Ask Liz Weston

Get smart with your money

Investing

Q&A: I need new wheels. What’s the best way to pay for them?

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Dear Liz: Is it better to buy a car with saved money or finance the $25,000 needed? In my case I will have to sell stocks. Maybe this is a good time to do that since things look like they are taking a turn in the stock market.

Answer: Borrowing money can make sense when the asset you’re buying is likely to increase in value. For example, a mortgage could allow you to purchase a home that will appreciate over time, and a student loan could help increase your earning power.

Borrowing money makes less sense when you’re buying something that’s all but guaranteed to lose value, such as a car. Many people don’t have enough cash to pay for a reliable vehicle, of course, so financing is their best option. If you do have a choice, however, cash is best.

Selling stocks can help you raise cash, of course, but probably will incur a tax bill. Also, stocks are meant to be a long-term investment, and you really can’t time the market. Yes, your shares may decline, but they could also rise, and historically they have done so over time.

If you don’t have cash savings but do have stocks that aren’t earmarked for another cause, such as retirement, then you might consider selling enough stocks to pay for the car and the tax bill. For your next car, though, consider saving up for the purchase in a high-yield savings account.

Q&A: Missing the paperwork on your IRAs? All is not lost

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Dear Liz: I have four daughters, now in their late 30s and early 40s. When they were very young, I started investing for them. As they began to earn their own money, I started Roth IRAs for them as well.

A decade ago, due to an unexpected divorce, a 30-day escrow and a move, I lost the paperwork for their accounts. After the investment company was acquired by another in 2015, I forwarded the new company’s contact information to my daughters. One transferred her account to another investment company, while her sisters left theirs in place.

Recently I found the old investment paperwork. The company has changed hands again, but the new company says it has no information about my three other daughters’ accounts. Can anything be done?

Answer: Since the latest company can’t find the accounts, your daughters should contact the escheat office of the state where you lived before your move.

Perhaps you didn’t update your address with the original company when you moved and the account statements or other mail were returned as undeliverable. If the company and its successor couldn’t find you — and some companies don’t look very hard — the accounts would be considered unclaimed and would have to be turned over to the state.

Links to state escheat offices can be found online at unclaimed.org, the website for the National Assn.
of Unclaimed Property Administrators.

The good news is that there’s no time limit for claiming previously unclaimed property.

The bad news is that some states will liquidate stocks and other investments after escheatment. If that’s the case, then the three daughters who didn’t move their accounts will have missed out on nearly a decade of investment returns.

Q&A: What to do when your financial advisor isn’t doing right by you

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Dear Liz: My husband and I are in our 80s, living in a retirement community. Our investment account is valued at $550,000. This has to see us through till we die. We have no pension, no other assets. Social Security provides $2,760 a month and we are in the lowest tax bracket. Our financial advisor is using tax loss harvesting “to save us from capital gains tax.” We are both uncomfortable with this. Taking a loss on purpose doesn’t feel like a secure path and should be for people with a long-term future. Should we ask him to stop using this method of trading?

Answer: Tax loss harvesting involves selling investments that have gone down in value to offset some or all of the gains from investments that have gained in value. The point is to reduce capital gains taxes. Since you’re in the lowest tax bracket, however, your federal tax rate on long-term capital gains is effectively zero. It’s hard to imagine how your advisor would justify tax loss harvesting, given your situation.

Go ahead and ask them. The answer should give you some insight into how much your advisor knows, or cares, about your individual circumstances. Obviously, you should halt the tax loss harvesting if there’s no good reason to do it, but you might also want to start looking for a new advisor.

Keep in mind that most financial advisors don’t have to put your best interests first. They can recommend investments or pursue strategies that make them money, regardless of whether the recommendations are the best fit for your financial situation.

If you want an advisor committed to putting you first, you’ll need to seek out one who is willing to be held to a fiduciary standard. Such advisors include certified financial planners, certified public accountants (including those who are personal financial specialists) and accredited financial counselors. A fiduciary would have taken the time to understand your financial situation and then crafted a strategy to best fit your circumstances.

Q&A: The ins and outs of what counts for probate

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Dear Liz: The value of our car, furniture and personal items is well below the $185,000 that currently triggers probate in California. We no longer own real estate. Am I correct that investment and bank accounts that have designated beneficiaries do not count toward the probate limit?

Answer: Yes. (Your car doesn’t count either, by the way.)

Most states have simplified procedures for smaller estates. California’s limit, which is raised with inflation every three years, was set at $184,500 on April 1, 2022. What’s counted for probate purposes depends on state law, and California excludes cars, boats and mobile homes, as well as bank accounts owned by multiple people, property that transfers directly to a spouse and real estate outside California.

Other property that avoids probate includes life insurance proceeds, death benefits and accounts that have named beneficiaries. Real estate can avoid probate if it’s held in joint tenancy or is transferred using a transfer-on-death deed. Property in a living trust also avoids probate.