How to invest windfall for elderly father

five_o

Hi All

My 82 year old dad has just come into a windfall of approximately £500k. His aged uncle passed away recently and as he had no children he left the bulk of his estate to my dad and his 3 cousins. 

Just some facts about my dad:

• Widowed 5 years ago
• Owns mortgage free house worth around £475,000.
• Has £42,000 in Premium Bonds.
• Has £80,000 in a S&S ISA (£57k in VLS60, £10.5K in Scottish Mortgage and £13k in FundSmith)
• Annual Income of around £11k between State Pension and small Personal Pension plus whatever he gets from Premium Bond winnings and ISA income.
• We, his 3 children, subsidise his income where necessary.

Dad is very old school. He dreads the idea of being a burden to his children and is extremely happy for his windfall as it will make him financially independent (hopefully) for the rest of his life. We his 3 kids are all very comfortable so we are not looking for nor expecting any inheritance from him.

The windfall should be in his account in less than a month and I am already trying to plan how to invest the money to allow it to last the rest of his life. Both his parents and both sets of grandparents lived into their late 90s and beyond. His elder brother passed away last year at 90 due to an accident. So there is a chance that Dad could live for another 15 years. However, as we all know there are no guarantees. I was hoping to get some guidance about how to invest for him. I know the best route with be to go to an IFA and if we are not comfortable with our plan for DIY investing we may just do that.

When the funds land he is intending to top his Premium Bonds up to the £50k max. He will then put another £20k into his S&S ISA (not sure which funds yet). He will put another £22k aside for ongoing expenses leaving approx £450k to be invested for his future.

I know that usually the advice is not to invest in the stock market unless you have horizon of at least 10 years so he needs to be very careful. I know there are some Wealth Preservation funds (such as Capital Gearing). Was thinking of looking into a few of these funds and spreading remaining £450k across them and then perhaps moving £20K worth into his ISA every year.

He is still very fit for his age and has a very active social life. We sat down and calculated that he would probably need a max of £50k a year for expenses which would also include things like holidays, car insurance, outings, Christmas, birthdays for 10 grandkids etc….. If we take his pension income into consideration that means that his investments would need to generate around £40k per year after tax (increasing annually based on the rate of inflation).

I would appreciate any strategies people have used in the past to generate an ongoing income for elderly relatives.

Many Thanks,

Albermarle

Couple of comments;
Due to his age, high risk investments seem inappropriate.
However if the money was invested in relatively low risk funds, it may only increase with inflation at best.
If he takes say around £48K pa before tax, then the £450K will run out in about 9 years.
Maybe a good idea to look into the potential expenditure again to see if he will really need that much.
Also investments outside an ISA/pension generate quite a lot of admin., as you have to report dividends, capital gains etc to HMRC.

One solution could be a lifetime annuity, where he would hand over a sum of money ( not necessarily all of it) in return for a guaranteed income. Due to his age he should get a good deal.

Keep_pedalling

I know you said all of his children are well off and want nothing from you, but he should consider gifting some of this money as this inheritance takes his estate into IHT territory, so a little bit of IHT planning by making a deed of variation to pass a some of this windfall to family or gifting to charity to bring his net worth below £1M would be worth considering. 

At his age long term investments are probably not the wisest choice, so I think cash savings are the best option for him. Has he put a financial lasting power of attorney in place? If not he should do so ASAP especially as his finances will now be a little more complicated as he will certainly become a tax payer again even with moderate interest on a leg sum of cash.

daveyjp

As above.

This is wider than just where to put a significant sum of cash.  Its income tax, inheritence tax and POA territory.  Health can change very quickly once into 80s so planning now will save headaches later.

OldScientist

As @Albermarle said, a lifetime annuity might be a good approach. For example, a £100k premium would give annual income of about £9k income for an RPI protected annuity while a level annuity would provide about £12k, but would decline in real terms with inflation (see https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities ) - if he has some health conditions, the payout rates will be higher, but I note that a purchased life annuity (i.e., purchased outside of a pension) will probably give less.

