ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Monday, February 10, 1997 TAG: 9702120010
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: MONEY MATTERS
SOURCE: MAG POFF
Q: I had three old insurance policies, all for small amounts, and I decided to cash them in because I have plenty of life insurance without them. I also thought they would make more money if I invested them because I am living on a fixed income. I had the policies since I was 18, and I am now 73.
The agent talked up mutual funds, so I put the $1,300 into mutual funds which I know nothing about. Later I read an article about the funds in which I invested. It didn't sound too favorable to me.
Now I am wondering if I made a mistake. Do you think I should have put the money into certificates of deposit or some other money market fund that would have profited better than the funds?
The agent said I should wait three years before I think about using any of the money. Does it really take that long to realize a profit from the funds? That is OK with me because I don't really need the money now, and I figured the policies would have just been lying around the house and I couldn't have used them.
A: Mutual funds are generally considered to be long-term investments. That means you should plan on holding them for five years or longer, which gives you an opportunity to ride out any downturn in the stock market. In recent years, of course, the stock market has gone up. That means that in your case, you should not have lost any money yet through a drop in the market.
But the agent probably recommended a fund from which he could earn a commission. That means you are probably in a so-called load fund, one that pays an agent a commission for selling to clients. No-load funds, on the other hand, market directly to the public without paying commissions. All funds charge management fees.
If you are in a load fund, you probably paid the agent 3 percent or more of your assets at the time of your purchase. If that is the case, it will take time - and a continuing good market - to recover this bite out of your money.
You shouldn't invest in anything you don't understand nor pay a commission you can avoid, but what's done is done. You shouldn't stay in the fund if you can't sleep at night for worry, but you indicate that you are relaxed about this particular investment.
Your course of action should depend on what other assets you own. If you are holding other investments in cash, such as bank certificates of deposit, why not take a fling with this money in a mutual fund? Maybe it will give you some growth.
If $1,300 is your only extra money, take it out while the market is high and invest in a certificate of deposit. You won't get any growth, but the principal will be protected.
Choosing will executor
Q: My husband and I are in the process of drawing up a will. Who should be the executor of your estate? Should it be a relative or a friend? What would the executor's function be? Should you consult that person before naming him or her as executor in a will? How would you change the executor after the will has already been prepared?
A: The executor under your will should be a person that you trust absolutely to carry out your wishes after you are no longer alive. The person must be honest, be able to deal with your heirs fairly and be competent in handling money and financial records. The person must be capable of being bonded to perform his or her duties, but you can, through your will, relieve your executor of the expense of posting a bond. The person must be at least 18 years old and usually must be a resident of Virginia.
That person can be a relative or a friend. Usually it is one of the heirs, but it need not be a beneficiary of your estate. Many husbands and wives have parallel wills that name each other as the executor, but then you also have to provide for an alternate executor. The alternate would act for the second person to die or if you both die together in an accident.
Some people choose the trust subsidiary of a bank or a lawyer as the executor, if they do not want to name a friend or relative. Such professionals are usually more detached and objective in dealing with the heirs, but the cost to the estate would be higher.
Executors can charge a fee approved by the court, but not every executor charges a fee. A spouse inheriting an estate tax-free for example, would not charge a taxable fee. The traditional fee is 6 percent.
The role places a great responsibility on the person who assumes it. It is absolutely essential, therefore, that you inform this person in advance. He or she must agree to accept the work involved. If the executor you name refuses to serve (or cannot serve) the court would name a replacement.
The executor has many duties that involve settling your estate and distributing the assets to your beneficiaries.
The executor may arrange for the funeral and present the will for probate, although others may perform those two duties.
He or she must pay all debts, claims and taxes. He must collect all the assets and have them appraised.
The person you select would probably have to open accounts for the estate, then invest, manage and preserve your assets. He might have to sell some assets before settling the estate and passing on the money to your heirs. He must file reports with the commissioner of accounts and, depending on the size of the estate, file tax returns.
Help might be necessary for all of these duties, so the executor may have to retain a lawyer, accountant and other advisers.
The Virginia State Bar said more than 200 sections of the Virginia Code deal with handling of estates.
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