WALTER L., CALIFORNIA
A:
Relax. Your brush with vanity won’t annul your policy. It might not even cost your heirs any money, if you can manage your inner age as efficiently as your outer one.
At death, insurance proceeds are reset to reflect your true age, says David White, vice president of policyholder services for Philadelphia Life. You paid lower premiums than you should have for a $200,000 policy, so the proceeds will be reduced. If you die at 77, for example, your heirs will get $166,371. But with your particular policy, there’s no reduction if you last at least until 85. In short, you can outlive your lie.
My employer provides a traditional pension, based on earnings and years of service. It’s all company paid, with no contributions from employees. What happens to our accrued and vested pension benefits if the company is taken over? Can the new company eliminate the built-up funds?
Kathleen Flynn, Warminster, PA
A:
No carpetbagger can rob you of your vested funds. You will get every dime you’ve accrued to date.
But although the past is set in stone, the future of your plan is not, says Howard Golden, a partner in the employee-benefits consulting firm Kwasha Lipton in Ft. Lee, N.J. Normally, you would earn a larger pension for every additional year you worked. But whether that continues will depend on the terms of the takeover. The new management might continue your pension plan as is, continue it under different terms or stop it altogether. lt is legal to end a pension plan, although some substitute is usually offered.
My wife and I have a $750,000 estate. Recently we attended a seminar on living trusts and were told that a trust was the way to go. The lawyer who ran the seminar said it would save us considerable money (probate, attorney’s fees and so on) as well as time. What are the pros and cons? Are there further expenses to a living trust after our death?
M.C., NEW YORK
A:
First, let’s talk about the lawyer who ran the seminar. He offered a $250 discount from his regular $2,750 price if you’d sign up for a living trust on the spot (a high-pressure tactic no one should succumb to). His biased brochure makes it sound as if only trusts can be relied on to avoid federal estate taxes (not true: your will avoids them, too). And he greatly exaggerates the likely cost of probate. Whatever you decide, I’d look elsewhere for legal advice.
When you start a living trust, you switch all your assets out of your name and into the trust with yourself as trustee. You can continue to manage the money, but you buy and sell in the trust’s name. Taxes are paid as if the income came directly to vou. When you die, a successor trustee distributes the property as you wished.
With a will, by contrast, the property distribution is checked for accuracy by a probate court.
Living trusts aren’t cheap. You’ll need two of them to duck federal estate taxes -one for you, one for your spouse. That might cost $3,500 to $4,000. You’ve already paid $2,400 for your wills. If you switch now, you’ll have invested up to 86,400.
After death, some costs are the same in a trust as in a will. The family might ask an accountant do the final tax returns and a lawyer to transfer real estate into new owners’ names. The lawyer could also transfer simple assets like bank accounts and mutual funds. But families can usually do that themselves-especially in the many states (not New York, alas) that have streamlined probate procedures. The will’s extra costs lie in the filing fee$1,000 in your county for an estate your size, says attorney Steven Hand, who chairs your surrogate court’s estates and trusts committee -and the expense of filing other papers with the court. A few lawyers try to charge a percentage of the estate, but they succeed only when families don’t price-shop. You can negotiate a flat fee or an hourly rate. in the end, living trusts usually cost more than wills upfront, but less than wills after death. For your size estate, with its simple assets, Hand sees no benefit in a trust.
Will a living trust save time? Probably so. Trustees can start distributing assets immediately, whereas your probate court takes about three weeks to accept a will. Trusts make it simpler to administer complicated assets and can deflect family infighting. But will or trust, it takes the same length of time to change names on the assets and file the final tax returns. That’s probably a year or more, although families can usually draw on the money earlier and spouses often have cash of their own. The average family should find out what probate really costs before paying for a trust.
I recently saw a blurb on TV for Treasury-bill information that could substantially raise one’s rate of return. It cost $4.50. 1 was unprepared to write down the address but am sending you what I remember. Can you help?
SARAH PINTER, SOUTH EUCLID, OHIO
A:
Forget about raising your rate of return on Treasury bills. You will earn the market rate. Any other claim is, um, balderdash. But you can avoid paying sales commissions if you buy through Treasury Direct at a Federal Reserve bank or branch.
I think you’re looking for the dandy publication called “Buying Treasury Securities.” It explains how Treasuries work, how they’re bought, how to follow their prices in the newspaper, how to invest through a Treasury Direct account and when it might be better to buy through a bank. This booklet costs $4.50 (check or money order only) from the Public Affairs Dept., Federal Reserve Bank of Richmond, P.O. Box 2747l, Richmond, Va. 23261. A big edge for Treasuries: you pay federal tax but no state or local tax.
