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YOUR MONEY | Money Talk

Don't Cheat the System, but by All Means Use the Rules to Your Favor

November 15, 1998|LIZ PULLIAM

Q. I want to thank you for your direct and precise response to the question in your column last week. The question asked about ways to hide a student's trust funds to allow qualification for college financial aid. Your statement that this would be "legally and morally wrong" is right on the mark. We have become entirely too casual with an attitude that it is OK to construct situations to beat the system. Examples range all the way from beating the IRS any way we can to hiding funds to qualify for various types of financial aid and support to all types of creative insurance claims.

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A. Many readers wrote in about this ethical issue. I would add the caveat, however, that there's nothing legally or morally wrong with playing by the rules to reduce your taxes or increase your chances of qualifying for college help. In fact, you could make a forceful argument that responsible people have a duty to educate themselves about the best ways to arrange their finances and to do what is reasonable in reducing their expenses.

Parents who save in their own names for a child's education, for example, benefit from financial aid rules more than those who put the same money in the child's name. (The money is also more likely to actually be spent on education rather than on a really amazing stereo system, but that's another issue.)

Likewise, a business owner can keep a nice tax break in the family by employing his teenage children. As long as the children honestly work for their pay, there's nothing tainted about the arrangement.

Where we get into trouble is when we start wanting to hide information, distort the truth or flat-out lie to get an advantage. Does our J.C. Penney suit suddenly become an Armani when we make an insurance claim after a fire? Do we conveniently "forget" some sideline work that we did for cash and hope the IRS doesn't find out? Do we play a financial shell game with Granny's assets so that she qualifies for Medicaid without endangering our own inheritance?

If you're having trouble knowing whether you're treading on thin moral ice, just ask yourself how you would feel if your financial maneuver were bannered on the front page of a newspaper. If you'd react with sputtering outrage or the phrase "But everybody does it," the ice is cracking.

Good people can disagree about the right course of action in many cases, of course, but in the end we must follow our own moral compasses.

I'm proud to be acquainted with a man who once returned a $30,000 check to an insurance company after deciding not to replace some of the insured items. Many of his family members were aghast, arguing that he deserved the money because he had paid premiums all those years. He thought otherwise. His premiums paid for the security of knowing he would be able to replace cherished and necessary possessions; when some turned out to be irreplaceable or unnecessary, he felt it would be dishonest to pocket the money.

In other words, he saw his policy as insurance, not a lottery ticket, and he followed through on his convictions regardless of the consternation his act caused his family--not to mention the insurance company, which probably is still scratching its corporate head.

Persistence Can Pay for Consumers

Q After writing to you about a savings account that dwindled from $100 to $18 thanks to bank fees, I thought I should let you know the outcome. I wrote letters to the branch, the main office, the local newspaper and Ann Landers, and yesterday I received a check from the bank for $114. Pretty good, eh? A lesson learned and I got my money bank.

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A Good for you! And thank you for giving me a chance to correct a big hole in the advice I gave to you.

I told you that you didn't have much legal recourse because the bank had probably notified you in teeny tiny type about the fees that were munching their way through your account. Also that you probably would have noticed the damage sooner had you checked the account once in a while.

But the savvy consumer knows you don't necessarily need your legal ducks in a row to make a complaint and get results. I never thought of writing Ann Landers, but I have heard of consumers who got results by writing directly to the company's chief executive, with copies sent to every director who sits on the company's board. Although such tactics don't guarantee that your complaint will be settled to your satisfaction, they do tend to call attention to your plight.

Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

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