Personal Finance: Ask the Experts

What if spouses have differing views on how they should plan their estate?

2013-05-16T21:01:28Z

My wife and I each have one son from a prior marriage. They both are college graduates. We own two homes that are not of the same value. My wife wants to get things sorted out so that when she dies her son is well taken care of. She has been talking about a trust. I am not too concerned about my son. I believe that he can take care of himself and that we do not have to save our money for them. I feel she is more concerned about taking care of them from the grave than taking care of us. To make peace, I am about to go see a financial planner. My heart tells me it is not the right thing to do. We have a good relationship. What is your position on this matter?

]]> A: To the extent that your wife wants to get things sorted out now, I believe that is a sensible idea. Far too often, especially when there are later marriages and children on both sides from prior marriages, things can get sticky if the husband and the wife are not clear on what they both want to happen to their assets after their death.

As an example, assume you and your wife had wills and the terms provide that you would leave your estates to one another, each assuming that the other is certain to be sure that the children of both of you are fairly treated after the surviving spouse dies. If you die before your wife, and she receives all of the assets, she is free to do whatever she wants with those assets. She could leave everything - including anything she inherited from you - to her son and your son would receive nothing. You could certainly view that as her prerogative, just as you might want it to be your prerogative to do with the assets as you want should she predecease you. In my experience, however, absent estrangement or ill feelings between the parents and their children, most couples with children from prior marriages want to be sure that the children are, as much as possible, treated equally after the second spouse dies.

That does not mean, however, that you have to agree to an arrangement where the primary goal is to preserve assets for her son or your son, or both. Even though each of you might have different goals, what you should do is openly discuss those goals and see how you can achieve them with some mutual compromise. You both might not be able to get everything you want, but talking with a financial planner and an attorney who does estate planning, is prudent and could avoid potential disagreements after your death.

IRS offices to be closed 5 days between May and August

2013-05-16T02:25:48Z

Due to federal furloughs, the IRS is closing all its offices and toll-free hotlines on five days through summer: May 24, June 14, July 5, July 22 and Aug. 30. All of those dates, except Monday, July 22, are Fridays.

That means some 400 IRS taxpayer assistance centers, such as the Sacramento office at 4330 Watt Ave., will be closed, as well as all IRS customer service lines. Many of the IRS website's tools, such as "Where's My Refund?" also will be shut down.

But it doesn't mean that taxpayers will get any breaks on their tax-filing deadlines. Taxpayers are still required to file their returns and pay any taxes due as usual.

The only break: If an IRS deadline to provide documentation falls on a furlough day, you'll get the next business day to get your paperwork turned in.

Can my son claim education tax credits if I claim his dependency exemption?

2013-05-13T23:58:30Z

Q: I made $80,000 and TurboTax said I was disqualified from deducting the interest I paid to federal government on the parent loan and/or the tuition I paid. Out of pocket, both totaled over $20,000. I know I would only have received the tax education credit on the out of pocket tuition I paid but since I can't take it, can my son?
Although he was a full-time student, he made about $20,000 working part time at a restaurant and singing at a church. My status is a qualified widow..because my husband died in 2011 I was able to file joint and married.. so the threshold was 160,000 ..he had been disabled and had no income it was same source of guns..seems to penalize non married people whose income is same as two married people. Anyway if I claim my son, can he take the deductions I was not able to? I assume TurboTax was correct in saying I wasn't eligible.

Teresa
Sacramento, CA

]]> A: If you claim your son's dependency exemption, he cannot claim an education tax credit for tuition that you paid on his behalf. The rules do allow your son to claim the American Opportunity tax credit if you do not claim the deduction for his dependency exemption. But your taxes would be higher.

Since your spouse died in 2011, you may qualify to use the Married-Filing-Joint tax rates for 2012 and 2013 if you meet the following requirements:
- You are unmarried as of the end of the year;
- You maintain (pay over 50% of the costs of) a household that is your home and the "principal place of abode" of your son who is your dependent;
- You could file a joint return with your deceased spouse for the year of death.

