Ask Liz Weston

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Liz Weston

Q&A: Watch out for probate triggers

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Dear Liz: My wife and I have a living trust that includes most of our assets. We have two bank accounts that are not in the trust totaling $130,000. Will these accounts be subject to probate? If it matters, she is in memory care and I handle all finances. Our executor son is a signer on one bank account to have ready access to cover final expenses in case I predecease my wife.

Answer: As you know, living trusts are designed to avoid probate, the court process that otherwise follows death to distribute someone’s estate. In some states, including California, probate can be expensive, prolonged and often worth avoiding. Assets typically must be titled in the name of the living trust or have a designated beneficiary to avoid probate. There are some exceptions, but you’d be smart to consult an estate planning attorney to make sure you don’t inadvertently trigger the probate you’re trying to avoid.

Q&A: Why those great deals banks are offering might be less lucrative than they appear

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Dear Liz: I’m receiving numerous email offers from big banks offering significant incentives and bonuses to open checking and savings accounts. I usually don’t pay much attention to them but the latest one is offering $900 to open these accounts. I’ve read all the fine print and understand all the requirements, but I can’t help but think there is a mischievous motive on their part. How do I decide if these offers are a good financial alternative for me?

Answer: Banks offer these incentives to lure in new customers, but you’re wise to consider all the potential costs because the bonuses may be less lucrative than they appear.

For starters, you’ll pay income taxes on any sign-up bonus, which could substantially reduce what you net from the deal. Plus, many banks that offer sign-up incentives pay a paltry interest rate or no interest at all. You could be better off putting your money in a high-yield savings account. (Some online banks are paying around 5%.)

You typically must maintain a certain balance to avoid monthly account fees, and you may need to set up a direct deposit or make a set number of transactions per month as well. The bonus often isn’t paid until after your account has been open 90 days or more. If you close the account, you may face an account closure fee.

Q&A: What’s a qualified charitable distribution?

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Dear Liz: I have a suggestion for the couple who is facing the start of required minimum distributions from their retirement accounts but who do not need the money. They could consider making a qualified charitable distribution (QCD). A QCD allows you to donate to a charity directly from your IRA and satisfies your RMD requirement. The only caveat is that the money cannot pass through your hands. It must go directly from the IRA to the charity. You can’t take a deduction for the contribution, but the money won’t count as taxable income. Although the age of RMD has been rising in recent years, the age for a QCD remains at 70½. The maximum allowable is $100,000 per taxpayer a year. A husband and wife can each make a QCD if they have separate IRAs.

Answer: Qualified charitable distributions can be a great solution for people who have saved more in their retirement accounts than they need and who want to benefit good causes. The charity must be a 501(c)(3) organization that can receive tax-deductible contributions, and, as you note, the money needs to be transferred directly from the retirement account and the contribution made before the year’s RMD deadline, which is typically Dec. 31. There are a few other rules involved, so consider consulting a tax pro before arranging a QCD.

Does a 401(k) employer match tempt you to cash out?

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Many companies try to help their workers to save for retirement. Employers often offer 401(k)s, company matches and automatic enrollment to encourage saving.

Much of that effort goes to waste, though, when employees leave. A study published last year in Marketing Science, a peer-reviewed research journal, found more than 40% of departing workers cashed out at least part of their 401(k)s, and most of those drained every dime.

What’s more, employers may bear at least some of the blame, according to researchers Yanwen Wang of the University of British Columbia, Muxin Zhai of Texas State University and John Lynch Jr. of the University of Colorado.

The study, titled “Cashing Out Retirement Savings at Job Separation,” suggests generous company matches can make cashing out more tempting. In my latest for ABC News, learn how a 401(k) employer match tempt you to cash out.

This week’s money news

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This week’s top story: Watch for these 3 Medigap shopping surprises to avoid overpaying. In other news: What home buyers should know as mortgage rates top 8%, cut EV costs with electric company incentives, and what to buy on Black Friday and Cyber Monday 2023.

Watch for These 3 Medigap Shopping Surprises to Avoid Overpaying
Medicare beneficiaries should watch for shopping surprises when choosing a Medigap plan to avoid paying too much for coverage.

As Mortgage Rates Top 8%, What Home Buyers Should Know
Interest rates on 30-year fixed-rate home loans have reached a milestone not seen for over two decades. What does that mean for this housing market?

Cut EV Costs With Electric Company Incentives
Electricity providers offer a range of EV rebates, from vehicle purchase to charging station installation.

What to Buy (and Skip) on Black Friday and Cyber Monday 2023
Retailers like Amazon, Target and Walmart pushed October sales as an early start to the holiday shopping season again this year.

Q&A: Helping beneficiaries find documents

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Dear Liz: Not so much a question but a follow-up to previous advice in your column. I agree online statements are safe and reasonable but suggest keeping at least one printed statement a year from each account with important papers. Also, take time to place “transfer on death” beneficiaries on each account. My younger brother passed away without a will and most of his accounts were online. I have spent many months unraveling this mess. I had to prove I was next of kin to get at least enough money to be reimbursed for final expenses.

Answer: Your experience is far from unusual, unfortunately. With so much of our financial lives online, we’re just not creating the paper trails that can help executors settle our affairs. Often the executors can’t even open the laptops and phones that could help them track down accounts because those devices are password protected. Digital assets such as photos, frequent flier miles and cryptocurrency may become forever inaccessible.

People can make life easier for their loved ones by keeping an updated list of key passwords and account numbers in a safe place that’s accessible to the person or people who will be settling their estate. That could be an at-home safe or a locked filing cabinet, as long as your trusted person has the combination or key. Another option would be online services such as Everplans, which can allow you to organize documents and name trusted people who can get access to those documents after your death.