Professional advice saves money in long run

Dear Bruce: My husband and I (51 and 46, respectively) are in an enviable position. With a combined gross income of $150,000, we only have a couple of years left to pay off our mortgage. We are employed in stable occupations. We own a rental house with good tenants. The house has appreciated in value significantly since we purchased it. We both max out our 401(k) and 503(b) plans, as well as invest the maximum allowable in Roth individual retirement accounts. Within four years, our children will have graduated from college. We also have some money invested in nonretirement mutual funds. I can foresee increasing taxes in the near future, owing to the loss of dependent deductions and mortgage interest.

I have searched online for a good book about investing that is specific to my situation, with no luck. I hate to say I am looking for tax shelters, since almost everything on the Internet gave that phrase a negative connotation. I do not mind paying taxes, although I have some grave concerns about where my tax dollars are heading (most of my investments are in socially/environmentally responsible funds). Do you have any suggestions for publications about investments that would be beneficial for us? I am not interested in consulting a personal financial adviser. I would rather learn on my own, but I can’t seem to find what I am looking for. – L.S., Allegan, Mich.

Dear L.S.: I am going to the last part of your letter because it is the most important part. You say you’re not interested in consulting a financial adviser. If you have cancer, would you go to an oncologist? I would hope so. If you were having a child, would you go to an obstetrician? I would hope so. When you have a financial problem such as this – and it’s a good problem to have – don’t tell me, “I want to do it myself.” Do-it-yourself surgery and financial planning have little to recommend them.

You say you don’t mind paying taxes, but I sure as heck do, and I do everything I can to legitimately avoid taxes. That includes using a professional. Please do yourself a favor and seek out some expert opinion. It will save you money.

Lender has right to ask about assets

Dear Bruce: I recently lost my job. To try and stay on top of my house payments, I asked my lender if I could defer the mortgage payments. They sent me an application form, and one of the questions asked if I had any investments and, if so, what they were. Are they going to require me to use my investments before they will approve my deferred payments? – B.M., via e-mail

Dear B.M.: You are requesting a change of contract from your mortgage lender. They have every right to try and determine your ability to pay. While I understand your asking them to defer the payments, they may take the position that doing so deprives them of income. If they defer the payments and you have a low interest rate, it may not be in their best interest. Since you are asking for a major concession, I don’t see any reason why they cannot ask for this information. They can’t force you to use your investments, but they are also not required to cut you any slack.

Hold the stocks or sell?

Dear Bruce: In the late 1970s, we purchased a medical stock for the sum of $3,300, and it has split several times. At this point, some 30 years later, we have four different medical stocks worth an average of $70,000. My question is, since we are in our mid-70s, should we try to sell the stocks before they are passed on to our heirs? Our income is right on the border of having to pay yearly income taxes. We also have no idea how much in taxes it would cost to sell the stocks. We do not need the money at this time. Do you have any suggestions? – K.M., via e-mail

Dear K.M.: If you do not need the money, by all means hang on to the stocks. If they are passed on after your demise, assuming you don’t have a huge estate, they will be moved at a stepped-up value, which in essence means no taxes. On the other hand, if you sell now, you will have to pay the capital gains, which could amount to $15,000 or more. If you don’t need the money and you’re satisfied these are still good companies, as they appear to be, hang on. If you think the stocks are going in the tank, take the tax hit.

From middle-class to heir

Dear Bruce: I grew up in middle-class surroundings. I went to public schools and a public college, graduating with a degree in business management. I’m not making big money in my current job, but someday I hope to do well. I am meeting my college obligations because I borrowed most of the money, and I’m hoping to get married in another year or so. My life, however, has done a huge flip. A relative I barely knew has named me as her sole heir, and I’m going to receive somewhere between $500,000 and $1 million. I’m overwhelmed. I never expected to have this kind of money. I want to act responsibly once I get it. Can you help me? - Reader, via e-mail

Dear Reader: You sound like you have a decent set of values, and your parents certainly had a lot to do with that. They are to be congratulated. The kind of money you are describing requires professional management, but it also requires that the owner of the money – you – have some idea of what the managers are talking about. In the next few months, before the money comes your way, you should make a concerted effort to learn about finance.

This means, among other things, starting to read magazines, periodicals and newspapers skewed toward investment. Fortune, Forbes, Money Magazine and The Wall Street Journal come to mind, and, of course, there are many others. It will take you a while to understand what you are reading, but trust me, if you expose yourself to this material for a decent period of time, you will be amazed at what you can come away with.

You’ll need a successful and competent broker, so ask around. Sit down and interview them like you would any employee. Tell them what you are trying to accomplish, and have them make proposals. As the money comes to you, discuss with a broker the possibility of parking it for a short period of time in government securities. While the yield will be low, there is perfect safety and, during this period of time, you will increase your knowledge. The type of money you have described appropriately invested can provide wondrous things for the balance of your life. It can also be foolishly spent in no time. You appear to have your head screwed on tight!

The deal on credit card perks

Dear Bruce: Should I get a credit card that gives cash back or one that offers reward miles? What’s the better deal? – R.P., Las Vegas

Dear R.P.: There’s no absolute answer to your question. With mileage credit cards, generally speaking, you can get a coach ticket anywhere in the country for a fixed number of miles. The question is, how much would that ticket cost? If you are cashing in 30,000 miles to get a ticket that costs $200, it’s not a very good deal. On the other hand, if you are using the same 30,000 miles to get a ticket that might cost $700 or $800, that’s a very good deal. Some mileage programs allow you to redeem them for merchandise or hotel stays, not just airline tickets. Others are more restrictive. In some cases, the mileage goes away if you don’t use it; in others, it lasts forever. Then, of course, the percentage you get back in cash is a variable. In my case, because I travel a good deal, the mileage seems to work out better. I believe that if you use the mileage effectively by purchasing the more expensive tickets and hotel stays, you will get more bang for the buck.

Dying doesn’t cancel debt

Dear Bruce: My sister’s husband is terminally ill, and he has credit card debt in the amount of $28,000. He says that, since the cards are in his name only, my sister would not have to pay them. Is this true? – G.R. in Florida

Dear G.R.: I hate to be the bearer of bad tidings, but first of all, when this gentleman passes away, his estate is obliged to meet all of his bills, and the $28,000 in credit card debt comes under that category. In the event there is no estate — in other words, he dies broke — the creditors will look to the wife for recovery because the debts were incurred during the marriage. You can’t cheat your creditors just by dying.

Parents may not need trust

Dear Bruce: My parents are talking about getting a living trust. They are paying $1,800 to set it up, and they are worth less than $100,000. Is this necessary? – Reader, via e-mail

Dear Reader: With a relatively modest estate such as you have described, I see absolutely no purpose in setting up a living trust. There are no tax benefits. The only major benefit would be that this could pass outside of probate. Admittedly, this makes it a more expeditious process. On balance, for a modest estate with a properly drawn will, the probate process would be relatively painless.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.