Your home may still be your son's "principal place of abode" even if he is away at school as long as he has not established another permanent residence and he returns to your home when not away at school. If you do not claim his dependency exemption, you may not be able to qualify as a surviving spouse.

So you will have to look at which of your two options results in the lower overall tax for you and your son: claiming his dependency exemption and using the joint tax rates and losing the education tax credits, or forgoing his exemption and using the single tax rates, which would allow him to claim the applicable education tax credit.

Usually the benefit of the dependency exemption and the joint rates afforded surviving spouses outweigh the potential tax savings your son might receive from the education tax credit.

Can I deduct depreciation on my 50 percent interest in a property?

2013-05-13T23:43:39Z

Q: I own a property with a sibling in a 50/50 Percentage Ownership. With depreciation tax deductions, do we divide that depreciation deduction by the percentage of ownership? That is what I understood is the federal tax law. My sibling's tax preparer states that we cannot divide it, that only one person can claim it and that we can take turns claiming the whole deduction. Thanks for any clarification you can provide.

Ricky,
Sacramento, CA

]]> A: Since each of you own a 50 percent interest in the property, each of you is entitled to a depreciation deduction based on 50 percent of the depreciable assets.

For example, if the tax basis in the depreciable property (tangible personal property, improvements, land improvements, such as paving, etc.) is $100,000, each of you would calculate depreciation deductions on $50,000. You would claim the depreciation expense on your tax return each year, as would your sibling.

I am not aware of any provision that provides for alternating depreciation deductions between two 50 percent owners. Each owner depreciates his/her portion of the assets that are subject to depreciation on their own tax return each year.

Mom-friendly grocery coupon sites let consumers save/give

2013-05-13T17:56:27Z

Several Bay Area coupon sites have launched Mom-friendly ways to save and give back at the same time.
One is CouponsforChange, started last August by Michele Boal, co-founder of Mountain View-based Coupons.com.

Whenever someone uses three of the site's 200 grocery, restaurant and personal services coupons, CouponsforChange will donate to national food bank - enough to feed one family.
"It's a Mom-to-Mom thing. You're saving your family money while helping other mothers struggling to put food on the table for their own family," said Boal, the site's chief philanthropy officer.
The donations go to Feeding America, a nonprofit that helps sponsor food banks in numerous cities, including Sacramento. Boal said in the last 10 months, CouponsforChange has donated enough to cover more than 100,000 meals through local food banks.

Another Bay Area coupon site, CommonKindness.com, donates to a charity or nonprofit that you select. How it works: For every grocery coupon you print off its site, CommonKindness donates 20 percent of the advertising fees it receives from the food manufacturer. Consumers can choose from dozens of local and national charities, from pet shelters to arts groups.

In both cases, the consumer gets the full value of the coupon.
"It's a way for someone to feel good saving money for their own family, while giving back without taking anything out of their own pocket," said Boal.

At age 71, where can I invest my annual IRA withdrawals?

2013-05-13T16:18:30Z

Q: I just turned 71, so I received the allotted amount from an IRA account and from an ICMA account. My husband and I live comfortably with our pensions right now and don't need this money yet. We have health insurance, but we don't have long-term care insurance. Where can I invest the money, so it will produce a decent amount of interest and be available if the need arises?

Alicia
Woodland, CA

]]> A: Many of my clients are around your age, and they focus on income and preservation of wealth when it comes to their investment strategies.

When you invest, you take certain risks. With insured bank investments, such as certificates of deposit (CDs), you face inflation risk, which means that you may not earn enough over time to keep pace with the increasing cost of living. With investments that aren't insured, such as stocks, bonds and mutual funds, you face the risk that you might lose money, which can happen if the price falls and you sell for less than you paid.

We know risk and reward are related. It's important to understand what your investment choices are and how different types of investments put your money to work. If you are looking to set money aside for short-term, low-risk income investments, you may wish to explore a short- term, high quality bond fund, such as Vanguard Short-Term Investment-Grade Fund Investor Shares (VFSTX) or Short-Term Extended Quality Portfolio (DFEQX).

On the other hand, if you're willing to take on more risk in your portfolio, public utility funds are a great way to gain income (they're regulated to some degree, so have similar characteristics to bonds and growth potential because they're a stock fund).

