Smart Money: Family squabble calls for financial strategy

Dear Bruce: My mother and I share a joint savings account. The money will be mine upon her death. Do I have to show this money as income on my taxes because I share an account? With two children headed for college, will this affect applying for financial aid? Should I change my account to payable on death? I have a large family that would fight over this money after her passing, and my mother preferred to keep it simple for me to remove the money. I also have access to her funds in the event that she needs them, and I could handle her finances if she were unable. —A.S., via e-mail

Dear A.S.: The problem here is that family members will fight over your mom’s money, and they may fight no matter how she titles it. To avoid this, have her give you the money now and claim against her lifetime exemption so there will be no taxes. The money would be available to her through you as long as she lives, but it would be yours after her death, and there’d be no way to contest it. Of course, any income the money earns will be fully taxable.

A prescription for success

Dear Bruce: I am a young physician. I am doing nicely for someone who is so recently in practice, earning almost $150,000 a year. However, I also have incurred $120,000 in student loans to get me where I am. I hate to have this amount of money hanging over me, but my gut reaction says paying off these loans early is foolish. I could invest the money in reasonably conservative areas and still outperform the 8 percent that I am currently paying the lenders. Is my thinking flawed, or am I on the right track? —S.P. in Arizona

Dear S.P.: I am with you. While I know it is hard to sit there and look at these huge balances, 8 percent is cheap money, and why pay it off a day early? This strategy is relevant as long as you have the discipline to put the extra money in decent investments, not highly speculative ones. For a young person, it seems to me an aggressive stance over the long pull will be beneficial. If, however, you are not disciplined and are tempted to spend your extra money elsewhere rather than invest it, by all means, reduce your indebtedness.

Safety in shredding

Dear Bruce: We were always told to shred our credit card receipts because our card number appeared on them. Now that most places only print the last four digits of the card on the receipt, should we still shred them? —K.H. in Georgia

Dear K.H.: Shredding any document – credit-card receipts, tax returns, solicitations, etc. – is always a good idea. While there may not be any useful information on these receipts, what possible harm can come from shredding? It’s a relatively quick and painless procedure, and you’ll be assured that dumpster divers won’t gain any of your information.

Know when to hold ’em

Dear Bruce: I recently inherited a small amount of money invested by my departed relative in a major software company. The amount of money is almost enough to pay off all of my credit card bills. But would it be better to hold on to the stock and wait for it to rise? My credit cards helped me pay child support and alimony, but now I can settle the debt. Should I pay or hold on to the stock? —Reader, via e-mail

Dear Reader: The company that you mentioned is doing very well, and I think it will continue to do well. That is, however, just an uninformed opinion. Only you can make the decision whether you would be better advised to pay off the credit card bills and avoid the high interest, or whether this stock will outperform those high bills. On balance, there is a lot to recommend paying off the credit cards. In your position, I probably would go that route. However, no one can say whether this is the time to sell a specific security. That stock might go through the roof, and you will be sorry you sold it. That’s what investing is all about.

Borrowing smarts

Dear Bruce: My son, a college sophomore who has more than enough money saved to pay for bills for state-university education, is still borrowing. He claims there is nothing improper about borrowing and investing the money. Since there is no interest being charged, whatever he earns is gravy. I think this is wrong. Is he breaking any laws? —Frustrated Mother, via e-mail

Dear Mom: Unless the loan specifically addresses the issue of where the money must be spent, I don’t see how he’s doing anything wrong. As a matter of fact, I think he’s a smart young man. If he can legally borrow interest-free money, why in the world wouldn’t he? The other part of the equation is to make sure that it gets paid back before the interest meter starts to run.

Bruce Williams is a national radio talk-show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.[[In-content Ad]]