Money Management Q&As

Should you name a spouse trustee?

Q: I'm leaving some assets to a children's trust so the estate-tax credit will cover them. Is there any reason I shouldn't name my wife as trustee?

A:You might have a tax problem if you allow the trustee wide discretion to spend the principal for your family's benefit. If your wife is trustee, when she dies the IRS might try to tax any funds in the trust as part of her estate, because she had general control over the money while she was alive. In effect, the two of you would get only one estate-tax credit. You may be able to avoid that by restricting your wife's use of the principal. To further protect yourself, consider adding an independent co-trustee.

Cleaning up your credit record

Q: Some credit accounts that I closed still show up on my record. Aren't the credit reporting agencies obliged to remove them?

A: No. An agency must correct errors brought to its attention and delete negative information that's out of date (usually after seven years). But it isn't required to drop closed accounts. However, a creditor must notify reporting agencies that you've closed your account voluntarily, and the agencies must include this fact in your credit report.

Age has its privileges in salary-deferral plans

Q:I'll be 50 years old in 2003. Will that allow me to make an extra contribution to my retirement plan?

A:Yes, if your plan is a salary-deferral type. With a 401(k) or SARSEP (a Simplified Employee Pension plan permitting salary reductions), you'll be able to add a $2,000 "catch-up" contribution to the $12,000 that participants of any age can defer this year, for a total of $14,000. If you contribute to an IRA under a Savings Incentive Match Plan (SIMPLE), you can defer $8,000 plus a $1,000 catch-up, or $9,000 all told.

A ground-floor investment could land you in the cellar

Q: I have a chance to invest in a company before it makes an initial public offering. What if I want to sell my shares later?

A:Making a "pre-IPO" investment means you're buying unregistered securities. If the company never goes public, you may be unable to sell them. Even if it does, you must hold the stock for a year from the date you acquired it before you're allowed to sell it. Meanwhile, you may have a hard time obtaining reliable information about the company's performance. You'd be wise not to part with your money until you review audited financial statements and verify the existence of any manufacturing plants, contracts, and inventory the company claims to have.

Some good news for home buyers and sellers

Q:Now that Fannie Mae and Freddie Mac have jacked up the limit on conforming home loans, the market for residential property should get a boost. Do you agree?

A:Yes. The two mortgage agencies estimate that raising last year's $300,700 ceiling to $322,700 for 2003 will allow more than 450,000 new home buyers to obtain lower-cost financing. Total savings on a 30-year mortgage could top $23,000 with Fannie Mae and $37,000 with Freddie Mac. That's because lenders charge higher interest rates on "jumbos"—loans for amounts above the conforming limit. Other things being equal, resale values should increase in response to greater demand.

Edited by Lawrence Farber,
Contributing Writer

Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to memoney@medec.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.

Lawrence Farber. Money Management Q&As. Medical Economics Jul. 25, 2003;80:79.