Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 8, 1993 TAG: 9303060030
SECTION: BUSINESS PAGE: 6 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
WHEN SAVING, KEEP IT SIMPLE
Q: I would like to set up a savings plan for my four children, ages 1 to 12. I have been considering mutual funds such as Twentieth Century, a no-load with no minimum investment. My concern is about taxes, estate planning and my parental control of the money. Also, I would like to minimize planning and investment fees for lawyers and brokers while directing inputs to the funds and possibly move the funds as the economy changes. Could you identify several plans with basic limitations and options, and where to go for further information? The savings plan should be considered long term and hopefully be used for college or other education.A: You are on the right track, but you are making things sound unnecessarily complicated. Saving for education is the same as investing for any other goal.
You are smart to select a variety of no-load mutual funds that offer an opportunity for growth. If you use families of funds, you can switch from one to the other without a penalty as the market dictates. But it's hard to time the market for the current hot play; by the time you figure it out, the streak has run its course. Even the experts never predicted that financial institutions would outperform biotech stocks last year.
You might combine conservative investments, such as balanced and equity-income funds, with somewhat riskier plays, such as small cap funds. But stay out of junk. And you can use more than one family of funds.
Keep the money in your own name, as you suggest. That will mean you, not your 18-year-old, will decide how the funds are spent. Also, under present rules, students must pay a larger share of their own assets to a college than parents are required to pay. These factors outweigh the slightly higher taxes you will pay.
You need not fool with expensive trust funds unless you have a lot of money or a special need to control spending by an heir. But everyone, especially a parent, should have a will and term life insurance to protect the family. Writing a will, of course, entails some estate planning, so think out your plans before you consult a lawyer.
At your age, get a will
Q: My husband and I have been married before. Each of us has two children. We married after the children were grown, and we have no children together. He is 71; I am 57. We own our home and sold our place of business on which I was made survivorship. We receive monthly payments on the business.
Everything we own is in both names. I want to know what happens if one of us should die and what happens when we both die.
I want to make a will, but my husband keeps putting me off by saying we are safe because everything is in both names. He isn't worried about the children and what they might try to do.
A: When there are children from a prior marriage, they are generally entitled to two-thirds of a parent's estate. That means they should inherit two-third of your husband's half of the assets. A house is usually excluded because couples generally hold the entire property together. It is urgent that you have a lawyer look at how these assets are held.
If your joint estate would be worth more than $600,000, including insurance, scare him a little. Show him that the government would take a generous bite of your assets unless he engages in estate planning.
Remind him the chances are great that you will outlive him. Point out that, unless you write wills, you will feel free to give everything you inherit to your own children - or your next husband.
Sell the life insurance
Q: What is your opinion about a retired couple cashing in life insurance? There is ample Social Security, pension and interest on savings for comfort now and even after the husband's death. The interest on the cash from the life insurance would add some luxuries that would be nice now while we are young and healthy enough to enjoy them. Of course, we realize interest on money in a savings account is very low now, but maybe you could suggest something better.
We don't intend to spend the capital, only the interest. The cash value is about $50,000.
A: The purpose of life insurance is to protect the financial future of the survivors. If you no longer have this responsibility, you really don't need life insurance.
Are you sure that you have enough other assets to become self-insured? Remember that inflation will cut into the value of your savings as the years go by. Ask yourself if you have the discipline to leave the principal alone as another cushion.
The money would become part of a portfolio that should contain a variety of investments. Some should be in cash equivalents, but some should be in mutual funds for growth as well. Try to look at your assets as a whole when you decide how to allocate your money.
Treasuries, high-grade bonds and utility stocks can offer you a better return with very low risk. But stock values do fluctuate, and bond prices move inversely to interest rates.
Correction Agents selling shares of the American Funds and Oppenheimer Funds
families of mutual funds charge a 5 3/4 percent up-front fees. Those selling G.T. Global funds charge 4 1/2 percent. A question answered in this column on Feb. 22 noted the fact that some mutual fund fees range from 4 1/2 to 8 1/2.
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.