in the area start at $150,000. In the meantime, Perry-Mason says Hall should have her name placed on the deed. She could then take over the house note and taxes. This way, she’ll reduce her tax liability. Mortgage interest and taxes are deductible. She needs the tax break more than her mother, who is in a lower tax bracket, says Perry-Mason. They could actually refinance the home with an adjustable-rate mortgage as low as 4% or a fixed-rate mortgage at 6% and place Hall’s name on the new mortgage. If Hall pays the closing costs, that will be another tax write-off, in addition to a lower monthly mortgage payment.
BUILD UP ASSETS
Hall needs to continue building more assets by changing her money market account to a tax-free money market account. By doing so, she’ll earn a lower interest rate, but she can keep whatever interest she earns. Perry-Mason recommends that Hall add her $2,000 financial fitness contest winnings to her tax-free account. She also advises Hall to change her growth-oriented American Funds account to a bond fund and her SEP-IRA account to a balanced fund because the market is going to get worse before it gets better. Since about 75% of the money in her 403(b) plan is invested in government securities and the other 25% is in fixed-income investments, Hall has actually made money during the bear market. Perry-Mason advises Hall to stay put until the market starts to rebound then look at reallocating the funds in growth-stock vehicles.
CREATE AN ESTATE PLAN
Neither Hall nor her mother has an estate plan in terms of wills and trusts. Perry-Mason says Halls biggest asset is her job. In the event of an untimely death, the state would automatically assume her assets, not her mother or closest relative. “When you are single without children is when you need an estate plan the most,” says Perry-Mason. Most of the time, the deceased’s spouse or children are awarded the person’s possessions, savings,
and investments. Even though Hall’s mother may be the beneficiary on her life insurance policy at work and 403(b) retirement account, she is not joint owner of Hall’s money market or other bank accounts. Since Hall is an attorney, she should be able to draft a revocable living trust, which holds property—cash, securities, real estate, and other assets—that are eventually transferred to a trustee on behalf of the grantor’s beneficiaries. Hall also needs to familiarize herself with her mother’s financial affairs—how her retirement income is allocated for instance—so she isn’t in the dark in the event of an emergency situation.
Financial Snapshot: Tiffany Hall
|Federal payroll savings||1,000|
|Car (book value)||23,000|