate included a painting estimated to be worth more than $30 million.  The attorney testified that Dolores characterized Belinda as “financially insecure” and so she needed more from the estate.  The attorney admitted that she had no idea Dolores was on painkillers and sedatives during the conversation.  Another new will was drafted and signed.

No one but Belinda knew about the new will.  The next year Dolores asked her youngest daughter, Melissa, for help in finding a new estate planning attorney.  Melissa wrote to an attorney, “My mother says that she signed a will that doesn’t reflect her intentions and she asked me to contact you.  However, no action was taken, and Dolores died a month later.

The rest of the family learned of the will executed during the rehab from hip surgery only when it was presented for probate.  That’s when the legal fireworks began.  According to the article, 18 lawsuits have been filed so far, and 12 have yet to be decided.

Two observations.  Wills should not be executed during highly charged, emotional periods, as surround a medical emergency.  Keeping the terms of a will secret from the heirs is a recipe for litigation, especially if the terms vary substantially from their expectations.


Article ©2024 M.A. Co. All rights reserved. Used with permission. 

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