Annuities: Protecting Parents, Preserving Legacy

Since this is the 200th episode of the podcast I asked for help from the listeners to get the right topic.  Some good ideas came from that but I really wanted to do something that is different than anything else but still relevant.  We spend so much time talking about you as the listener because you are in the main demographic.  But quite often someone calls who is listening in order to help another person, maybe a parent or a child.  Frequently clients ask about aging parents or even for tips on how their kids should get started.  

Currently my clients range from age 45 to over 90 years so there is definitely some diversity in my advice but I’ll save that for later.  I know plenty of things about how to get started, although most of my work involves finishing the journey the right way.  Everyone needs to know that if you buy something from me then you can always call for advice whether it’s for you or someone else.  There are a handful of people who have never bought anything from me but regardless, I’ll always help out if I can.  One client came up with a good idea that will allow me to weave it all together so this episode can demonstrate why the approach for everyone is truly unique.

John and Simone are new clients from last year.  They took a piece of assets well before retirement and locked in a healthy guaranteed income payment that they will use for retirement down the road.  Simone wanted to get some advice about her parents who are in their early 80s.  About 20 years ago her dad put much of his money into annuities.  Then four or five years ago he bought more annuities and turned on some guaranteed income that he doesn’t need.  Now he’s got an additional $5000 per month in cash flow and long-term care is a potential concern for Simone and her siblings.

My questions about the deal can’t possibly be answered.  Why did he put much of his money into annuities 20 years ago?  Did he improve his financial situation by purchasing more annuities recently?  The previous contracts would have certainly been surrender free and he would have had a lot of options with all the liquid cash.  Now he’s got income he doesn’t need so it is definitely not optimal.  Payouts weren’t great five years ago so he’d have been better to play it slowly with a MYGA and he’d be able to get far better rates right now.  It’s likely he could have done much better but I don’t think we’ll ever know.

It’s justified for the kids to be concerned about the parents having the right financial foundation late in life.  If long-term care needs arise then assets are at risk.  You either need to be able to pay for it or sell off and drain other assets.  If the oldest generation wants to liquidate and gift assets in order to qualify for medicaid then there’s a 60 month lookback where the assets can still be taken.  It sure helps to have as much money available as possible to increase the number of options you have.  But please don’t think that just because you need assisted living that someone is going to come confiscate all of your money.

After looking at Simone’s situation, I could see that it wasn’t all that bad.  She was concerned about her parents’ well being and although it could have been a little bit better, they are in a reasonably strong position if the need for care arises.  They have all the income they need right now and a whole lot extra.  A big lesson for everyone who fears this situation is that when you need assisted living, you won’t be living the same way you do today.  To qualify for any assistance you truly need help with the simple activities of daily living, to use an industry term.  You’re not spending your money the same way now.  You are not taking vacations, buying new cars, or going out to dinner.  Very basic bills around the house might need to be paid but a large portion of your current income will be redirected to pay for the care you require.

The reason people think about gifting away assets is so they don’t have to pay as much.  The reason the lookback period exists is because if you need assisted living then you have to pay for it.  If anyone goes into a situation like that where they rely on medicaid alone to cover the bill then you’re not going to get top of the line facilities and care.  That’s bottom of the barrel stuff.  What kind of care do you want for yourself or loved ones?  And if you have to use your own assets to pay for it, the medicaid system doesn’t just take your money.  They use your assets to determine whether you qualify for public assistance.  If you have the money, you have to pay for it.

A good recent example of this is my grandmother who passed away earlier this year at the age of 94.  For the last three years of her life she needed to live in a qualified care facility.  She didn’t have a lot of money but social security and veteran’s benefits from my Grandpa were redirected to give her very good care in her final days.  She didn’t need some fancy long-term care policy or significant means to get it.

As it stands now, if Simone’s parents need assisted living, they have additional cash flow that will go a long way in helping cover the costs.  If they had met me five years ago and Dad had bought some MYGAs instead, he would need to draw on that asset to cover additional expenses.  Depending on how long the parents live, it could turn out to be six of one and a half dozen of the other.  In all likelihood the biggest effect will come in terms of legacy, but Simone and her siblings don’t seem to be concerned about that.  Her parents are in a pretty decent position and have plenty of flexibility with the additional income.

Here’s the big takeaway from all of this: make sure to clearly document the assets you have and purpose intended for them.  At some point we will all need someone else’s help and I think it’s our duty to make that as easy as possible on whomever that is.  I frequently request that clients involve a responsible child into the process so at the very least they don’t have to question the structure of assets at the last minute.  It’s too much education required at a very stressful time.  They also have their own lives to worry about as well.

I’ve seen three of four grandparents pass away while I’ve been in this business.  I paid close attention to how it was handled so will no doubt be in charge of educating siblings and cousins when it’s our time to preside over the final days of our parents.  When I talk about this most people say they plan to do it down the road at some point.  It’s certainly up to you but it doesn’t hurt to have a headstart.  Involving the kids early may possibly motivate them to set themselves up with a solid financial foundation like it did with me.

This has implications for every generation from top to bottom.  Make sure your parents are in good shape regardless of financial position.  Then get your own plan solidified so you are not a burden on anyone else.  Finally, fully document it or even share it with your kids so they aren’t caught off guard when you need help.  Legacy isn’t just a dollar amount, more importantly it’s a foundation of security which comes from diligent planning.  I see the importance more and more these days so I plan to make it a bigger part of every planning case I do.  If anyone wants to jump in line and talk about it then get on my calendar.  A few case studies would be a good way to get it rolling.

Have a great weekend…

Bryan

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Last Updated on October 24, 2025 by Bryan Anderson