Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 29, 1993 TAG: 9303270017
SECTION: MONEY PAGE: A6 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
We have two IRAs for a total of $37,600 and Social Security of $1,122 a month. We are receiving payouts on the IRAs at the lowest rate. We make do with Social Security for most of our living expenses.
I figure we could invest the $60,000 in a five-year savings certificate at 6 percent, and our IRAs could get another 6 percent. We could time that interest to come to us at the end of the year, thereby paying the rent one year in advance and maybe getting a discount on the rent. I work part-time and take home almost $400 a month, but I don't depend on that because I could stop at any time. Our life insurance is set.
A: Most people, especially younger people, should avoid locking up their money for five years at a time when interest rates are low. But you should consider this option because you and your wife are retired and you need the highest and safest possible income today. You might take a look at Treasuries which usually pay slightly higher interest than CDs yet are equally safe and sure.
Virginia Garretson of Consumer Credit Counseling in Roanoke said you should spend no more than one-third of your income on housing. That includes all of your housing-related costs. Obviously, the less you spend, the more you will have for emergencies and for some retirement pleasures.
If you earn 6 percent on $97,600, you will have $488 a month in addition to your Social Security of $1,122. One-third of that total of $1,610 would give you $536 to cover rent and all of your utilities.
You do not say how much life insurance you and your wife have. If one of you should die, you would inherit each other's IRAs to use as your own, but the survivor would receive lower Social Security payments. You each must have enough life insurance for the interest to make up this difference. If either or both of you lack enough insurance, plan to pay lower rent.
Pay your rent monthly to maintain maximum flexibility. You should save the money to earn more interest, making payments only as they are due. Think of your rent as a monthly, not an annual, expense.
Garretson suggested that you might look into retirement communities where you should find many activities at a reasonable cost. This might cover your meals along with your rent.
Farm gift mired
Q: My father gave me and my brother equal shares in a farm in 1985. On the deed, it is called deed of gift. His wife, who has since died, had a life estate in the property.
Do we have to pay any kind of taxes on it now or when it is sold? Would it be better to take care of any tax now or later? If I die, would my wife get my half? If we decide to build on the land instead of selling, what is best to do about any tax?
A: Your father should have filed a gift tax return in 1985 because he gave you and your brother a gift that exceeded the annual limit of $10,000 a person. The excess over $10,000 to each of you, or an exclusion of $20,000, must be included in his estate for tax purposes.
Whether estate taxes are due depends on whether his total estate, including lifeinsurance and the excess gifts, exceeded $600,000.
Your wife would inherit your half of the farm unless you have children from a prior marriage. In that case, your children would, as a general proposition, inherit two-thirds while she took only one-third. But marital rights can be very complicated under recent changes in the law.
It is also important to establish your tax basis in the property at the time of your parents' deaths. You should have any assets appraised as of the date of his death because that will serve as the tax basis for you and your brother.
Tax and estate law is a very complex subject and, in addition, you should have a will of your own. You and your brother must deal with the question of how this farm will be handled for the succeeding generation.
The time to deal with tax problems is now, so you and your brother should consult a lawyer. Find yourselves an attorney who specializes in taxes, wills and estates.
Insurance company solid
Q: Can you tell me about the reliability of the State Farm insurance company? My husband died two months ago, and the insurance money has been placed in a State Farm checking account earning 4.75 interest. It represents the bulk of my money, and I can't afford to lose it.
A: State Farm is a reliable and financially solid company, so your money is safe where it is. When the estate is settled, you should claim your money and diversify your holdings so that you will have both cash and investment savings
Mag Poff will help find answers to your personal finance questions. Send them toher at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.
for growth.
by CNB