Email your personal-finance questions to
suze@costco.com.
Please include
“Suze Orman Q&A” in
the subject line; or fax to
(425) 313-6718; or mail 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
unpublished questions
cannot be answered
individually.
Suze Orman is a two-
time Emmy Award-
winning television host,
New York Times best-
selling author, and
motivational speaker.
Suze can be contacted
at suzeorman.com.
Ask Suze
Orman
u
BRIAN
BOWEN
SMITH
More in archives
On Costco.com,
enter “Connection.”
At Online Edition, search
“Financial Connection.”
Trust issues
By Suze Orman
My father and I share the same name. [He
has tried] to obtain credit cards with my information in the past. Recently, I have been
informed by two different mortgage companies that he is trying to take mortgages out
on my property, using his identity. I have
credit-monitoring services I pay monthly for,
but how can I protect my home from him
mortgaging it without my knowledge?
T.B.
Long Island, New York
THAT IS A horrible situation, not just financially
but emotionally. Stay strong. At this point you need
to put a full-blown credit-report security freeze on
your records at all three credit bureaus. This is more
than just monitoring, which alerts you if something
fishy turns up.
A security freeze prevents any company from
checking your credit report in the first place. And if
credit card issuers and mortgage lenders can’t access
your credit report, they aren’t going to extend a loan
or card deal to anyone—you or your father.
This is going to be a bit of an inconvenience for
you, as you will need to go through the process of
lifting the freeze any time you apply for a loan or
credit (or even just opening a new cellphone
account) so your credit can be checked. And then
you need to put the freeze back on when you are
done. Another hassle is that you need to contact
each of the three credit bureaus separately to put a
security freeze into action. You can learn more at:
• Equifax.com: Search “security freeze”
• Experian: experian.com/freeze/center.html
• TransUnion: transunion.com/securityfreeze
We are a middle-class retired couple with
a small paid-off house (about $280,000
in value), and we have IRAs in total of
$170,000. We came to the U.S. in our 40s
with no money and have lived here 35
years. We have a will, and whatever will be
left will go to our married son with two kids
(we have only one child). We’d like to have
your advice if we need a revocable trust.
Lucy G.
Glenview, Illinois
I CAN HEAR your pride at what you have accomplished. Well done. A will is a great move, but I
think a living revocable trust also makes sense, for
two specific reasons. A will only kicks into action
when you die. A trust that includes an incapacity
clause can help your family manage your affairs if
you ever become incapable. Not a fun topic to
contemplate, but vitally important.
The other advantage is that with a trust your
estate will be disbursed seamlessly when you die,
according to what you have laid out in the trust.
When you die with only a will, your heirs will likely
need to get the will approved in a probate court
before any assets can be disbursed. That can take
time, and money.
How do you know when to have a trust
done? I will be retiring soon with a paid-off
home, land in two states, pension, insurance
policy, Roth IRA, savings, not to mention collectibles. I also have one child to leave this
to. I ask this question because I was told by
my adviser that I don’t have enough for a
trust and the taxes are high in Florida.
Gwendolyn P.
West Palm Beach, Florida
THERE ARE MANY different types of trusts; some
of them are indeed designed for families with sizable assets. But as I explained in the previous answer,
a living revocable trust is an important document all
families should have. And there are no extra taxes
for having a revocable trust.
After taking the minimum distribution re-
quired [from my retirement account], could
I reinvest this amount and not pay tax? It
looks like a rollover to me.
Marilyn S.
McCormick, South Carolina
NO DICE. WHEN you made the decision to contribute to a traditional 401(k) or a traditional IRA,
they were tax-deferred retirement accounts, not tax-free. At some point the government is intent on collecting tax on all tax-deferred accounts.
Before you get frustrated, let’s review the deal
you made with the government. For years you may
have gotten an upfront deduction on the amount of
your annual contributions, and you enjoyed years
of tax-free compounding of your account. But the
government is only so patient; at some point it
intends to collect tax on the account. Typically that
happens when retirees make withdrawals from the
accounts to meet their living expenses. But in cases
like yours, where you don’t need to make withdrawals, the government insists that after you turn
70½ you must take annual withdrawals—that’s why
it’s called a required minimum distribution (RMD).
The government collects income tax on 100 percent of your RMD.
The only way to avoid RMDs in retirement is to
save in Roth IRA and Roth 401(k) accounts. You
forgo upfront tax breaks—your contribution comes
from after-tax money—but your withdrawals will
be 100 percent tax-free. If you don’t need the money
you can just leave it in a Roth IRA for your heirs.
With a Roth 401(k) you will need to do a tax-free
rollover into a Roth IRA, and then that money too
will be protected from the RMD rule. C
FINANCIALconnection