Drawdown over a 15 year period with a cautious portfolio (10% to 40% in stocks, with the remainder in cash) might give an inflation adjusted £5.6k per year per £100k (e.g., see https://www.2020financial.co.uk/pension-drawdown-calculator/ ).

Of course, a mix and match approach (part annuity, part drawdown) might form a nice compromise and allow for ad-hoc purchases and legacy (but would require more admin).

lr1277

Is the investment to provide income, growth or both?
If your dad no longer wishes to be a burden to his children suggests he wants an income. There are various NS&I and building society accounts that provide income but no growth. Just be aware he may have to start paying tax (again) and submitting a self assessment return. On the other hand don’t let the tax issue cloud your judgement about the income or the growth. Don’t let the tax tail wag the required return dog.
Or is the plan to slowly eat into the inheritance? So growth might be useful, so certain things are sold off as the money is required.?
Unless you can find a stock or a fund that is low risk but pays the requisite amount of income. Though if such a fund existed, I would think it would be very popular, so expensive to buy and then the rate of return would not be particularly high.

xylophone

It would appear from original post that heretofore father has been managing on a modest pension of £11,000 a year plus modest savings/investment income with the occasional gift from his children.

Unless the family have been supporting him to the tune of around £30,000 a year, how does he suddenly need an income of £50,000 a year?

He is not unaccustomed to stock market investing so presumably he can continue along this path if he so wishes 

But just drawing down the capital from simple savings accounts would give him some £30,000 a year  for fifteen years so why bother?

five_o

Thanks all for the input. Just to address some of the point raised.

1. I have POA over my dad both financially and with regards to well-being. We did it for both him and my mum a few years ago.

2. I don't think IHT will be an issue. His net worth is just under £1.1m and expect this to fall below £1m within the next 2 years. He "inherited" my mum's IHT allowance when she passed away. so his allowance of £500k has doubled.

3. My dad's needs will increase as he will now be able do more of the things he enjoyed doing. E.g. up to now he had a couple of annual holidays which we paid for. Now he can go on more expensive holidays such as cruises (which he has always wanted) and pursue more of his pastimes and social outings. So the jump in expenditure is not surprising....to us at least.

4. I had mentioned annuities to him before but he flat out rejected the idea. I think he prefers to be in control of his own finances rather than handing money over to a company that will then give him an "allowance".

Perhaps the best idea is to put the money into Fixed Savings accounts (topping up Cash ISAs every year) and then withdraw it as he needs. That would probably mean they will be fully exhausted in about 10 years and by then he will probably be in a position where he is living with one of his 3 kids so we could always sell his house to fund any ongoing expenses at the time. Also as he gets older his expenditure should reduce. I don't think our 90 year old dad would still be as active as he is now :-)

bunnygo

be aware that it can all go bad health-wise between 80 and 90, although naturally I hope your dad will be lucky. That can mean sudden huge care needs, especially if he wants to stay in his own home. That money will give him that choice, so ignore anyone who talks about passing it to you.

That said, tell him to get on those cruises now and have as much fun as possible!

FIREmenow

When he receives the inheritance, it should be covered by the FSCS as a temporary high balance for up to six months. This will give you time to implement your plan. 

After that time FSCS protection is capped at £85k per bank or banking group, so try to spread savings accounts to stay under this. If you are struggling then NS&I are backed by the treasury so 100% of your money is protected, but their interest rates are not the best.

LHW99

FIREmenow said:

When he receives the inheritance, it should be covered by the FSCS as a temporary high balance for up to six months. This will give you time to implement your plan. 

After that time FSCS protection is capped at £85k per bank or banking group, so try to spread savings accounts to stay under this. If you are struggling then NS&I are backed by the treasury so 100% of your money is protected, but their interest rates are not the best.

Having said that, if money over £85k did temporarily stay in an account with a major bank / building society for longer than the 6 months, it is fairly unlikely that you would need the FSCS protection, as the Government has stepped in in the past.