Please remember that these are just guidelines. No single approach to choosing investments will work for everyone or will be right for every situation. You may want to check with your wealth advisor. If you do not have one, here are two sites where you can explore finding a professional in your area: CFP.net or IMCA.org.

This response is for information purposes only. Kimberly Foss, CFP, CPWA, and Empyrion Wealth Management do not endorse any of the above products, companies or strategies. Before acting on any issue covered in this response, it is important to speak with your financial planner, CPA, insurance agent or attorney since they are most familiar with your situation.

What is the tax basis in a property received by gift or inheritance?

2013-05-13T16:15:30Z

Q: My wife and her sister were deeded their mother's home 15 years ago. Their mother bought the home 45 years prior. What would be the tax base for determining capital gains?

Sam
Sacramento

]]> A: Your wife's tax basis will depend on whether she received the property by gift or by inheritance. Let's start with the assumption that she received it by gift.

In general, the donor's basis (cost plus improvements in the case of purchased real property) becomes the donee's basis when property is received by gift. The donee "steps into the shoes of the transferor" with one exception. If, at the time of the gift, the "fair market value" of the property interest is less than the donor's tax basis in the interest, then the fair market value is the donee's basis for the purpose of calculating a loss on the subsequent sale of the interest.

Fair market value is defined as the amount a willing buyer would pay a willing seller, both having reasonable knowledge of the facts concerning the property and neither being under duress to buy or sell.

For example, if your wife's mother purchased the home in question for $50,000 and added $20,000 in improvements (expenditures that add value to the property or extend its useful life), her tax basis would be $70,000. Your wife receives a gift of a 50% interest in the home at which time the fair market value of the home is $60,000.

If the property was to sell for $90,000 net of selling expenses, your wife would have a gain of $10,000 calculated as follows: Her portion of the sales price, $45,000, less her basis in her 50% interest (50% of $70,000) of $35,000, resulting in a gain of $10,000.

On the other hand, if the property was to sell for $50,000 net, your wife would have a loss of $5,000 calculated as follows: Her portion of the sales price, $25,000, less 50% of the lesser of her mother's tax basis, $35,000 (50% of $70,000) or the fair market value at the time of the gift, $30,000 (50% of $60,000), resulting in a loss of $5,000 ($25,000 less $30,000).

If your wife received her 50% interest by inheritance, then her tax basis is the fair market value of the 50% interest that she received as of the date of her mother's death unless her mother paid estate tax and the executor made the alternate valuation date election. If that is the case, which is rare, then the tax basis would be the fair market value of the 50% interest in the property as the the date six months after the date of death. This election is only available if estate tax is due and the election results in a reduction in the tax.

For Mother's Day, invest in mom, says financial planning board

2013-05-08T20:17:08Z

Here's a novel idea for a Mother's Day gift: financial security. In launching a new monthly financial blog, Financial Planning for Everyone, the Certified Financial Planner Board in Washington, D.C., says mothers often overlook their own financial needs.

"Perhaps it is time for those of us who love and value the mothers in our lives to step it up a bit," said Eleanor Blayney, the CFP Board's consumer advocate, in a statement. "This year - along with the carnations and chocolates - consider making an IRA or other savings contribution for mom."

As the family's "domestic CEO", women generally live longer, are often single for more years and may not have as many years in the paid workforce. They need to become a little more selfish, says Blayney, about what they'll need to live on long-term.

She recommends that moms consider these steps:

]]> Create a savings plan. Aim to put away more money, both for retirement and for a rainy day.

Get adequate disability/long-term care insurance. These lifetime risks are more prevalent for women.

Take more investment risks. Women traditionally are more conservative about investing, but need sufficient growth in their investments to accommodate their longer lives.

Sign up for community college classes. Mothers who want to return to the workplace or acquire additional skills to advance their careers should invest in additional education/training at community colleges.

Protecting online reputations: More tips on how to use social media

2013-05-06T18:37:20Z

Our recent column on "how to improve your online image" offered tips on making sure that a Google search of your name or company yields the best possible results.

