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Get smart with your money

Inheritance

Friday’s need-to-know money news

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Zemanta Related Posts ThumbnailToday’s top story: The 13 key numbers to understanding your finances. Also in the news: How to save on taxes, what to do with an unexpected inheritance, and the financial lies we tell ourselves.

These 13 Numbers Are the Keys to Understanding Your Finances
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Three Moves In December To Save Taxes Next April
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5 Things to Do With an Unexpected Inheritance
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12 Financial Lies We Tell Ourselves
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Q&A: Calculating capital gains and losses

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Dear Liz: With my father’s recent passing, I received a substantial inheritance, much of it in the form of stocks and mutual funds. If I sell these assets, do I calculate the capital gains and losses based on the date I took possession of the assets? Or do I use their value on the date of his death?

Answer: Typically you’d use the date of his death. If your father’s estate was very large and owed estate taxes, however, the executor may have chosen an alternative valuation date six months from the date of death. This option is available if the value of the estate would have been lower on the later date.

There is a circumstance in which your basis would be the value on the date the assets were turned over to you, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting U.S. If the executor elected the alternate valuation date, but the assets were actually distributed to you before that date, then the basis is the fair market value on the date of distribution, Luscombe said.

Inherited assets usually get a “step up” in basis when someone dies, so there’s no tax owed on any of the growth in those assets that occurred while the person was alive. Inheritors have to pay taxes only on the growth that occurs between the date of death (or the alternate evaluation or distribution date) and when the assets are sold.

The assets would get long-term capital gains treatment regardless of how long you’d owned them, which is another helpful tax break.

Tuesday’s need-to-know money news

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Image9Today’s top story: How to manage your money right from your smartphone. Also in the news: How that smartphone could cost more than you realize, how to save money on college text books, and what happens to a loved one’s debt after they die.

7 Personal Finance Apps to Manage your Money
Money management right at your fingertips.

Why Your Smartphone Costs More Than You Realize
Especially if you’re clumsy.

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The most expensive books you’ll barely read.

Could I Inherit My Loved One’s Debt?
What happens to debt after death?

To Become Financially Independent, Embrace These Five Habits
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Thursday’s need-to-know money news

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605x340xdollar-bills-2015-Dollarphotoclub_67129525.jpg.pagespeed.ic.0DZosyt27WToday’s top story: 3 financial changes you need to know about for 2015. Also in the news: What not to do if you inherit money, how to cash in on uncommon tax breaks, and how visualization can help you manage your finances.

3 Changes That Could Affect Your Financial Life in 2015
Changes to Social Security and retirement savings are on the way.

5 Things Not to Do If You Inherit Money
Don’t quit your day job.

Cash in on uncommon charitable tax breaks
Deductions you may not know about.

How Motivational Images Can Boost Your Finances
Using visualization can keep you in check.

Create Your Budget with Long-Term Life Goals in Mind
Focus on the bigger picture.

Q&A: Transferring property from a deceased relative

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Dear Liz: My mother passed away unexpectedly in late 2008. She had a mortgage, and the house was under her name only. She didn’t leave a will. My family is still paying the loan, and the company does not know my mother passed away. We don’t have a lot of money and we need advice on how to get the house under my sister’s name (she has good credit). We need to get the loan modified since the monthly payment is almost $1,000 and only about $70 goes toward the principal.

Answer: Your mother may not have created a will, but your state has laws that determine what was supposed to happen after her death. Lying to the mortgage lender is not one of the legal options.

Federal law allows mortgages to be transferred to heirs. (Without a will, those heirs usually would include a surviving spouse and the dead person’s children.) Transfers because of death typically are exempt from the due-on-sale or acceleration clauses that otherwise would allow the lender to demand full payment.

To get the mortgage transferred, however, you usually need to have started the probate process.

At this point, you should consult a mortgage broker about the likelihood of getting a refinance or a loan modification. If the home is deeply underwater, it may not be possible or worth the effort. If foreclosure is likely, it would be better not to transfer the mortgage as the heirs’ credit would suffer significant damage.
If your plan is feasible, however, then you’ll need to consult a probate attorney. You may not have a lot of money, but you need to pool what you have to hire someone who can dig you out of this mess.

Q&A: Inheritance vs Reality

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Dear Liz: I have really bad credit. I always have because I have never really had any money. So now I am inheriting a lot of property and some cash. Most of the property is rental properties that bring in income. There are no mortgages on them. I may want to sell one or two of them and buy a four- or five-unit apartment building so I can live in one and rent the others out. How do I do that? Unfortunately, it isn’t happening as quickly as it should since one of my siblings thinks it is all hers. So I have to go through litigation first.

Answer: Let’s start with some reality checks.

The kind of litigation you’re talking about can get expensive fast and eat into the estate’s assets. If your sister happens to be the executor, she may be able to have the estate pay for her defense. You’ll need to come up with the money to hire your own attorney to advise you, but often in these cases a settlement makes a lot more sense than a family war.

The next reality check has to do with your bad credit. Yes, it’s harder to pay your bills on a low income, but people do it. In fact, income is not even a factor in credit scoring formulas, since how much money you make doesn’t predict whether you’ll pay your debts. If you have bad credit, it’s because you borrowed money that you didn’t pay back on time, not because you “never really had any money.”

What will change if you get your hands on a substantial amount of money is that your creditors will renew their efforts to get paid. You’ll probably need some more legal advice to deal with those efforts and to avoid getting sued.

What probably won’t change, without some effort, is your poor money management skills. If you don’t improve, you’ll probably blow right through your inheritance. So you should add to your list of advisors a fee-only planner who can help you with budgeting, rebuilding your credit, investing and retirement planning. Seeking good advice and following it are the key to making money last. You can get referrals to fee-only planners from the Garrett Planning Network, http://www.garrettplanningnetwork.com. Another option is the National Assn. of Personal Financial Advisors at http://www.napfa.org.