How should my mother plan to secure and maximize her inheritance of a significant pension?

Question:

My brother in law recently passed away leaving a reasonable (~$250K pension) to his mother. He died before starting benefits. She is 76 years old. She has never had much money. Her family would like for her to enjoy the full benefit of this money while she is alive. She is also the beneficiary of a $225K life insurance policy. What are the best options available for the pension portion of the inheritance? My mother in law stated that she would like to be able to spend the money and leave the balance upon her death to her remaining living children. Any advice?

 

Answer:

It sounds like your mother in law was well loved by her son. I will assume that by "pension" you mean a monthly benefit amount that is not a lump sum amount nor can be rolled into a lump sum amount.  If that is the case, your mother in law will be restricted by the rules of the pension plan as to how much she can take and how and when.  If the intention is to enjoy the money, then take it as soon as possible, withhold enough to pay the tax due so there will not be a tax burden for her come April.  The Life Insurance proceeds could be invested to leave for her heirs.

If by "pension" you mean a retirement account that can be taken as a lump sum then your mother in law will have more flexible options in how she takes the money.  She could cash it all in, pay the tax and then use the funds to pay off a mortgage, gift money to her other children or charities, go on a world cruise or anything she desires. She could also work with a qualified CFP certificant to determine how much monthly income she could take to enjoy an enhanced lifestyle, pay taxes and then have a nice balance to leave to her remaining children.

With the total amount of money your mother in law inherited, part of which is already tax friendly (Life Insurance proceeds), she could easily create a  $1,800 to $2,500 a month of income without sacrificing a nice balance to leave to heirs.