SUZE ORMAN
Suze Orman is an Emmy
Award–winning TV host,
New York Times best-selling
author and motivational
speaker. She can be contacted
at suzeorman.com.
Orman will answer selected
questions in this column.
She regrets that unpublished
questions cannot be
answered individually.
EMAIL
suze@costco.com
Please include “Suze Orman
Q&A” in the subject line.
MAIL
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088
MORE IN ARCHIVES
At costcoconnection.com,
search “Financial Connection.”
FINANCIALCONNECTION
S
EA
N
LE
E
D
AVI
ES
Q In your March 2017 column [“Power and
trust”] you told someone to get a living revocable trust with an incapacity clause for an
aging aunt and uncle so that their property
wouldn’t have to go into probate. Where do you
get a living revocable trust with an incapacity
clause? Whom do you go through to get something like that?
—D.M., Pembroke Pines, Florida
A Estate attorneys specialize in these types of
documents. Ask friends and colleagues if they
have worked with an estate attorney they would
recommend. If you have a responsive local online
community, post a query. If a few names keep
popping up as recommendations from your
neighbors, that’s a good sign. Or check with your
local or state bar association; oftentimes they
have referral services.
Q I have heard you and many others recommend setting up a trust to transfer property to
heirs without going through probate. A friend
recently told me about something new called a
revocable transfer on death deed that can also
avoid costly trust and probate issues. I have not
heard anyone speak or write about this option,
although it appears to be available in many
states. What are the pros and cons of this type
of deed versus a trust? This could assist many
who cannot a;ord the cost of a revocable trust.
—NJC, Arleta, California
A About half the states allow homeowners to
use a transfer on death (TOD) deed to transfer
their real estate to their heir(s). And you are
absolutely correct that if a TOD deed is in place,
the house does not need to go through probate.
But I still think a trust is the smarter move for
most households. A TOD deed addresses only
real estate—nothing else. If you have minors, a
trust is a must. If you have other assets, in addition to a home, you likely need a trust.
I also think it is important to consider a trust
so you can attach an incapacity clause, which
will allow someone you appoint to step in and
act on your behalf if you ever become unable to
handle your a;airs. A TOD deed doesn’t address
that important planning step.
Q My husband and I are preparing for retirement. We’re both federal employees. He has
almost 40 years of service, is vested in the Civil
Service Retirement System, is in his early 60s
and has almost nothing saved. I have almost
30 years of service, am vested in the Federal
Employees Retirement System, am in my late
50s and have over $400,000 saved up above my
Thrift Savings Plan (TSP). Our last child is
almost through college, our eldest is gainfully
employed, and we will have no debt when we
retire. My question: Is it prudent to invest in
rental properties or a vacation property as
a hedge against in;ation? We will still have
our TSP accounts for investment growth, but
I don’t want to watch our savings sitting stag-
nant and wait for in;ation to whittle it down.
—A, Baltimore, Maryland
A You are so smart to be focused on the impact
that in;ation can have on your ;nances. Sure,
in;ation has been very low since the ;nancial
crisis—less than 2 percent—but savings rates
have been even lower. And now in;ation is edging up ever so slightly. If in;ation returns to its
long-term norm of 3 percent, what costs you
$100 today will cost $180 in 20 years. If your savings earn interest at a rate lower than the rate
of in;ation, you will indeed see your purchasing
power whittled down.
That said, safe savings are important.
Especially in retirement. That’s money you can
count on. So please don’t move all of your savings
into riskier investments. You refer to your savings
as being stagnant. Check out certificates of
deposit (CD) deals at online banks. You can earn
more than ; percent on a one-year CD and more
than ; percent on a five-year CD. You can build a
ladder of CDs with different maturities and then
reinvest them as they come due to take advantage
of potentially higher rates, now that the Federal
Reserve is pushing short-term rates higher.
The best inflation hedge is to keep a significant part of your retirement accounts invested in
stocks. Over decades, stocks have risen more than
the rate of inflation.
Rental income can be a good inflation hedge
as well, because when inflation is rising that
typically means the economy is doing well, and
thus you could increase your rents. Also, the value
of the property may rise. But you need to do some
serious research on the cost of investment property. Consider things like maintenance, property
tax and the cost of losing a tenant and needing
time to get a new one. Last, there’s the possibility
that when you want or need to sell, the market
may not be strong, and you may not be able to sell
at a profit. Rental income is not risk-free.
A vacation home is something you buy to
enjoy. Maybe it rises in value over time; maybe it
doesn’t. The last thing you should do is empty your
savings to buy one as an inflation hedge. C
Trusts and rentals
Questions and answers about property
