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Estate Planning

Monday’s need-to-know money news

September 14, 2015 By Liz Weston

Today’s top story: Beware of new estate planning laws. Zemanta Related Posts Thumbnail Reducing your financial stress, what you need to know before buying your first home, and five credit card hacks that can save you money.

Your estate plan: Be aware of new laws
Introducing portability.

3 Ways You Can Reduce or Remove Your Financial Stress
Prioritizing what’s important.

3 Things to Know Before You Buy Your 1st Home
Time for a reality check.

5 Credit Card Hacks That Can Save You Money
The good kind of “hacks”, of course.

10 Money Mistakes a Financial Planner Can Find in 10 Minutes
Learning from the pros.

Filed Under: Liz's Blog Tagged With: credit card hacks, Estate Planning, financial planners, financial stress, first time homebuyers, money mistakes, portability, tips

Thursday’s need-to-know money news

August 20, 2015 By Liz Weston

Zemanta Related Posts ThumbnailToday’s top story: The Ashley Madison hack has exposed the information of over 30 million people. Also in the news: Why young people need estate planning, how being lazy costs you money, and how that generous gift from your grandparents could affect your financial aid.

Life After Ashley Madison: How to Operate in a World Without Secrets
If you’ve ever used the site, your identity is now at risk.

Young People Need Estate Planning Too
You know what they say about death and taxes.

How being lazy costs you money
Snap out of it!

Know How College Savings Gifts Can Affect Your Financial Aid Eligibility
It’s all about the FAFSA.

Filed Under: Liz's Blog Tagged With: Ashley Madison, bad habits, Estate Planning, FAFSA, financial aid, Identity Theft

Q&A: Keeping investments in one brokerage

January 26, 2015 By Liz Weston

Dear Liz: I recently retired at 56 and am receiving a pension. My wife is set to retire next year at 56 and will also receive a pension. I chose to leave my 401(k) in my employer’s plan but am planning to consolidate it with my wife’s 457 and four 403(b) accounts once she retires. We also have a portfolio of stock and bond mutual funds. I’d like to consolidate everything at one brokerage firm to simplify record keeping, but what’s the level of risk of having all our investments with one company? We have about $3 million in assets total.

Answer: You can’t combine your retirement accounts with your wife’s, but you certainly can move everything to a single brokerage firm to reduce fees and make it easier to coordinate your investment strategy.

Whether you should is another matter. The chances of a well-established brokerage firm going bankrupt or suffering massive fraud are slim, but it does happen: Lehman Bros. and Bernard L. Madoff Investment Securities are two examples from the 2008 economic meltdown.

Investors have some protection against bankruptcy and fraud when their accounts are covered by the Securities Investor Protection Corp. Protected accounts are insured for up to $500,000 in securities and cash, with a $250,000 limit on the cash.

SIPC uses a concept called “separate capacity” to determine coverage when investors have multiple accounts. You can learn more about coverage limits on its website.
You can expand your total protection by using different types of accounts. Accounts held in your name alone are covered up to $500,000, and you can get another $500,000 in coverage for joint accounts. Your individual retirement accounts and Roth IRAs are also treated separately, and each type of account gets another $500,000 of coverage. (You don’t get $500,000 on each IRA if you have multiple accounts, though. SIPC combines all your traditional IRAs and treats them as one.)
Let’s say you and your wife have individual brokerage accounts as well as a joint account. Then we’ll suppose you each have IRAs as well as Roth IRAs, for a total of seven eligible accounts. That could give you a total of $3.5 million of SIPC coverage.

Of course, the amounts in your accounts may not line up so neatly with the coverage limits. You might not have any Roth IRAs, for example, but have more than $500,000 in that 401(k) you were hoping to roll over to an IRA, or your wife may have more than $500,000 in her retirement accounts (which, if rolled over into one or more IRAs, would be treated as one account). If you leave your 401(k) with your employer, on the other hand, you would be covered under federal employee benefit laws that require defined contribution accounts to be held in trust, separate from the company’s own funds, which would protect your account regardless of its size.

There’s a chance you could be made whole even if your accounts exceed SIPC limits. That was the case with Lehman, where individual retail customers got all their money back. With Madoff, everyone with claims under $925,000 is expected to be made whole, while the remaining claimants have gotten about half their money back in addition to the $500,000 advance SIPC paid out.

But you’ll have to assess your risk tolerance. If you have none, then use more than one brokerage firm.

