Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 15, 1993 TAG: 9302170009
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
DISTRIBUTION DATE DEPENDS ON WHO INHERITS IRA
Q: I am receiving conflicting information regarding my deceased husband's IRA on which I am the named beneficiary. He died last November.I have transferred the account to my name. No distribution has ever been started. He would have been 70 1/2 in June 1993; I will be 70 1/2 in November 1998.
Is a mandatory distribution started based on his attaining 70 1/2 or when I become 70 1/2?
A: Perhaps you are receiving conflicting information because the rules on inherited IRAs are different for spouses than for other beneficiaries. And surviving spouses can handle an account in two ways.
Betty Stanley, who supervises retirement accounts for Dominion Bank, said withdrawals will not be mandatory for you until the time you turn 70 1/2, or until 1998 in your case. (You could wait until the following April, but then you would have to make a double withdrawal.)
That's because you transferred your husband's account into your own name, an action that is open only to a surviving spouse. You are, therefore, its owner, just as if the money had been yours originally. Had you failed to make a transfer, you would have to withdraw at the time of your husband's birthday.
You have the right, of course, to begin drawing money at the age of 59 1/2 if you should need it.
Stanley said the rules are different if the account is inherited by a non-spouse, such as a child or other relative. In that case, the beneficiary must either begin withdrawals in one year or withdraw all of the money in five years.
\ Lawyer who specializes in estate planning needed
Q: I am a 73-year-old widow with cash assets over $600,000 and the usual possessions. I have my investments in good order, but need advice on how to leave my assets to my son and daughter and best avoid taxes. Could you please suggest someone who could help me plan my estate?
A: You need to consult a lawyer who specializes in estate planning. You can choose any professional person on the basis of his or her reputation in the community.
Ask your friends whether they have consulted an estate-planning attorney and whether they were pleased with the results. You might also seek the advice of the certified public accountant who prepares your tax return each year.
Do not delay. If you fail to write a will after proper estate planning, you could subject your children to unnecessary taxes and make it harder for them to agree on how your estate will be settled. This is something that everyone should do for the sake of their families.
\ Estate can be handled through will or trust
Q: I watched a recent program on CNBC dealing with living trusts vs. conventional wills. I am wondering what is the situation with living trusts in Virginia. I am retired and in my 70s.
A: Virginia has simplified probate, so there is no need to avoid that process. Your estate can be handled as easily through a will as through a trust. A trust offers more privacy, but few wills are subject to general scrutiny.
There are many reasons for choosing a living trust, which can be made to survive after your own life.
One reason would be a need to take care of someone, such as a disabled or spendthrift child, who would not otherwise be able to handle the money well.
Another is to take care of yourself. If you become incapacitated, the trustee can continue to handle your affairs for you.
Or perhaps you have tax or privacy reasons for setting up a trust.
Outside of a special need, a trust is most practical for people who have a lot of money. The costs of creating the trust and of paying fees to the trustee impact most heavily on small amounts. The usual yardstick is an investment of at least $100,000 in a trust.
\ Judge mutual funds by total return
Q: Is the price-earnings ratio a valid criteria for judging mutual funds? Should capital gains distributions be included in the earnings part of the ratio? Why don't magazines and newspapers include mutual fund P/Es in their financial reports more often?
A: Mutual funds should be judged by the total return. That covers all dividends and distributions plus the gain in market value minus the expenses.
This is extremely difficult to calculate, however, even with a computer program. So most publications provide just the market value.
You might follow the letter rankings provided by Money and other magazines. Or you can ask your local public library if it has Morningstar's guide to mutual funds.
\ Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.