An Inheritance Hits Home

Mary Warner and Her Family Must Handle A Delicate Sharing of Family Assets

way they want. To guide the Warners on avoiding a financial squeeze, BLACK ENTERPRISE arranged a meeting with Walt Clark, president and CEO of Clark Capital Investments in Columbia, Maryland.

In addition to a $50,000 line of credit at 7%, the couple has a $4,300 credit card at 11.9%, a $13,000 car loan at 9 %, and a $1,400 furniture loan at 26%. Since the interest is tax deductible on the credit line, Clark says the Warners should pay off the car loan from the line of credit. This will increase their original line of credit payment from $509 to $626, but eliminate the $400 car payment, saving them $283 per month, plus $40 monthly in additional tax write-off savings. “They should also take the $2,000 in the credit union, which was set aside for the car payment, along with the monthly savings from the car, and pay off the remaining debt4highest interest rates first,” says Clark.

Until now, the Warners have been using their $10,000 mutual fund account to fund their daughter’s education. Since the annual tuition is $10,000, that account would be exhausted by year’s end. Clark says they should exercise their options by having Carla seek financial assistance through grants or loans, which she can pay back over time with her parents’ help. Clark says they should then diversify the account, moving 50% of it from their current large-cap growth mutual fund to a mid-cap growth fund to reduce market risk. To finance the 10-year-old’s education, the Warner’s should discontinue investing $75 a month in a saving account at 3%, and, instead, invest it in a growth mutual fund as part of a 529 College Savings Plan.

Mary’s 401(k) will start matching 3% of her contribution by the end of the year, so she should contribute the maximum to her retirement and diversify into an assortment of growth- and fixed-income funds. Since Carlton currently contributes the maximum to his Thrift Savings plan, he should shift his assets from 50% government bonds, 20% fixed-income funds, and 30% equity funds to 75% growth mutual funds and 25% balanced mutual funds. “Because he has another 20 years before retirement, he should be more on the growth side with mutual funds,” says Clark.

Clark says the Warners should place the $2,000 BE contest prize into Mary’s existing Roth account. They should continue to invest in growth mutual funds. The Roth IRA allows them tax-free growth, tax-free withdrawals of earnings, and early withdraws without penalty for higher education.

Mary will probably have to purchase her brother’s ownership stake of the home with a home equity loan, but that option has been exhausted for now. An additional loan now would cause a financial hardship, so they should concentrate on debt reduction. Once that has been accomplished, the Warners should consider taking out a loan to buy out Mary’s brother.

To protect the home against death or disability, Clark suggests Mary and her brother purchase enough term and

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