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My parents are about 5 years from retirement age. Their combined income is around $20,000 a year. They live in a very low cost-of-living area, so they live a pretty simple life without many frills. Not a lot of money in; not a lot of money out.

Recently, they've come across an opportunity to bank a lump sum of about $200,000 up front, with a continued income of about $2,000 per month for the next 15-20 years.

Here's the twist... My father is on experimental medication. He gets the medication for free from the pharma company because of their low income and inability to afford medical insurance. Even if they could afford medical insurance, it wouldn't cover the medicine because it's experimental. The medicine on its own would cost them a whopping $4,500 per month if they have an income greater than $97,000 per year.

What, if anything, could they do to keep as much of the money as possible without raising their reported yearly income? I know they could put $6000 directly into an IRA. Neither of them have a 401(k) plan available to them. Is there a way to "sneak" more of the money directly into retirement without counting it towards their reported yearly income?

Are there other options they can consider or should they just abandon the opportunity completely?

EDIT: For everyone's sanity, please note that the final decision will be made with the help of a hired professional. The purpose of this question is to educate myself and search for ideas from those in the community who are passionate about finances and might look at the situation in a different light, seeing an option that even a professional might not initially consider.

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    4500 x 12 = $54000, so it seems like a clear profit for this year even if they pay for a year of medicine. And 200k plus $2k a month and 20k a year are not going to break a $97k income level. So to answer this properly I think we need to know more about this opportunity. – jprete Aug 17 '11 at 17:07
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    @jprete The opportunity is for natural gas mining on a decent-sized plot of unused, mostly-unspoiled land (ATV trails and a dirt road). While the math works out in their favor initially, I think they're reluctant to commit the land to it if they can't find a way to keep more of the money. The neighboring plot owners are jumping on the offer, but my parents would do just fine without the extra money. I'm simply trying to find a way to help them get the net profit closer to their personal price tag. Trying to maximize profit to cross the line between "desecration" and "utilization". – BrosephRoseph Aug 17 '11 at 19:24
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    If there's really ~$500,000 on the line, my advice would be to stop messing around on the Internet and hire a professional, and consider negotiating alternate terms (e.g. have the gas extractors spread out the upfront money into installments) – user296 Aug 17 '11 at 20:44
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    @fennec Rest assured, my parents are seeking out financial advice from a professional, but I'd like to see if the collective stackexchange community has any ideas that they may not present. Due diligence will be taken, though. – BrosephRoseph Aug 18 '11 at 2:20
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I think that you really have to take the deal, as the gas company will extract the land from neighboring parcels anyway.

Talk to an attorney about trusts or other vehicles to shelter the money. It may be possible to transfer the land into a trust to benefit your parents when they need the money. Also, this may be one of those rare circumstances where some sort of life insurance arrangement may be in order.

Also, pull the documentation from the pharmaceutical company -- what do they define as income? The payments from mining are usually referred to as "royalties".

In any event, seek professional advice.

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Potentially they could setup a trust for themselves and their heirs, donate the land to the trust. It might be able to go into the trust using the current 'on the books' value of the land (what the county/state are basing taxes on), then the trust can negotiate with the natural gas folks for the mineral rights

An idea to bounce off your expert anyway.

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Two ideas.

  1. Give the land to you, and you take the deal. Then you can provide for your parents like so many young people do. This is the best option anyway because any of the left over money (when they pass) will end up with you.. which will the be taxed again.
  2. Maybe you can file it all under your mother and have your parents file taxes separately. Your dad would still be low income. But.. really.. the former option is better.

EDIT: you should also do alot of research about how to invest this money properly. Something low risk but will beat inflation by a margin.

  • I like idea #1. It's interesting and something I hadn't thought of yet. Maybe not THE solution, but definitely worth another round of researching. Thanks for the input! – BrosephRoseph Aug 18 '11 at 2:27
  • Oh, and don't get me wrong. You -should- be seeking professional advice on this. These are just ideas I had. – user606723 Aug 18 '11 at 13:30
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They may be able to transfer the land to a charitable remainder trust, which then enters into the transaction and pays them an income stream over their lifetime -- but definitely hire a professional before you attempt to do this.

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