Don’t add a financial hit to a heartbreak
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Dear Mr. Berko:
My 85-year-old wife (we’ve been married for 55 years) is terminally ill, and we expect that she will pass this fall. Our home was recently appraised at $565,000 and is much too big for me. We bought our home in 1968 for $55,000, and I plan to sell it and move to Phoenix to be near my two daughters and move into an adult congregate living facility they have researched for me. The Realtor told me that to avoid paying taxes on the entire gain ($510,000) I must sell the home in the year of my wife’s passing. She insists that I list the house now because it may take many months to sell the home in this weak real estate market. Well, that’s going to be a little tricky because, for reasons you can understand, I don’t want my wife to know that I’m selling our home of 40 years. So I’d rather wait until after she passes before I list and sell our home. If I sell our home this year I can exclude $500,000 of the gain from taxes. But if she passes this year and our home sells in 2009 I can only exclude $250,000 of the gain from taxes. I think this is terribly unfair and would like to know if there is any way to avoid this penalty. Can your lawyer daughter give me some legal advice on this tax problem? Finally, I need your advice on how to invest the proceeds from the sale. I’m 83 and thankfully have enough money to easily last a lifetime (it costs me very little to live), but I’d like this money to be invested for my three grandchildren and their children. So I need your investment advice as well as your tax advice. And please excuse my shaky handwriting. I keep putting off buying a ribbon for my Underwood typewriter.
E.N., Santa Monica, Calif.
Dear E.N.:
Yep, my daughter can give you tax advice, but it won’t be worth a plugged nickel, because she’s a criminal attorney. However, you might want to engage her to sue that flaky real estate agent, who is either dumber than a toadstool or so dishonest that she’d steal the wax from her father’s ears.
Losing your wife of 55 years is traumatic, but losing a $250,000 tax exemption because of your wife’s passing is adding insult to injury. Your real estate agent is as wrong as Corrigan, and I’d encourage you to write the Board of Realtors in Santa Monica and tell them precisely what you told me. But first purchase a ribbon for your Underwood; if you can’t get one at Staples, then try either the Salvation Army or some of the finer antique stores in Santa Monica.
A couple of years ago, a surviving spouse who sold a couple’s home could exclude up to $500,000 of gains, but the sale had to be completed in the year in which the spouse passed, and a joint return was filed for that year, too. But if the surviving spouse sold the home in the year following the spouse’s death, the tax exemption was limited to half the gain or $250,000, which is the current limit for a single person. And some spouses were actually mean enough to die late in the year, which made it rather difficult to sell the home at fair price in a month or two.
Two years ago, Congress got the message, or should I say the “payoff.” The new law allows the surviving spouse to exclude up to $500,000 of the gain providing the home sale is completed (completed is the operative word) within two years of the date of death. So you’ve got lots of time to sell your home and lots of time to find another real estate agent.
Now just in case you happen to sell your home this year, I strongly recommend the following six no-load mutual funds for your grandchildren’s and great-grandchildren’s futures.
Fidelity Convertible Securities (FCVSX) has a 20-year average annual total return of 13.1 percent, T. Rowe Price Capital Appreciation (PRWCX) has a 20-year average annual total return of 12.2 percent, Fidelity Balanced (FBALX) has a 20-year average annual total return of 10.3 percent, Dodge & Cox Stock (DODGX) has a 20-year average annual total return of 13.4 percent, Weitz Value (WVALX) has a 20-year average annual total return of 13.5 percent and Mairs & Power Growth (MPGFX) has a 20-year average annual total return of 13.6 percent. Invest $50,000 in each of those funds and hope the kids forget about them for 20 years.
Then invest the remaining $200,000 in the AXA/Equitable Variable Annuity, which guarantees 6.5 percent, and hope the kids forget about it, too, for 20 years. If they do, and assuming that no catastrophic events occur in the next two decades, that $500,000 could be worth $3 million, give or take a few hundred thousand dollars.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.
© Copley News Service
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