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Estate of the Union : Unmarried Couple Need to Protect Considerable Assets

December 10, 1996|DEBORA VRANA

Investors Steve Schullo and Dan Robertson have let the stock market grow their savingsinto retirement shape.

But now the Los Angeles couple need to make sure their nest egg doesn't crack. They need a portfolio overhaul to protect themselves against a major market downturn. And they need estate planning to see that their wealth will go to the other when one of them dies.

Estate-planning issues are particularly important for unmarried pairs. If it is not done properly, it costs time and money for the surviving partner, said Steve Kelton, a registered investment advisor in West Los Angeles who specializes in planning issues for unmarried couples.

Schullo, 49, and Robertson, 55, who have been together 21 years, have made a mistake common to many investors: They have focused on creating retirement wealth but not on the tough issues involved in estate planning.

"Get your estate-planning house in order first," Kelton said. "If that foundation is not solid, it doesn't matter how much you make on the Dow because it will be out of your control and in the hands of the probate courts and the government just when you need it."

Schullo and Robertson have taken a three-year ride on the stock market without the help of advisors or planners, but now it's time to make sure they won't be excessively hurt if the market comes crashing down.

The pair began investing in a few mutual funds when the Dow Jones industrial average was around 3,600. In 1993, they took all their funds from other investments--more than $285,000--and put the money on Wall Street. As the Dow has climbed to record highs, topping 6,500 recently, so has the value of their investments.

The couple now have $460,000 in 24 mutual funds, some of which have earned average annual returns of more than 40%. In the last two years their portfolio has earned about $100,000, and they have invested about $25,000 each of the last three years.

"It started out simple with a few funds and it just snowballed. It's been a fun hobby," said Robertson, who added that the nest egg wasn't created overnight. When the couple met in Big Bear in the mid-1970s, they had nothing. But regular saving, along with an inheritance of $20,000 and frugal living, helped them amass their wealth. They also have not had the expenses associated with children.

Still, to get where they are, they've invested in some very aggressive stock funds, and those may now be especially vulnerable in the event of a market pullback.

"We are concerned about the market," Schullo said. "It's so nice when it keeps going up, but summer was a wake-up call." The worth of their investments temporarily dropped $50,000 when stocks took a brief but scary dip in July.

Kelton said the pair face two challenges if, as they wish, they want to retire in eight years on $80,000 a year.

First, they need to make the estate preparations.

Second, they need to safeguard their portfolio against any turbulence in the stock market and to continue to save and invest aggressively in the short term.

"Gay people have some extra work to do when it comes to saving for retirement," Kelton said. "Many won't have the financial or emotional support system in their old age that comes from children or grandchildren."

But, Kelton said, Schullo and Robertson are already in good financial shape for retirement since they've invested their savings aggressively and put aside money regularly.

Here's where they are now:

Schullo teaches third and fourth grade, and Robertson is a job-training director. Both hold PhDs. Together they make $130,000 annually.

Besides the $460,000 in investments, they own a condominium in Palm Springs worth $85,000 that they rent out during part of the year for $6,000. They also inherited 60 acres in Wisconsin worth $18,000.

They live in a three-bedroom home in the Los Angeles area worth $325,000. They still owe $97,000 on the house at a 6.01% interest rate, meaning they have $228,000 in home equity, which will help them meet their retirement goals. Their monthly payment is $861.

The couple's take-home pay is $5,500 a month, and they have about $3,200 in monthly expenses (including their mortgage). They are carrying $2,500 in credit card debt at 13.9%. They keep no cash reserves, believing that even a few thousand dollars is better put to use in the stock market.

The couple currently put aside nearly $1,600 a month from their salaries into their individual retirement account and 403(b) retirement funds. They also invest the $6,000 from the condo rent, bringing the total amount saved for retirement each year to about $25,000.

With wealth like this, it's vital that Schullo and Robertson get their estate in order, said Kelton.

Estate planning is often poorly understood by most unmarried couples, who can lose big time if they don't make the right moves, Kelton said. Without the government-provided benefits of marriage, neither partner has an automatic right to inherit the retirement funds, nor the ability to speak for the other in a medical crisis.

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