Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, June 7, 1993                   TAG: 9306060018
SECTION: BUSINESS                    PAGE: 6   EDITION: METRO 
SOURCE: MAG POFF
DATELINE:                                 LENGTH: Medium

BANK IS CUSTODIAN, BUT DOESN'T RUN FUND

My question now is should I let this fund roll over into the hands of First Union Brokerage Services Inc.?

My dividends have steadily gone down with Dominion Bankshares, so will I be wise in letting First Union take over? Or do you suggest I do something else?

A: You have a brokerage account with Dominion, an arrangement that would continue with First Union. As a practical matter,First Union has owned Dominion since March. Now only the name would change.

The bank, regardless of which one it is, is merely the custodian of your account. Your money is invested with Kemper Financial, which is responsible for its performance. The bank doesn't run the fund. It earned a brokerage fee for selling the investment to you.

Your account executive with Dominion moved some time ago to the bank's McLean office and took your account with her. You might consider moving it back to the Roanoke office, where you would have the option of dealing personally with an account executive. Use the toll-free number the bank gave you for questions. But if you feel comfortable with your current representative, you can leave your account in McLean.

Kemper is considered a reputable company of mutual funds.

Your fund, Kemper U.S. Government Securities Fund, is a pool of mortgage-backed securities; 68 percent of the fund is in Ginnie Maes and 21 percent is in other types of mortgages. The balance is in U.S. Treasuries. The fund enjoys an AAA rating.

This is a very conservative, low-risk fund and would be classed as an income fund. You paid a sales charge of 4.5 percent up front, so that is already behind you. The fund charges 0.64 percent in annual fees, which is very reasonable.

The current return on all types of income investments, such as bonds and bank CDs, is very low. Your fund reflects this because your dividend has dropped twice. This is because mortgage rates are low now, while old high-rate mortgages are being paid off in refinancings. Your earnings should increase when interest rates rise again.

Even so, your current return is 7.16 percent. This is high compared to other types of interest investments. And your risk is minimal.

If you want to diversify, you can put some of your money into a stock fund. This would be more volatile and present more risk, but it would also offer potential for more growth.

You can switch some of your money into other Kemper funds without paying an additional fee. Most fund families allow free switching. Or you can talk to your account executive about other families of funds.

Estate tax exemption unavailable to aliens

Q: My question concerns inheritance and estate taxes.

Are there some adverse ramifications in the estate tax laws concerning an estate passing from a U.S. citizen to his wife, who is a citizen of another country but a legal resident of the United States?

I had heard something about the $600,000 exclusion on estate taxes being unavailable to a non-U.S. citizen. Could you please clarify this for me and suggest possible remedies?

A: What you heard is correct. The $600,000 tax exemption is unavailable to alien spouses, so the estate is fully taxed. This is designed to prevent the alien spouse from moving back to his or her country of birth and thereby escape all taxation of the joint estate when he or she dies.

Trusts, however, can be set up to protect the surviving spouse. Every couple with an alien spouse should consult either a lawyer who specializes in tax and estate law or a certified public accountant about setting up such a trust. You should do this as soon as possible.

A way to defer capital gain in property sale

Bruce Stockburger, a lawyer with the Roanoke firm of Gentry, Locke, Rakes & Moore, offered some additional advice to a 72-year-old woman who wants to sell investment property in North Carolina and then buy land in Salem. In her letter, which appeared in this column May 31, she said she was concerned about the tax consequences.

Another option, according to Stockburger, is to sell the property under a qualified escrow arrangement in order to reinvest the proceeds in like-kind property under Section 1031 of the Internal Revenue Code.

If such a deal is properly structured, he said, you would have 45 days from the sale of the property in North Carolina to identify any properties in which you were interested in investing and then close within 180 days of the sale.

Under this arrangement, your basis in the North Carolina property would be carried over to the property you acquired, plus any additional commitments you made as a result of the purchase.

Stockburger said this procedure has become fairly standard in the commercial real estate area and could serve to defer the capital gain indefinitely.

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.