My 92 yr old mum has £650,00. How shall we invest it?

paperconservator

I have an enduring power of attorney for my mum, who is in residential care, compis mentis but not in great physical health. She has an income of £23,000, expenditure of c.£50,000 pa. She has 3 capital investment bonds of about £50,000 each (Scottish Widows, Prudential, and Norwich Union), some cash ISAs and the rest is cash.

I was planning on ns&i cash ISAs and Index-linked Savings Certificates, then maybe some 1 year savings bonds, then I don't know: I'd be really grateful for advice. Should we hang on to the capital investment bonds? or take some regular withdrawels from them?

We will take advantage of the £3000 allowance for gifts (payments of £750 to each of four children) but could gifts of £250 be made in addition to all the 9 grandchildren? I just can't make sense of the bit on the inland revenue site on this question.

Hope someone can help!

jem16

I would strongly advise seeing an IFA with that amount of money and help with the tax situation.

dunstonh

Were the bonds arranged prior to her requiring or knowing about needing residential care?
Is an income taken from those bonds?
Is she getting benefits to help with costs?
Is money required to pay for care?
What is her tax position and how would it alter depending on where you would invest?
Making gifts could be seen as deprivation of assets if local authority care is applicable.

As Jem says, there is a lot of information needed and I have only given a small sample of the sort of things needed.

jamesd

The investment bonds may provide inheritance tax advantages so don't sell them immediately.

You should get professional advice from an IFA about both investments and inheritance tax planning.

On inheritance tax, did she have one or more husbands? What happened to their nil rate band inheritance tax allowances when they died? Did they just leave almost all of their property to her? If they did leave almost all to here, it's entirely possible that she will be able to use both her and several of their inheritance tax allowances, meaning that most or all of her estate will not be subject to inheritance tax. You should carefully research and document this, though it may be quite difficult if a past husband died many decades ago.

She can give away as much as she wishes and avoid inheritance tax obligations provided she lives for seven years after the gift is made. Her will should normally say that the proceeds of her estate are first used to pay any inheritance tax due on these gifts, in case she dies before the seven years are up, otherwise the recipients will be liable for the tax, a potential trap for them.

The inheritance tax limit is expected to be increased this April so there are advantages to waiting until then for any large gifts. After that she might agree with potential recipients to make a lump sum gift provided they invest it for a certain number of years. This way the growth in their investment value will not be part of her estate and they will probably be able to comfortably make riskier investments than she could, further increasing the benefit. For example, after allowing for all the husbands and their nil rate band inheritance tax allowances, you might calculate how much over the nil rate band remains then divide this evenly among the children and grandchildren to invest subject to their agreement that they don't use it for 7 years (the IHT limit) or her death so that they would be able to pay the IHT due on it if her estate couldn't. Or she may choose to use more, to let them make use of higher risk investments than she'd make herself.

She can protect her own needs by buying both a critical care policy and perhaps one or more term annuities so that she will have guaranteed income.

Her biggest risk with capital is the possibility that she may need expensive medical care that the NHS will not provide, so she should retain enough capital for this possibility.

EdInvestor

You need proper help from a specialist advisor, in particular with a view to topping up her income with a care annuity.This will preserve the remaining part of her estate and provide peace of mind for here and the heirs.

It is startling how rapidly even a large pot of money can be depleted when someone goes into care if the finances are poorly managed (and especially when the family 'takes a punt' on the early death of the relative, VERY unwise .

These people are one of the biggest and most experienced specialists : the link goes to some helpful hints about claiming money and some worked examples of the best way to manage the costs..

https://www.hsbcpensions.co.uk/nhfa/pdfs/is6.pdf

Biggles

My first thought, earlier today, was of a care annuity. However, I assume the income of £23,000 was before investment income; in that event, her total income should pretty well equal her expenditure (give or take a bit, and depending on the tax situation). So I would think her investments should last her more or less indefinitely without the need for any annuity.

The point I am more concerned about is the giving of gifts. Especially the view expressed that "She can give away as much as she wishes".

I know that was written from the IHT point of view but, in the words of the Office of the Public Guardian, "You have very limited powers to make gifts to yourself or others" - http://www.publicguardian.gov.uk/decisions/being-attorney-epa.htm

Before making any gifts of the size mentioned, you should speak to the OPG for your own protection.

EdInvestor

Biggles wrote: »

My first thought, earlier today, was of a care annuity. However, I assume the income of £23,000 was before investment income; in that event, her total income should pretty well equal her expenditure

Quite agree on the gifts.

IMHO she's pretty borderline on the income: a care annuity to provide some margin might be sensible, especially at her age, she should get a good deal.Interest rates are on the way down : if she could only obtain 4% net of tax she would already be eating into capital.

jamesd

Biggles, yes gifts are an issue, though worth noting that the mother is described as compis mentis and presumably able to make such gift-giving decisions herself at present. My choice of "she" wording was quite deliberate since this should be clearly the decision of the mother.

Hopefully there will be a former husband or two's nil rate band allowance to use and take almost all of the estate out of inheritance tax, making such decisions easy to postpone.

Biggles

jamesd wrote: »

Biggles, yes gifts are an issue, though worth noting that the mother is described as compis mentis and presumably able to make such gift-giving decisions herself at present. My choice of "she" wording was quite deliberate since this should be clearly the decision of the mother.

Yes, assuming the EPA isn't registered, in theory the decisions are the mother's.

But, in practice, they will actually be made, and signed for, by the Attorney. Therefore it is a potential (I emphasise, only potential) issue for the OPG at some future date.

paperconservator

Many thanks for the advice. We will be getting an IFA to give advice but its really useful to see what we need to think about.
Further details: one husband, died 2006, his nil rate put into a discretionary trust. Bonds taken out many years ago, no income taken. My mother is self funding her home but gets attendance allowance. EPA is not registered with OPG.

dunstonh

From a local authority means test point of view, the investment bonds dont exist. It is one of their advantages. So they can never be forced to sell or have an earmark against them to pay for local authority care.

New money into a bond wouldnt count though as she is already in care. It has to be before care is known to be required.

If an income is started from the bonds, then the income is taken into account so its best leaving them alone (although fund switching is allowed).