q&a

Q&A: Wife should get her name on deed

June 25, 2018 By Liz Weston

Dear Liz: My daughter, who is a stay-at-home mother of two, recently bought a home with her husband. They have been married seven years. I recently discovered that her name isn’t on the deed to the home. I don’t know why, but it doesn’t sound good to me. What are her potential issues?

Answer: The issues depend on where she lives. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

If your daughter lives in one of those, assets acquired during marriage, including a home, are generally considered community property owned equally by both spouses. Her husband, ideally, should place her on title via a deed to reflect true ownership or place it in a trust to provide for his wife. However, if her husband should die without bequeathing her the property, the home could go to probate proceeding, and the wife would have to provide proof that it was community property to receive all of it, says estate planning attorney Jennifer Sawday of Long Beach.

In other states, different rules apply. Typically assets held in one person’s name are that person’s property. If the husband has a will, he could leave the house to your daughter — or not. Should he die without a will, she could wind up sharing ownership of the house with others, such as children from a previous marriage.

Q&A: Keeping an eye on your financial planner

June 25, 2018 By Liz Weston

Dear Liz: I’m a fee-only financial planner with a quick comment regarding the investor who complained about a financial advisor who ran up a huge capital gains tax bill. I’ll bet that the vast majority of the gains came from selling the person’s initial investments to re-position them according to the advisor’s recommendations. That seems most likely given the gains seemed to be huge (implying the current investments had been in place for a long time) and the client’s balance didn’t seem to grow much at the same time. Of course, that’s not necessarily an excuse — accounts with unrealized capital gains need to be handled very carefully by an advisor. And you are dead-on with the main point of your response: Giving an advisor discretionary trading status is risky. I would add to that the client doesn’t seem to know the advisor’s investment strategy, so that’s another disconnect. I’m glad that fee-only gets a lot of positive comments in the financial press, but you’re correct that you still need to move with caution.

Answer: Advisors are in an unenviable position when they’re trying to fix a portfolio that hasn’t been properly diversified over the years. Big gains build up because the investor doesn’t want to sell and pay capital gains taxes. By refusing to sell some winners occasionally, though, those winners can comprise an ever larger share of the portfolio, making it more and more risky. A concentrated portfolio can fall more in a bad market and gain less in a good one than a portfolio that’s properly diversified.

So the advisor may have been doing what needed to be done, but the fact that the investor didn’t understand what the advisor was doing or why indicates a breakdown in communication, at the very least. No one should give an advisor blanket permission to trade an account without understanding the advisor’s strategy and being willing to monitor how it’s being carried out.

Q&A: When a Social Security spousal benefit goof is suspected

June 18, 2018 By Liz Weston

Dear Liz: A family member recently lost her spouse. His monthly Social Security check was $1,800 and hers is $750. I have two questions.

First, is my understanding correct that she is able to begin collecting his monthly amount instead of her own?

Second, instead of collecting Social Security based on her earnings history, was she eligible instead to have collected 50% of her husband’s monthly benefit? If so, she was entitled to $150 more than she’s been collecting. If this is accurate, is there any recourse for collecting the additional benefit from Social Security?

Answer: To answer your first question, yes, your relative will now receive a survivor’s benefit equal to what her husband was receiving. She will no longer receive her own benefit.

The answer to your second question is a bit more complicated. Your relative may have started benefits before her own full retirement age, which used to be 65 and is now 66. When people start benefits early, they receive a permanently reduced amount whether they’re receiving their own retirement benefit or a benefit based on a spouse’s earnings. It’s possible that her reduced retirement benefit was more than her reduced spousal benefit.

Another possibility is that she started benefits before her husband. To get spousal benefits, the primary earner typically needs to be receiving his or her own benefit. (There used to be a way around this, called “file and suspend,” that allowed the primary earner to file for benefits and then suspend the application. That no longer exists.)

If your relative started benefits before her husband, she may have been able to get a bump in her check once he applied, assuming her spousal benefit was worth more than her own retirement benefit. That bump in benefits is now automatic, but if she turned 62 before 2016, she would have had to apply to get the increase, says Mary Beth Franklin, a Social Security expert who writes for Investment News.

She wouldn’t be eligible to get all the missed benefits back at this point, but she could get up to six months’ worth.

Q&A: Healthcare costs and retirement

June 18, 2018 By Liz Weston

Dear Liz: You usually don’t give me such a laugh, but today’s letter was from someone who’s 41 and her husband is 51. They now have $800,000 saved and want to retire early. You told them they might do better leaving the country since it will be so bad for them with health insurance.

My husband was a teacher in Los Angeles, with no Social Security. We have $60,000 in the bank and together we bring in $3,400 a month. We have Kaiser insurance that totals $2,400 a year for both. We have a house, a car, not so much money, but are happy. He’s 82, I’m 79. What planet do you live on? I guess people who have so much money can’t imagine people like us.

Answer: You’re living on Planet Medicare, so perhaps you can’t imagine what people are facing who don’t have access to guaranteed medical coverage.

Currently, those without employer-provided insurance can buy coverage on Affordable Care Act exchanges, but that option may soon be going away. Congress ended the ACA’s individual mandate, which requires most people to have insurance, so costs are expected to rise sharply.

In addition, the future of so-called “guaranteed issue” is in doubt. The ACA currently requires health insurers to accept people with preexisting conditions and limits how much people can be charged, something known as “community rating.” The U.S. Department of Justice recently announced it would not defend those provisions against a lawsuit filed by several states.

When health insurance is unavailable or unaffordable, it doesn’t matter if you have $1 million or more in savings. A hefty retirement fund can disappear in a few months without coverage.

Q&A: What to do when a financial advisor doesn’t act in your best interests

June 11, 2018 By Liz Weston

Dear Liz: I hired a fee-only financial advisor a year ago. The advisor’s firm also included a CPA who prepared my 2017 tax return.

My tax liability was 100% more than what I paid via my W-2 withholding because the advisor traded constantly, incurring short-term capital gains. He authorized 45 trades in a three-month period. My capital gains for 2017 were more than I have ever earned annually in my 40-plus years of filing returns, yet the overall gain in my account was negligible.

I am 67 and soon to be retired. I do not believe he was acting in my best interests as his client. Is there any action I can take?

Answer: If you’re considering legal action, you’ll need to consult an attorney. If you want to take your beef to a regulatory agency, you can start by contacting the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Just because an advisor is fee-only does not mean he or she is competent or is a fiduciary (someone who is legally required to put your best interests first). Most advisors are held to a lower standard of “suitability,” which basically means their recommendations can’t be unsuitable, given the client’s situation.

Giving an advisor authority to make trades in your account is risky business. When you don’t know an advisor well, it’s better to start with a non-discretionary account that requires your approval for any trades.

If the advisor earns your trust, you can consider switching to a discretionary account that allows trading — but first you should have an investment plan that makes clear, in writing, what your goals for the account are, what investments are appropriate and how often the advisor expects to make trades.

Most people are best served by passive investment strategies that seek to minimize fees and match various market benchmarks. Attempting to beat the market with frequent trading is usually futile, and costly. That’s especially true in taxable accounts because short-term capital gains are taxed at regular income tax rates, while investments held long term can qualify for lower capital gains rates.