NOVEMBER 2013 ;e Costco Connection 17
estate can be disbursed without having to get the
approval of a judge. But that’s a separate issue from
what concerns you.
If it’s at all possible I encourage the entire family
to sit down together and have Mom and Dad review
the terms of their wills; you and your sister should
each have a copy. I am not going to naively suggest
that you and your sister reconcile—that’s not my
place—but if you both love your parents you will
commit to making sure that their wishes are fulfilled. You both owe them that.
I hear you advising people to invest in Roth
IRAs and cannot understand how that can be
an advantage. I anticipate my tax bracket being lower in retirement than when working,
so why pay a higher tax on that money now
when it will probably be lower in retirement?
Connie P., Red Bluff, California
IF YOU ARE SURE your tax rate will be lower in
retirement, sticking with a traditional IRA can make
sense. But how sure are you about that? Remember, all distributions from your traditional IRA will
be added to your other taxable income sources in
retirement; it’s conceivable that sum could bump
you into a higher-than-expected tax bracket. And
who knows where tax rates might be down the
line; the current rates are closer to lows than to
highs. Just something to keep in mind.
You are right that there is a trade-off to consider: Money you invest in a Roth IRA is after-tax,
so there is no immediate tax break. But in retirement, all withdrawals from your Roth IRA will be
tax-free. That’s a compelling benefit to consider.
I also like Roths for non-tax reasons. In a true
emergency (a serious need, not a want), you can
always withdraw money you have contributed to a
Roth without any tax or penalty. It’s only your Roth’s
earnings that need to stay put to avoid tax and penalty. That’s a better backup emergency savings plan
than a traditional IRA where all withdrawals made
before age 59½ will be hit with a 10 percent early-withdrawal penalty, and you will also owe income
tax on the entire amount withdrawn. (There is no
capital gains tax on IRA withdrawals.)
Roth IRAs also give you more flexibility in
retirement. There is no required minimum distribution (RMD). You are in total control of whether
you make any withdrawals during a given year, and
how much you withdraw. With a traditional IRA,
Uncle Sam insists you take an RMD beginning with
the year you turn 70½. That RMD becomes part of
your adjusted gross income for the year. Even if you
don’t need that money, you still have to take the distribution, and the entire sum will be added to your
tax bill. C
Email your personal-
(425) 313-6718; or mail to
finance questions to
“Suze Orman Q&A”
in the subject line; or fax to
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088.
Suze will answer
selected questions in
this bimonthly column.
She regrets that
cannot be answered
Suze Orman’s TV
By Suze Orman
show airs Saturday
nights on CNBC. Suze
can be contacted at
My sister has a last will and testament in
which I am appointed as her personal representative. If I fail, one of her sons is to serve
as such. Also, I am appointed as the trustee
of all trusts created by the will, and if I fail,
my husband (her brother-in-law) is to serve
as trustee. What is the difference between a
personal representative and a trustee?
N. Valdes, Miami, Florida
A PERSONAL REPRESENTATIVE for a will is the
executor. That means when your sister dies you will
be in charge of carrying through on all the details
she has laid out in her will.
Normally, the person creating the trust (your
sister, in this example) would be the trustee of her
trust. That means she is in control of all decisions
about what assets are put into the trust and any disbursements made from the trust. You and your husband would then be what is known as successor
trustees: If your sister dies, or if she becomes incapacitated (and make sure there is an incapacity
clause in the trust—another must-have in my opinion), you will step in and have oversight of the trust.
The successor trustee is similar to the executor:
Both carry out the wishes laid out in a will or trust.
The difference is that a will kicks in only after someone dies, and there is a finite job for the executor:
following the last wishes spelled out in the will and
settling the estate. With a trust, the successor trustee
might step in while someone is alive (and incapacitated) and, depending on the terms of the trust, may
be in a position of managing that trust for some time.
My parents have a will where my sister and
I split everything, and she is the executor. But they want to get that changed to
where she has no control over me (since
we don’t talk anymore). I think they should
have a revocable living trust so the estate,
which is not much, doesn’t go into probate and we will not have to deal with
the court. Am I correct?
Sandie B., Bellevue, Washington
THE EXECUTOR of any will does not have control over how the estate is disbursed. As the title
suggests, that person’s role is to execute, or carry
out, what the deceased has laid out in the will. If
your parents’ will says you are to get exactly half of
their remaining assets, then that is what your sister,
by law, must make sure is disbursed to you. That
said, if your parents want to remove any potential tension, they could appoint someone other
than your sister (or you) to be the executor.
I have always said that a revocable living
trust is a smart option because, as you note, the
; Is a Roth IRA
More in archives
On Costco.com, enter
“Connection.” At Online
A way with wills