£500k twilight years

[Lestelle]

DM (85) has sold her house and now living with us. The hope is, of course, that she won't need to go into a home but obviously this is a possibility, or at the very least she might well one day need at-home professional assistance (she's currently has no care needs, able to drive, shower, dress, cook etc. herself). Her state pension income covers her normal costs, so now need to think what to do with the lump sum equity that has been released. I guess need to keep it within relatively easy access should care needs suddenly change... what would you do in her situation with £5/600k? We are not particularly clued-up as a family on money matters, so I guess will go to a financial advisor but would really like to hear from disinterested people who are more clued-up than us about what advice we should be open to/avoid. She's very lucky to have this kind of cash available of course, thanks to many decades of house price inflation, but my dad made some terrible investment choices through financial advisors (fortunately FSCS helped me enormously when trying to deal with that) and I just want to make sure I can help her safely do something more effective than keeping it sitting in her high street bank account IF that's the sensible thing to do.

A rare MN query where “see an IFA” is the right answer 😂

Personally I would be looking to invest around half and keep half in cash (across a number of high interest accounts) so that she gets the growth on the investment but has enough in cash to ride out a downturn if she does suddenly need care. But really this is one where an IFA can add value and taking advice is wise when making decisions about someone else’s money.

For a lump sum from a house sale, there's a short period (I think 6 months, might be 12) where the whole amount has the FSCS protection, not just the usual £85k. So you can take some thinking time.

I agree with Orange about keeping a good chunk as cash. Not usually advised because cash tends to lose value to inflation, but at 86 that's less of a consideration. Some of that cash could be kept in premium bonds, which are very quick to access if needed.With the full holding you have a reasonable chance of keeping pace with inflation.

And then ask an IFA for ideas about the rest.

NS&i won’t give you the best returns, but the whole amount is safe and doesn’t need to be split between other financial institutions to the tune of £85k each.

Or you see an IFA but they will take a cut obviously for their advice.

At her age you don't want to invest in anything risky that could lose value (like shares)

For that amount of money you could buy gilts. Pretty much the safest place to put your money and return similar to savings accounts. Or you could just split across multiple banks to stay within the £85k limit per institution

Premium bond returns are not great but are tax free, so £50k could go in there

If she’s got it now, you can invest £20k 24/25 now in a stocks and shares isa and then a further £20k in April for 25/26. This is tax free and you will get interest on that as well as quick access.

you are entitled (you and DH between you) to a rental income do £7.5k per year. (Again this I think will Cover 2024/25 and then 2025/26 which will be £15k. This money could be used for your increased costs and living expenses if you feel this is something that could be handy. Above that you will have to declare tax.

premium bonds - £50k

you DM can gift you/others some money and each year the IHT on this decreases up to 7years.

however, I would see an IFA.

Another one saying an IFA. I think it would also help to have an independent person involved to avoid any blurring of boundaries or accusations of misuse of funds from siblings or other relatives.

It is important that your mum is clear on goals she may have but also rules for gifting etc and her approach. Eg some might want to run down capital as much as possible while staying within rules (eg maximising gifting, any allowances she can pay to you etc) others might want to try and preserve as much as possible for care costs, others might want to try and grow the capital to maximise inheritance for children.

Thank you for your reponses, will see an IFA but good to know what to expect to hear from them. DM would like to maximise inheritance, I'm wanting to make sure she has cash for the best care possible if/when the time comes (her kids were already gifted hefty flat purchase deposits years ago). I am in the slightly tricky position of being the sibling thinking about this and yes am wary of things getting messy, so independent person involved is good idea.

OP - You need specialist advice from a SOLLA accredited adviser not an IFA.

Solla is the Society of Later Life Advisers.

You need to tread carefully due to the risk of "deliberate deprivation of assets" when it comes to the possibility of funding future care.

PM if you need more info.