November 06, 2011

DEAR BRUCE: I am 84 years old and have two CDs worth about $230,000. I have my three adult children registered as equal principal beneficiaries. What are their options upon my demise? can their shares be rolled over into their IRAs, and the required minimum withdrawal be based upon their reaching 70½? Or must their withdrawal be based on my age? Is there a time limit for them to withdraw their shares? Where can I find an explanation of such benefits?

DEAR F.D.: I?m assuming that your $230,000 is in some type of tax-sheltered environment: IRA, 401(k), 403(b), etc. there are various regulations with regard to how such money has to be distributed — taxes paid, etc.

Failing that, if these are just ordinary CDs and they have your children’s names on them and have been properly set up (payable on death or something similar), the money will be split three ways upon your demise and taxes, if any, will have to be paid. the attorney advising the executor of your estate can determine precisely what your children’s rights are.

Without the specifics of this money and perhaps other monies that are in your name, it is difficult to give a very specific answer. the research involved and the costs should be minimal. I would do this immediately. it?s much easier for you to straighten out problems now than it will be for your estate after your demise.

DEAR BRUCE: I have an opportunity to collect two full pensions on my 55th birthday. I am now 49. 1) What do you think about forgoing the spousal survivor benefit and compensating with a term life insurance policy with my wife as the beneficiary? 2) Is there a rule-of-thumb formula to determine how much money to insure myself for? the total pension will be a minimum of $4,200 per month, without the spousal survivor benefit, and the mortgage will be paid off on the same date. My annuity will provide around $300,000, but we will have to purchase our own health insurance. Thank you.

DEAR D.P.: the proposal that you are making is very common, but it does have one important item that is not unique to all of us, and that is good health and insurability. the idea of forgoing the spousal survivor benefit — in other words, leaving your wife with a lower income until her death, is often not the best choice. there is no rule of thumb that I know of. you will have to do the math, looking at your income on the two benefits.

The other variable in this situation is that if you pass away, your wife will have the entire amount that the difference would have purchased, which is often more then would come to her with the survivor benefit. Further, if she passes away very quickly, that amount of money would be in her estate, which could be passed along to whomever she chooses.

I would elect to go with the insurance. Buying the insurance now at age 49 would give you a lower premium, even though the net cost would be higher. you will be developing some cash value in the policy, but more important is that you have no way of knowing whether you will be insurable six years from now. If you are insurable now and you wish to pursue this, consider taking out the insurance and guaranteeing the availability.

DEAR BRUCE: please explain the gift tax. When does it apply? who pays the tax? Thank you.

M.C., Inverness, Fla.

DEAR M.C.: the amount that you are allowed to give without any tax implications to you or the receiver is $13,000 per year, per person. In other words, every individual can give anyone else, without regard to their relationship, up to $13,000 without any tax implications. If you are a married couple and you want to give more to one of your children, each of you (assuming you file a joint return) can give that same amount of money with no tax consequences. If you wish to give more, you can claim against your lifetime estate. you would not be allowed to leave as much tax-free after your death, but you would likely not exhaust the exemption. the death tax, however, is under consideration for change by Congress. If you give away more than the exclusion available when you pass away, there would be some estate tax.

DEAR BRUCE: I would like to know if, when a person goes to a nursing home and has CDs that list either/or on the CD, whether those CDs have to be included when stating the person’s net worth. My mother has some CDs that have either/or on them with my brother’s and sister?s plus my name on them. I am not sure whether I asked this question right. Thank you.

DEAR JANICE: If your mother goes into a nursing home, she?ll have to fill out a financial form. If she applies for Medicaid, all monies up to a very small amount must be spent on her behalf. If assets remain upon her death and she has collected Medicaid, the state has an option of going after those assets. Many people scurry around and try to shelter this money from Medicaid. the best way to insure that is to give away funds exceeding the look-back period, which is 36 months. If your mother is not going to be in a nursing home after that look-back period, and she?s comfortable with giving the money to you guys knowing that you will spend it on her behalf, that?s OK. the reality is that most people who do go into nursing homes seldom live more than three years. If you or your siblings dissipate the funds, you will put yourself in some peril.

DEAR BRUCE: My wife and I are planning on setting up a will or living trust but are undecided on what would be better. We own our home and some other real estate. Stocks and mutual funds have transfer-on death beneficiaries on the accounts. can a legal assistant create wills and living trusts legally under Florida law?

DEAR J.W.: you can write your own will, and as long as a legal assistant or some other person doesn?t hold themselves out to be an attorney, they can help you draw a will or a trust. you can even buy forms in office-supply stores. That said, I think the only intelligent thing to do is to have your will set up by an attorney. In the event there are no other things to be considered — real estate, personal items, cash, etc. — the will need not be filed.

Whether you are better off with some combination of trusts and a will is another matter. If your estate is substantial, you really should sit down with a qualified planner who can tell you some of the peculiarities of the law and how you can best arrange for the least painful way to transfer those things you have acquired in life.

A lot of people seem to fear probating a will. this is not a painful process. Trusts, however, can offer a couple of benefits. one is privacy, as a will is a public document. second, if the trust has been set up properly with a professional, it?s possible that expenses that might otherwise be charged to probate the will would exceed the costs of setting up the trust. you should make sure that (in most cases) the trusts are fully revocable, which means you can cancel them as long as you are alive and competent, change beneficiaries or eliminate them altogether if you so choose. If you set up a trust and that person predeceases you, there is a question as to whether their beneficiaries would benefit from the trust or it would simply cease to exist and go back into your general estate. obviously, this can get rather complicated.

DEAR BRUCE: My husband recently transferred $20,000 to one of my accounts, unaware that this could cause tax implications for us. will this amount be subject to any federal or state taxes? We have since made the account a joint one. — N.M.. via email

DEAR N.M.: I?m a bit confused. you say that your husband put money into one of your accounts. why would this cause tax implications? Assuming that you file jointly and you haven?t separated your funds, I know of no reason why a husband and wife can?t give money to each other without any tax implication. there may be something I?m overlooking, and, if I am, I?m confident my readers will be generous and let me know, which I will address in a future column and will respond back to you.

(Interested in buying or selling a house? Let Bruce Williams’ “House Smart” be your guide. Price: $14.95. Price includes shipping and handling. Send check or money order payable to Radio Merchandise to P.O. Box 7150, Hudson, FL 34674.

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