What To Leave In; What to Leave Out

So this week two folks called on me for financial advice, and one I called on gave me bad advice.  First my own experience:

I've let lapse my term life insurance policies.  They were expiring in a few years, anyway, and as the Ds are now grownups and earning their own livings, I figured they no longer needed the benefits.  Plus, the policy I had on Wifey was to essentially pay for an extremely well qualified nanny should, Big Man forbid, anything happened to her, and now that the Ds are grown, I don't need no nanny no more.  Finally -- the term policy on MY life was $2M.  As I age and annoy Wifey more and more, there was no need to keep that big carrot out there for her...

I did keep one whole life policy I bought from my friend Rob in '92.  I pay into it each year, and it now has a cash value of about $50K.  I read about a transfer law where you could switch a whole life policy to an annuity, without paying tax on the gains in the policy.  I remembered my good friend's brother in law sold annuities, and I called and spoke to him about the conversion.  I wanted to switch ownership of the policy from a trust, so I no longer needed to bother my friend Mike with the paperwork, and then get  the annuity.  The brother in law said this would be fine -- no taxable event.

But to be sure, I called my brother in law the CPA, and he said no dice.  Indeed, if I followed the salesman's advice, it WOULD trigger a "taxable event," and I'd owe the government -- precisely what I wanted to avoid with the transfer.  Had I done that, I have no doubt the annuity company would have essentially shrugged its corporate shoulders.  You really have to double check these things.

This happens with legal advice.  Years ago, a family member was going to follow the advice of a Tampa lawyer and settle a car case for low money.  I told the fellow no -- go get checked by a real doctor before following the lazy advice of the lawyer.  Indeed -- the settlement following the discovery that he had a bigger injury was 10 times what he was going to accept -- and I also had to instruct the moron lawyer about paying back less to the health insurer -- putting far more money in the clients' pockets.  You really have to double check...

Then Wifey's friend called.  10 years before, she hired her sister's friend to manage her finances.  Why was her account worth less than it was then, she asked me.  I told her she needed to audit things -- figure out why she was paying this fellow to lose money for her.  She really hates finances, she said.  I told her, essentially -- too bad -- if you don't handle your money, since you have no one else to do it -- you lose.

I told her I would advise her once she got the information.  My advice will be to forget about the brokers, or "money managers" -- just open an online account, put her money in diversified places, buy no load index funds, and go from there.

People fear going broke late in their lives.  My Mom died owning her condo outright, which my crafty lawyer friend Steve saw went to my sisters and me through something called a "Lady Bird Deed."  Other than the condo, all her remaining assets went to Medicaid to reimburse for the last 11 months of her life.

My mother in law is broke now.  Her Social Security and payments from Germany from the Holocaust go directly to her luxury ALF, and Wifey and I have to pay the balance.  But when the suegra goes, there will be zero estate issues to deal with.

Recently a friend told me her father, a life long saver, told her something wise.  She mentioned her Dad might stay at a cheaper hotel than he had booked for his granddaughter's wedding.  He responded, in Spanish, that his whole life he was in "savings mode."  Now that he was in his early 70s, he was in "spending mode."  Of course, being the first allows him to now be the second.  I applaud this fellow.

So Bob Seger was right -- life often boils down to figuring out what to leave in, and what to leave out.  As for me and my house, the plan is getting and using good advice, saving plenty, and spending for awesome experiences.