Here are some more tips:

Social media savvy:

Locally, the Social Media Club Sacramento is hosting its next monthly gathering on May 16: "Guerilla PR Strategies for Tech Startups," where five Sacramento-area tech company CEOs will discuss how they "create buzz about their product or service without spending a fortune."

The free event, from 6:30 p.m. to 8:45 p.m., takes place at the Urban Hive, 1931 H St., in Sacramento.

The five panelists are: Elizabeth Dodson of HomeZada; Aaron Klein of Riskalyze; Alexander Lowe of iSnap; Robb Moore of ioSafe; and Brett Owens of Chrometa.

Founded in San Francisco in 2006, the Social Media Club hosts local chapters in 300 cities and countries, bringing together individuals and business to share "digital media literacy." The Sacramento chapter hosts monthly meetings and quarterly workshops to share ideas, tools and tips on using social media effectively.

Help from Yelp:

Small business owners are invited to "Wednesday Webinars" that cover how to use Yelp.com's free tools, including how to respond to positive/negative customer reviews.

This month's webinars are May 15 and May 22.

Small business owners can set up a free account at biz.yelp.com, which lets them access their business listing to update hours, add photos and interact with customers, both publicly and privately.

Since launching in San Francisco in 2004, Yelp says about 80 percent of its 39 million posted reviews are positive, at least three-stars or above.

"Thanking the consumer who writes those (positive comments) is always a plus," said Morgan Remmers, manager of Yelp's local business outreach.

For the negative reviews, she suggests taking "a deep breath" and waiting 24 hours before responding. That lets the comments sink in and helps avoid "any kind of defensive attitude, snarkiness or emotional tone" in your response.

Generally, brevity is your best bet: "Thank you for your comment. We appreciate customer feedback and will discuss your concerns with our staff."

Even though a nasty review feels like a personal attack, by politely responding and acknowledging their complaint, you can often defuse the anger, said Remmers. And if you're lucky, she noted, the writer might soften or even pull down his or her negative quotes.

Will simplifying our trust require us to re-do all of our title documents?

2013-05-06T17:49:41Z

In the 1990s we established an A/B family trust and have always placed all assets in the name of the trust with us as trustees. We do not expect to exceed the $5 million estate threshold and wish to convert to a simple family trust.
How will this affect all the documents established as "James and Mary, Trustees Under 1990s Family Trust?" We have invested in several real estate trust deeds. Must these documents be quitclaimed to the simple trust or can the simple trust be stated as just a revision to the A/B trust? Thanks for your help.

James and Mary, Elk Grove

]]> A: I assume that by "simple trust" you want to maintain the assets in trust, but there will be no creation of an A/B trust at the death of the first spouse. Instead, the assets will remain in trust until the death of the second spouse, when distribution will be made to your trust beneficiaries.

In that case, you can always have an amendment prepared for the trust. When an amendment is significant, such as the one you would like, some attorneys will prepare what is known as an "amendment and restatement" of the trust. That means the trust you created in the 1990s is still in place but is simply "amended and restated" to include the modifications you wish to make. Title to your assets remains the same because your original trust has not been revoked.

Free 'Avengers' comic books give kids financial literacy heroes

2013-05-03T21:50:01Z

What can Spider-Man teach your kids about money? Plenty, according to the creators of a first-ever financial literacy comic book for kids: "Avengers Saving the Day."

On Saturday, free "Avengers" copies will be given away at comic book stores in Sacramento and across the country, part of the 10th annual "Free Comic Book Day." The event, sponsored by comic book publishers like Marvel and DC Comics, is expected to give away 4.5 million copies of various titles from America's favorite superheroes, from Batman to Sonic the Hedgehog. Participating stores in the Sacramento area include Big Brother Comics, Empire's Comics Vault, Metropolis Comix, and River City Comics + Games.

"Avengers: Saving the Day" is a special collaboration between Marvel and Visa Inc.'s "Practical Money Skills for Life" website. It features Spider-Man and other Avengers battling bad guys, while slipping in messages about budgeting, banking, saving and other money-minded wisdom.

