Mother's windfall

Jamesb posted this in the columns section, I'm curious to see an answer:

My mother (83 yo) is wondering how to invest $750K from the sale of property from a trust account As I understand it, the principal must remain in the trust fund, but income from the investment can be used to pay living expenses or gifted out or accumulated in the trust fund. Mom is not a sophisticated investor and does not want the responsibility. The trust is currently managed by a financial advisor who deals with Charles Schwab, but she has also been talking to an investment broker at her bank. She currently lives independently but worries about the possible need in the future to move into assisted living or a nursing home, and the cost thereof. I think her financial goals are (1) to be able to live off the interest and dividends (she lives quite modestly), (2) preserving the principal in case of longterm health care needs, and (3) leaving an inheritance for her children. Any suggestions on what to do with this windfall?

James,

There are a couple of different things that need to be clarified. First who is the trustee of this trust. Trustee have fiduciary responsiblity to obey the Principal and Income Act for each state, along with the Uniform Trust Code for the state, if they apply. This may be a good reason to get a corporate trustee involved. Second is the investment side. Each person is different, and a whole financial picture needs to be taken of your mother. But with the information provided I would take a total return approach. By investing in value stocks that have high dividends( and increase their payouts frequently), ex: bank of america or BMY, along with mixing in some treasuries and corp bonds (or funds), you should be able to achieve a 3-5% income yield for your mother, but the undelying assets will hopefully appreciate over the years. This allows for your mother to have the income she desire/needs, but the remainder beneficiaries will get some appreciation in the stock values.

There may be some other benefits of distributing the income but that depends on what the trust document says. If any undistributed income is rolled back into the principal and your mother does not have access to principal unless it is for health, then distributing the income to her and putting it in a rainy day fund, gifting the funds, or funding 529 may be the route to go.

If you have more questions feel free to email me at travis.anderson@53.com. I work in the Trust Department at Fifth Third Bank