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MONEY TALK | Your Money

Think Long, Hard Before Adding a Child's Name to Deed of Home

May 16, 1999|LIZ PULLIAM | Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine

Q. I'm very concerned about the fact that I added my daughter's name to the deed of my home some years ago and now find out it was a foolish act. My granddaughter is in trouble with the law for passing bad checks, and I fear the possibility that my daughter could use my home as financial help. She is being advised by a paralegal to not sign the quitclaim I've asked her to sign. A lawyer tells me we could go to court and, $2,500 later, she's off. I'd like to know what idiot made it so hard to get someone off the deed.


A. The same idiots who wanted you to think long and hard about adding your daughter to the deed in the first place.

Parents often add a child as a joint tenant on their home to avoid probate, the court process that is otherwise required after death to transfer property. Probate can be expensive, especially in California, and a joint tenancy in effect places the house outside of probate.

But there are big disadvantages, as you've discovered. When you add someone to your deed as a joint tenant, you are essentially giving that person half your property.

After someone is on the deed, she can decide at any point to end the joint tenancy and actually sell her interest to a third party. Even if she doesn't want to sell, her creditors can attach the property or foreclose on it.

In some circumstances, you also can create gift tax problems for yourself. You're allowed to give only $10,000 per year to any one person; any amount over that limit is deducted from your lifetime estate tax exemption, which is currently $650,000.

After you've given or willed away more than that, gift and estate taxes can apply. There is a loophole with joint tenancy if you can argue that the transfer was for convenience only and not a true gift. But why invite the hassle?

By the way, I have to question whether your cost for getting her off the deed would be only $2,500. More likely, you would have to pay her for her half of the property in addition to the lawyer's fee.

Don't Invest in Rules of Thumb

Q. In investing for retirement purposes, is it still advisable to consider the rule of thumb of 100 minus your age as the maximum percentage you should have invested in the stock market? I am 46, currently not working, and am considering moving my 401(k) from my former employer and investing in other choices.

I have the funds spread in a range of low-, medium- and high-risk stock funds, with about 20% in Treasuries and 20% in a balanced fund. I have been considering moving to a discount brokerage through my bank, where I know the investment representative. I would then get some expert advice and ongoing attention, which I don't have with the 401(k). Your thoughts?


A. When it comes to personal finance, forget rules of thumb. There are many concepts that are true for most of the people most of the time, but there are so many exceptions to personal finance rules that you can't expect one-size-fits-all standards.

The rule of 100 is a case in point. The idea was to shift people out of riskier investments (stocks) and into safer investments (bonds and cash) as they aged and their ability to recover from losses diminished.

As a general concept it's not a bad idea, but it ignores too many variables to be truly useful. It doesn't take into account your goal for the money, how long you might live, your employment prospects, your tolerance for risk and what other options you have.

A secure pension can allow you to take more risks with your other retirement funds, for example, whereas the lack of a guaranteed check in retirement should make you somewhat more conservative.

If you need some kind of starting point, look no further than the mix of stocks and bonds in a balanced fund: typically 60% stocks and 40% bonds. That gives you exposure to stocks' long-term gains while softening the blows of stock market downturns with the bonds' interest.

If you feel emotionally able to ride out wide market swings and you don't think you'll need to tap your retirement funds any time soon for living expenses (always a dark possibility during unemployment), you can increase the proportion of stocks and stock funds in your portfolio.

I wouldn't go beyond 80% stocks and 20% bonds and cash at any age, though. Not many investors today have had experience with a real bear market in stocks; those of us who think we can stomach a 40% loss, or more, may feel different if and when it happens.

As for moving your money from your former employer's 401(k) to a brokerage firm: If you do so, make sure you roll the money directly over into an individual retirement account to avoid a huge tax bite. Also, remember that "expert advice" and "ongoing attention" can translate into "making a lot of commissions by trading frequently in your account." Don't let that happen.

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