]]> Aside from Saturday's giveaway, the Avengers can be downloaded or requested by mail from Visa's financial literacy site. It's available in eight languages, including Chinese, French, Spanish and Russian.

The script, by Marvel scriptwriter James Asmus, also includes "budget blaster" worksheets and classroom tools for teachers.

"We've packed danger, humor, spectacle and character moments in, alongside introductions to both financial principles and Marvel's mightiest heroes. I'd say readers would be getting their money's worth," said writer Asmus in a statement.

Young entrepreneur's jet company wins NFIB scholarship

2013-05-02T22:07:56Z

He may not have graduated from high school yet, but Sean Burris is already airborne with his first business venture: Classic Jet Tours.

Fueled by his passion for vintage jet airliners from the 1950s and '60s, the 18-year-old has organized two charter flights with paying passengers: on a Douglas DC-8 from McClellan Field in Sacramento and a British BAC 1-11 out of Dallas, Texas.

His company's next charter: a 50th anniversary flight in October aboard the BAC jetliner.

For his entrepreneurial efforts, the Bear River High School senior recently earned a $1,000 college scholarship from the National Federation of Independent Business. He's one of five California high school seniors to win college scholarships in the NFIB's annual competition, which awarded 100 scholarships to business-minded students across the country.

Burris, a Lincoln resident, is majoring in entrepreneurship this fall at Northeastern University in Boston.

Sibling rivalry over a parent's trust: What financial disclosures are required to beneficiaries?

2013-05-02T20:06:17Z

My sister is the trustee of our parents' revocable trust. We will soon be selling their house and property. I feel there is a lot of unnecessary money being spent. Is she accountable for what comes and goes out of the checking account? Do I have a right to know what is financially going on? If so, does she notify me or does the attorney?

It has been almost a year since our parents died and I have no idea where we are financially. I have been involved in preparing the property and house for sale. Do I have a say in accepting an offer or not? My sister feels it is her responsibility as trustee to handle everything without including me. Thank you for your time.

Linda, Rocklin

]]> A: I have not reviewed your parents' trust, so can only respond based on general principles of trust administration.

In most trusts, trustees are granted broad powers of administration. However, that does not mean that the power is absolute. A trustee is a fiduciary and owes a duty to the beneficiaries of the trust. The beneficiaries do not owe a duty to the trustee.

Most trustees understand the responsibility they have been given and work very hard to carry out terms of the trust. They attempt to make reasonable decisions that will be beneficial to all, including decisions that affect the trustee (if the trustee also happens to be a beneficiary). Unfortunately, on occasion, some trustees forget this duty and become high-handed and secretive. Such behavior sows the seeds of mistrust in the minds of the beneficiaries.

All trustees are required to administer the trust according to its terms. Although it is uncommon, some trusts state that a trustee is not required to account to the beneficiaries. Even if such a provision is included in a trust, the trustee is still required by law, upon request of a beneficiary, to provide information relating to the administration of the trust that is relevant to that beneficiary's interest.

Assuming that you and your sister are beneficiaries of the trust and the assets are to be distributed to the two of you, you have the right to request financial information because it affects your interest in the trust. If your sister has an attorney, you certainly can make a request to the attorney for that information, but are not required to do so. You can make the request directly to your sister.

If the trust does not contain a provision waiving the requirement, a trustee is required to provide an account of the trustee's transactions to the beneficiaries on an annual basis. A beneficiary has the right to object to transactions with which the beneficiary does not agree.

The trustee has been charged with the duty to administer the trust's assets. Therefore, your sister has the legal right to accept or reject any purchase offers for the property. She does not first have to obtain your consent to any offer.

However, because her decision will be reviewed by you, and you can object if you feel the offer she accepted was not reasonable, there is no harm done if she keeps you informed of the progress of the property's sale.

As a beneficiary, you should also be reasonable and remember that the trustee has been given the authority to administer the trust. Keeping the lines of communication open between a trustee and the beneficiaries is essential to ensuring a smooth trust administration.

Should I care about my credit rating?

2013-05-02T13:24:50Z

Q: Should I care about my credit rating? I don't owe anything, I have a pension that takes care of all of my needs, and I have $300,000 in savings. I use a Costco Amex card and pay it off monthly. I have no plans to move or buy a house.

