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WALL STREET, CALIFORNIA | Money Make-Over: Southern
Californians Learning How to Succeed in Personal Finances

A Trust Fund? Oh, the Possibilities--and Pitfalls


While many of her contemporaries dread the onset of middle age, Michelle Ingram DeLong can hardly wait.

"I'm the only person I know looking forward to turning 40," she says with a hearty laugh. That's when DeLong, 38, will be allowed to take control of a trust fund created for her by her paternal grandmother.

When her grandmother died in 1971, the account was valued at something less than $60,000. Michelle can't quite remember; she was only 10 years old at the time.

As an adult, DeLong has often cursed her lack of access to the trust, which has grown to about $180,000 under a bank's management. For example, some of the money would have come in handy for helping DeLong buy, remodel and furnish her first home five years ago.

For the Record
Los Angeles Times Wednesday July 21, 1999 Home Edition Business Part C Page 3 Financial Desk 2 inches; 37 words Type of Material: Correction
Money Make-Over photo--The photo that appeared with Money Make-Over in Tuesday's editions was of illustrator Susan Mondt, the subject of a future make-over. Tuesday's subject was Michelle Ingram DeLong, shown above with husband Roger DeLong and daughter Bailey.
PHOTO: (No caption)

On the other hand, DeLong appreciates her late grandmother's wisdom in requiring her to wait.

The self-employed graphic designer has a flair for fashion, likes to travel and, she admits, tends to outspend her income. When DeLong was 21, she went on a shopping spree with the $18,000 proceeds of another trust fund left her by a great-aunt. Not a penny remained after she bought a used BMW and clothes, took a trip to the Caribbean and visited a friend in Utah.

Looking at Cash Flow, Debts a First Step

Twenty years later, DeLong has a different perspective. She views her grandmother's gift as a retirement nest egg for her and her husband, Roger DeLong, 38, a laser engineer for Schlumberger Technologies Inc. in Simi Valley.

It could also be tapped to finance the college education of their daughter, Bailey, 3. Still, DeLong is tempted to use some of the trust to satisfy immediate needs; she would like to replace her aging car and buy a bigger home.

Conflicting desires--to preserve the trust fund yet spend some of the proceeds--prompted DeLong to seek a Money Make-Over. DeLong also was interested in learning how to reduce taxes and debt.

Mark S. Pash, a certified financial planner in Encino who evaluated the DeLongs' finances at The Times' request, noted that, to the extent she's in debt, Michelle already has spent some of her trust fund.

Charges on the DeLongs' credit cards have crept up to $17,000. Accounting for $5,000 of that, Michelle said, are recent emergency repairs on her 1988 Jeep Cherokee and Roger's 1987 Cadillac and expenses for a vacation to New York and Washington, D.C.

The DeLongs also owe $7,000 to the Small Business Administration for a disaster loan that repaired earthquake damage on their two-bedroom, two-bath Valley Village home. Pash was not overly concerned about the SBA loan; with its 3.9% annual interest rate, he regards it as cheap money.

However, reducing rates on their credit card debt would be wise, he said, either by taking out a consolidation loan through a credit union or by switching balances to cards charging lower interest rates.

"The DeLongs need to analyze their cash flow and write down everything they spend" to identify expenditures that are unnecessary, Pash said. Although the trust fund could pay off debt, that option is two years away. In the meantime, the DeLongs should live on their current income--they grossed about $90,000 last year but netted about half that--and not increase debt further.

Besides reviewing spending habits, Pash advised the couple to save some money by reducing their tax bill. One strategy would be to take advantage of potential tax deductions in Michelle's profitable graphic design business. A second strategy would be to increase their tax-deferred retirement savings to reduce their taxable income. Finally, how Michelle takes control of the trust will affect their tax bills.

Pash's primary suggestion for Michelle's business, Ingram Design Studio, is to pay Roger for his services in handling computers and intellectual property matters. Because Roger already pays close to the Social Security, or FICA, maximum tax amount on his $65,000 engineering salary, he wouldn't have to pay additional Social Security taxes on income from Michelle's business. This would reduce her income and her Social Security tax burden, which is twice the amount for an employee. The self-employed pay both the employer and employee portions of Social Security.

This strategy is appropriate because Roger does substantial work for the business, but has a theoretical drawback: It could reduce the retirement benefit Michelle would receive on her own account from Social Security. Yet the risk is small, because if she outlives Roger, she most probably would collect more as a widow from his Social Security account than on her own account.

Savvy Tax Strategy Could Reduce Burden

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