Money Talk: Adding daughter as co-owner of mother’s home could trigger costs

Dear Liz: My father passed away last year, and my mother wants to add my name to her house so there is no probate. Do I need to change the title or the deed or both? Are there any negatives to doing so? Also, we already have a durable power of attorney between us. Does that offer me any benefits as far as real estate? What does it offer me in general?

Answer: A deed is the legal document that transfers the title or ownership of a property. Please don’t alter the home’s documents until you consult an estate-planning attorney. Your mother’s desire to avoid the costs of probate could inadvertently trigger much larger costs.

Adding you as a co-owner could mean giving up a big tax benefit, for example. If your mother bequeaths the house to you when she dies, you won’t owe any tax on the gain in the house’s value during her lifetime. If she adds you to the title, she’s gifting you half the house. In that case, you potentially could owe tax on some of that gain even after she dies. If she wants to preserve tax benefits while avoiding the court process known as probate, she may need a living trust.

There could be other complications if you should die or be sued, which is why it’s important to get good advice before proceeding.

As for the durable power of attorney: It isn’t designed to give you benefits. Powers of attorney allow you to make decisions for your mother if she becomes incapacitated. Those decisions need to be in her best interest, not yours.

Catching up on retirement savings

Dear Liz: I just found out I am cured of cancer. I thought I would be dead in three years and thus did not save very much. I’m 62, single, with no children and an annual salary of $85,000. I’m now contributing the maximum to my employer’s 403(b) retirement plan plus $6,500 to a Roth IRA. My mortgage balance is $380,000 on a 30-year loan fixed at 3.65%. I have about $380,000 in equity. I have about $30,000 saved outside of my $10,000 emergency fund. What should I do with it to get the highest return with minimal risk?

Answer: There’s no such thing as an investment that offers high returns with minimal risk. You get one or the other.

There’s also no such thing as “making up” for decades of not saving, short of an extremely unlikely windfall such as a lottery win or a big inheritance. This is why financial planners tell young people to start saving for retirement from their first paychecks and not to stop or touch those funds prematurely. Waiting until the last minute simply won’t work, and the longer you delay the tougher it will be to catch up — until catching up becomes impossible.

Still, at some point you won’t be able to keep working, so you need to save what you can. The more you save, the better off you’ll be.

Continue to take full advantage of your retirement savings options. Thanks to catch-up provisions, you can put up to $24,000 in your workplace retirement fund (the 2016 limit of $18,000 plus a $6,000 “catch up” for those 50 and over) and $6,500 into an IRA or Roth IRA (the 2016 limit of $5,500 plus a $1,000 catch-up). You’ve saving more than a third of your income, and several years of contributions like that will go a long way toward easing your final years. A balanced approach to your investments, with 50% to 60% in stocks, should give you the growth you’ll need to overcome inflation over the decades to come.

Your home could be another source of funds. Downsizing or moving to a lower-cost area could free up some of your equity to bolster your nest egg. Another option could be a reverse mortgage, but make sure you get objective, expert advice before you proceed.

Finally, it’s crucial to delay claiming Social Security as long as possible, since this benefit is likely to comprise most of your income in retirement and you want that check to be as large as possible. Try to put off claiming until age 70 when your benefit maxes out.

Finding fee-only financial planners

Dear Liz: Every so often your column mentions an organization that lists financial planners that are fee-only. I cannot find this information on your site. Please keep mentioning this in your column.

Answer: You can get referrals to fee-only planners who charge by the hour at www.garrettplanningnetwork.com. If you’re looking for fee-only planners who charge a retainer or a percentage of assets, you’ll find those at www.napfa.org.

Liz Weston is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.

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