Dave
Sacramento, CA

]]> A: That is a great question. While there are many areas that your credit ratings are not a factor (as outlined above) there are other areas where credit ratings may be a factor, so it is important to not only maintain a solid credit score, but to understand your score and have confirmation that your rating is good.

There is a difference between your credit score and your credit report. Your credit score is a three-digit number, typically from 300 to 850. It is based on your credit reports, which are a history of your credit card use, loan payments and other bill-paying habits. By Federal law, you are entitled to a free credit report once a year from each of the three credit reporting bureaus (Equifax, Experian and TransUnion). To get a copy of your free reports: www.AnnualCreditReport.com or call (877) 322-8228.

There are times when a credit score can come into play; some are outlined below. These might not impact your specific situation, but it is important for all of us to realize how far our credit scores can go in impacting our lives.

1. Getting a job: While an employer must obtain your permission to pull your credit report, declining to authorize it can create question in the employer's eye. A job position where a person would handle financial transactions for a company, or a position where confidential or proprietary information is handled, are two instances when credit reports may be considered. There are restrictions with this of course, for example, here is new legislation passed in California in 2012.

2. Student loans: Your credit score is an issue when qualifying for a student loan if you are borrowing money from a private institution or bank. The lender is required to do a credit check to see if you have bad credit history. It helps them determine your overall credit worthiness to reduce the risk of a loan default. The better your credit score and history, the better chance you have to get the loan and repay it.

3. Renting an apartment: Fair or not, your credit score affects your ability to rent a home or apartment. Landlords may look at your credit score, past rental history payments, current income (among other factors) when determining if you may be a viable candidate to rent or lease. Landlords may or may not check credit histories, but it's probably wise to be prepared just in case they do.

A credit score does matter, and with each passing year, if we are being mindful, some things we would like to go down (like our weight) and some things we would like to go up (like our credit score).

How can I reinvest my 401(k) plan from a previous employer?

2013-05-01T12:54:45Z

Q: I have a 401(k) from a previous employer, and I would like to transfer it to a financial vehicle where I would have some control of where the money is invested, such as precious metals, ETFs, etc. How can I do that? Do I need to deal with a brokerage company like Charles Schwab?

Nanette
Elk Grove, CA

]]> A: Similar to what I mentioned in a recent response, you can rollover your existing 401(k)--$17,500/year for those 50 years and under and $23,000/year for 50 years and above, and/or contribute to a traditional or Roth IRA--up to $5,500 for those 50 years and under and $6,500 for 50 years and above. You can invest in an individual IRA account at a brokerage firm (like Schwab or Fidelity) that offers a diverse platform of stocks, bonds, ETFs, precious metals, mutual funds, etc.

However, if you are interested in owning physical gold or other precious metals in your IRA, the procedure for that is somewhat more complicated than with paper assets, but the requirements aren't overwhelming by any means.

First, you must find an IRA custodian that handles investments in metals. Specialists like the original gold IRA custodial companies--American Church Trust (acquired by GoldStar Trust in 2007) and Sterling Trust--are the most respected names in the business. You may find others, but it is a wise idea to do your due diligence before investing with them. Just like a regular custodian, it is best to choose one with a solid reputation because the physical gold will be stored at a location twice removed from you. Firms such as GoldStar and Sterling serve as your IRA's legal custodian; but for actual vaulting your IRA gold, you need a certified depository, likely either HSBC Bank USA (which is also a COMEX gold depository) or Delaware Depository Services.

You'll likely have to open another IRA for physical gold, which means yes, more paperwork and fees as well. Once your money is deposited into your account, you can then tell the custodian what to buy and you can have both ETFs and mutual funds in the one account as well. What's the cost for all this, you ask? Lots of fees for safekeeping, transaction fees and the custodian can charge either a fixed annual fee or an asset under management (much like what fee-only advisors do today), which is a percentage of the IRA's value. Bottom line: you can expect the annual costs to run $160 to $250 per year, depending on the fee structure of the custodian you choose.