Filed Under: Estate planning, Investing, Q&A, Retirement Tagged With: Estate Planning, Investing, q&a, Retirement

Q&A: Taking a mortgage for the tax deduction

January 19, 2015 By Liz Weston

Dear Liz: My wife and I are both 66 and in good health. Currently we have about $1.2 million in IRAs. We’re receiving about $80,000 a year from a pension and $110,000 in salary. We have been aggressive about reducing any lingering debt. So we think we are in good shape for me to retire within the next year or so. If we decide to stay in our home rather than move, we will need to make some significant repairs and improvements. We were thinking of taking out a $200,000 mortgage to pay off our last remaining debt ($50,000 on a home equity line of credit) and fund the renovations. This would give us a better tax deduction and not incur the high taxes we would pay by making an IRA withdrawal. Our grown children have expressed no interest in the home after we die, so it probably would be put up for sale at that time. Does this seem like a reasonable approach if we choose to go that route? Anything we haven’t considered?

Answer: Considering the tax implications of financial moves is smart, but you shouldn’t make decisions solely on that basis. You especially shouldn’t take on mortgage debt just for the tax deduction. The tax benefit is limited to your bracket, so for every dollar in mortgage interest you pay you would get at best a federal tax benefit worth 39.6 cents. State income tax deductions might boost that amount, but you’d still be paying out more than you get back in tax benefits. You also would be locking yourself into debt payments at a time in life when most people prefer the flexibility of being debt-free.

If you’re comfortable having a mortgage in retirement, though, you might want to consider a reverse mortgage. Although once considered expensive loans of last resort for people who were running out of money in retirement, changes in the federal reverse mortgage program caused financial planners to reassess the no-payment loans as a potential wealth management tool. The idea is that homeowners could tap the reverse mortgage for funds, especially in bad markets, instead of depleting their retirement accounts.
Reverse mortgages are complex, though. The upfront and ongoing costs can be significant. Because you don’t make payments on the money you borrow, your debt grows over time and reduces the amount your heirs might get once the home is sold. You’d be smart to find a savvy, fee-only financial advisor to assess your situation and walk you through your options.

Filed Under: Estate planning, Q&A, Retirement, Taxes Tagged With: Estate Planning, IRA, mortgage, q&a, tax deduction

Q&A: Battling over mother’s estate

January 12, 2015 By Liz Weston

Dear Liz: Our mom did a wonderful job of preparing her estate, but she made a mistake in that she started giving away her real estate holdings to her two children a few months before her untimely death. She died before she had the chance to equalize these transactions. As her son and executor, I equalized the real estate after her death. My sister is now protesting this because she said “legally” what was given away before death is not part of the estate, but I say that our mom would have wanted this equalized because she was very firm in her belief that her assets be divided equally. What’s your experience?

Answer: You just provided an excellent example of why it can be problematic to have an executor who has a personal stake in how an estate is settled.

You wouldn’t be the first executor to decide that what Mom really wanted was for you to reap a larger benefit than your sibling, despite the explicit terms of a will or trust. Even if the estate documents gave you some discretion, you should have consulted an estate-planning attorney before deciding to help yourself to a bigger portion of your mother’s assets.

This is more than an ethical issue. Executors have a legal responsibility known as a fiduciary duty to the estate and all its beneficiaries. Basically, that means acting with the utmost integrity and putting the interests of the estate and beneficiaries ahead of your own.

Your sister may be able to file a lawsuit against you or ask a court to remove you as executor. You shouldn’t let it come to that. Talk to an attorney now about the best way to resolve this situation amicably.

Filed Under: Estate planning, Q&A Tagged With: Estate Planning, q&a, will

Q&A: Paying a deceased person’s debts

January 5, 2015 By Liz Weston

Dear Liz: When I read the letter from the woman about her mother’s debts, it brought back my situation with my brother and mom. My brother was trustee to my mother’s living will and told her she had no money. At 90, she became worried and wanted to cut back on the care she needed. My brother had the same attitude as the woman who wrote you that her mother’s property was not an asset for her to use but something to be hoarded for the heirs.

Answer: That’s not the situation the daughter described. She was asking whether she and her sister were responsible for her mother’s debts. They are not. The mother’s estate would be responsible, and her estate would include her home. If the estate’s assets aren’t sufficient to pay all the bills, however, the creditors wouldn’t be able to come after the daughters. Still, some collection agencies have been known to contact survivors, telling them they have a “moral obligation” to pay the dead person’s debts.

Filed Under: Banking, Elder Care, Estate planning, Q&A Tagged With: Estate Planning, Q&A. debt

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