Quit Claim Deeds and Cost Basis

Q. "My parents signed over their house through a Quit Claim Deed to me and my siblings in 1994 with the stipulation they have life tenancy. After my mothers passing in 12/04 we sold the property in 08/05. Is the basis calculated on the market value in 1994 or 2005 and do we owe capital gains tax on the profit of the sale?"

A. Since your mother signed over the deed to you she essentially made a gift. Therefore, your cost basis is your mother's cost basis which could be the original amount she spent on the property. Since the property didn't go through probate at her death, there isn't the step-up in basis to the current market value.

If your parents had the house jointly and your father passed away then his half of the house may have received a step up in basis.

Basis can be affected by whether your state is a community property state, but I don't think it is.

So you will pay capital gains tax on the amount over the calculated basis.

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Tax Differences Between Equity Linked CDs and EIAs

Q. Jeff, thanks for the info on equity linked CD's versus EIA's. We were about to purchase an EIA. Help me understand the tax differences between these options.

I understand the EIA bought with after tax dollars has pretty low tax implications. What about the product bought through the bank? You know, I just somehow knew that buying a product through an insurance company could only be bad!!

Thanks for your advice on the net!

A. You're welcome. The commissions on EIAs are outrageous.

The tax implications aren't any different for an Equity Indexed Annuities vs an Equity Linked Certificate of Deposit. The growth on both will be taxed as ordinary income when withdrawn. This is actually one of the disadvantages of these products as compared to capital gains rates paid on investments like mutual funds, ETFs, stocks, etc.

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Non-Market Oriented Investments - Safer Alternatives

Q. My current annunity policy is up for renewal and I am being offered 3.10% for a 5-year term. I am considering going with the #### Series with the combo of 10% in a fixed account, 20% in Performance Trigged Index and 70% in a 2 year Point to Point.

I already have money invested in mutual funds for this money is to be invested only in SAFE areas. What are your thoughts? Thanks a bunch.

A. The main question is whether this money needs to stay in an annuity. If you are under 59 1/2 or have a huge taxable gain in the annuity then you will need to keep it in an annuity.

If it doesn't have to be in the annuity then I would not recommend it. You mentioned that you have other money in mutual funds and that this is for safe areas. There are a lot safer products that wouldn't be based on the performance of the stock market at all. That way, you use your mutual funds for the market portion of your portfolio and other non-market oriented investments for the safer portion.

For instance, I use a real-estate based investment for my clients that pays 6-7.25% in dividends, has the potential for some capital appreciation and is stable in value.

If the money has to stay in an annuity then your options are more limited. As you probably know, I am not a big fan of EIAs. That being said, #### has some that are shorter term and pay a low commission so that the internal costs are better. But this would be far down the list if the money doesn't have to be in an annuity.

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Trusts - Annuities, Insurance and Real Estate Issues

Q. My husband and I have 2 homes with an estimated value of $1 million, we'd like to put the homes in a real estate trust and credit shelter one of the homes with a life estate for the remaining spouse. Can this be done under one trust or do we need two separate real estate trusts? I'm tempted to use an online kit and have the document reviewed by a lawyer but im finding it hard to select a reputable one.

Also .. can my retirement annuity be placed in a trust upon my death or is an annuity always a separate entitity.

we are not sure if our life insurance can go into a living trust as well??

A. I am not sure what you mean when you are referring to a 'real estate' trust.

Can you tell me more about what you are trying to accomplish?

Do you have children that these assets will eventually pass to after you both die?

You cannot transfer the retirement annuity into a trust. In other words, the trust cannot be the owner of a pre-tax account. On the other hand, you can have the payment from the annuity (since it will be subject to income tax anyway) go into a trust checking account.

Life insurance will avoid probate by passing to a beneficiary, but it isn't a problem to have a properly drafted trust be the beneficiary of your life insurance policy.

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401(k) - Time Limit For Issuing a Withdrawal?

Q. I've asked my ex-employer for a withdrawal from my 401k and have acknowledged the tax ramifications. The problem is that the company is saying that they are changing administrators and will not be able to give me a check for at least 2 months. Is that legal? Is there a time limit on issuing rollover or withdrawal requests?

A. It is not uncommon for the assets of a 401(k) plan to be frozen during a custodian change because it is too difficult to process requests during that time. I don't have any idea about the laws regarding this, but imagine that it is governed more by the plan document.

This is one reason why it is normally best to transfer money out of a 401(k) and into in IRA as soon as possible after separation from service.

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Should Your Home Become An Investment Property?

Q. Hello there! I appreciated reading your info on the web.
And you graciously offered to answer questions. Here is mine.

If I move out of my house and rent it out for 2 years, can I then exchange it for another home?

How long would that second home have to be "investment" property before I could occupy it?

A. I'm not sure why you would want your home to be classified as an investment property instead of a primary residence.

If at all possible you want to sell the home while it meets the requirements of being a primary residence so that you are not taxed on any of the gain (up to $250,000 per person per lifetime).

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B Shares As An Investment For 70 Year Old?

Q. My question is...Do you or would you recommend B Shares as an investment for somone in their 70's? And if not, please explain why.

Thank you very much.

A. I do not recommend B shares because they cause you to lose your flexibility. The only reason there is a back-end load is because it is a commission-based fund and there are too many other alternatives available that don't charge a commission.

If you want to tell me more about your situation I can make a recommendation.

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Allianz MasterDex 10... An Opinion

Q. Yes, please give me your opinion on Allianz MasterDex 10 Annuity?
A financial planner is pushing this for seniors...I have an IRA which I will rollover..Your reply would be very much appreciated.

Thanks

A. I do not like the Master Dex at all. My article about Putting Lipstick on a Pig is about a sister product offered by Allianz.

There isn't any need to use an EIA, especially for an IRA. The only reason the advisor is recommending it is because of the commission. As a result, I would not trust any other advice that 'planner' has or will give you and recommend you find someone who will have your best interests at heart.

If you absolutely have to have an EIA-type vehicle, then you should use an Equity-Linked Certificate of Deposit. It's guaranteed by FDIC, has all the benefits of EIAs but without automatic surrender penalties. You can also get them for a 3 year term.

Special Report on Equity-Indexed Annuities:

I'm offering to investors who are considering Equity-Indexed Annuities
special report on Allianz's Equity-Indexed Annuities. It explains in great detail why I think buying an EIA may be one of the worst financial decisions a person can make.

Two Articles on Equity-Indexed Investments:

Here are a couple investment articles I've written that will help you understand equity-indexed or equity-linked investments.

"Equity-Linked CDs."


"Putting Lipstick on a Pig."

If you like, I am willing to show you what I would recommend if I were managing your account. To do so, I need you to tell me more about yourself, your situation and the amount of investable assets. Also tell me how you have invested in the past and what your main concerns are.

Regardless, thanks for asking your question. Run like the wind from that advisor.

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Your posted comments on this and other questions are welcome.
If you have a question for Jeff an answer is just a click away.
Find a wealth of information at Jeff's website.