Hugh F. Doherty, DDS, CFP
To Halve or Halve Not When a Couple Splits Up
A client asked: When my wife and I divorced, the court ordered us to sell our jointly owned house and split the proceeds. My ex-wife has offered to pay the mortgage and upkeep if I let her continue to live there. I am concerned that if I agree and then die before her, my half of the property will go to her by right of survivorship, instead of to my heirs. Is there a way I can avoid that, without forcing her to sell or buy me out?
Answer: You can change the form of ownership from joint tenancy to tenancy in common, which allows either of you to dispose of your half interest as you choose. Technically, this change does not require the other owner`s consent, but you would be wise to make it a condition of your agreement. Put the agreement in writing to forestall future disputes.
What happens if one of you, as tenants in common, later decides to sell to a third party? The other tenant cannot prevent it, but does not have to part with his or her share. Result: a sale is unlikely without mutual consent.
A Reader`s Bull Market
The economy was in trouble. "Real wages and industrial prices were depressed, while the cost of food and fuel climbed higher, and also became highly unstable-rising and falling in sharp surges of increasing amplitude." While most workers failed to keep up with inflation, "returns to land on capital continued to advance. Wealth became increasingly concentrated in a few hands."
Is that a description of the recent American economy, from the high inflation rate of the late 1970s to the soaring stock market of the 1980s and 1990s? Not at all. It is about Europe and was written in the late 16th century.
It was taken from one of the year`s best books for investors, The Great Wave, by David Hackett Fischer. Too often, historical perspective on Wall Street means going back a decade or two. Mr. Fischer, instead, traces inflation data from medieval times forward, finding evidence of repeated long patterns of rising prices, followed by long periods of stability.
Mr. Fischer is hesitant about forecasts, but if he is correct, a 100-year-old inflation cycle may be ending and deflation may arrive within a few years.
While tracing the historic patterns, Mr. Fischer writes with style and aplomb, and occasionally seems to be choosing facts to support a thesis. But the thesis is both believable and fascinating, and so is the book.
The Great Wave: Price Revolutions and the Rhythm of History by David Hackett Fischer (Oxford, $30).
Another Excellent Financial Book
The Trouble With Prosperity: The Loss of Fear, the Rise of Speculation and the Risk to American Savings by James Grant (Times Books, $30).
About James Grant, the author of The Trouble With Prosperity: No one knows 20th-century financial history better than Mr. Grant, and it shows as he glides through eras when investors thought everything was wonderful, only to be stunned when something went wrong.
Mr. Grant has a gift for storytelling. But he also has a message that may be the hardest lesson investors will learn in the coming years: Risk is greatest when financial markets are high and investor fear is low.
New Law Gives Taxpayers Weapon in Battles With IRS
In late July, Congress gave taxpayers a new weapon to wield when fighting the Internal Revenue Service. It is the Taxpayer Bill of Rights.This law is likely to create a kinder and gentler IRS. Among its highlights:
1. You can sue the IRS for up to $1 million, instead of the current $100,000 cap, for unauthorized collection actions.
2. You have 21 calendar days, instead of 10, to make delinquent tax payments under $100,000 without being charged interest.
3. No interest penalties are due if payment delays were caused by IRS mistakes.
4. You will be reimbursed at the rate of $110 per hour for attorney`s fees, instead of the previous $75, in cases in which you prevail over the IRS.
5. You can use a private delivery service designated by the agency to make timely filings, instead of only the U.S. Postal Service.
6. There will be a Taxpayer Advocate within the IRS to resolve disputes with the agency.
An Ineffective Way To Beat the "Wash-Sale" Rule
Before year-end, a client would like to sell 200 shares of a losing stock to offset an earlier gain. He is reluctant to part with it, though, because he thinks it could bounce back rapidly. He says, "I know I cannot claim the tax loss if I rebuy the shares within 30 days after I sell. Instead, I intend to buy another 200 shares first and sell the original lot a day or two later. Will that do the trick?"
Answer: No, because the "wash-sale" period runs from 30 days before the sale to 30 days after it-a total of 61 days. Any purchase of "substantially identical stock" or an option to buy the stock during that time prevents you from taking an immediate deduction. Even if one transaction takes place before the end of the year and the second transaction occurs after it, the 61-day rule applies.
Hugh F. Doherty, DDS, CFP, is a national lecturer and CFO of Doctor`s Financial Network and financial advisor to the health-care profession. For personal financial consultations and information about Florida workshops, call (800) 544-9653.