Question: I’m a senior and I’m anxious about this stock market. My fund manager suggests that I sell my stocks and invest in “traded certificates of deposit” which pay a decent return and are FDIC insured. He says it is very safe. Sounds ideal, is there a downside?
Answer: A traded certificate of deposit (CD) is when a fund manager purchases, or trades, a CD or multiple CDs with banks across the country on your behalf. Banks are usually insured by the FDIC and this insurance, combined with attractive interest rates, can provide an investor with an attractive alternative to the ups and downs of today’s stock market. As with all CDs, you commit your funds for the term of the CD, earn interest, and recoup your principal when the CD “matures”. The downside risk is if you need your funds before the CD maturity date. I had a bad experience with traded CDs. In speaking with the fund manager, my client, who was then quite elderly, was told that if he died before the due date, there would be “no problem” in getting the funds back “although ‘there may be a slight penalty’. It was absolutely not true.
My client died about halfway through the holding period and it took me, as trustee, over eight months to recover his investment and that with a significant penalty. The fund manager explained that he had to auction the CD to another investor, hence the delay. The initial penalty offered was a loss of 40% of my client’s principal! Eventually, through back and forth and threats of legal action, we were able to recover the principal from my client, but suffered a loss of 15% on the principal.
If you have funds that you (or your trustee) are sure you won’t need by the maturity date, a negotiated CD may be a good option. If there is any chance that you will need the funds before the due date, I caution you against using a traded CD.
Question: My wife and I are trying to do our estate planning. I spoke with several estate planning attorneys and found that some charged $300 per hour, $500 per hour, and others flat fees. Why the difference? Why should I pay a higher hourly price? Is it better to opt for the package?
Answer: The first consideration is the size and complexity of your estate. If you have a large or complex estate that will involve estate tax planning, business succession, or other multi-level arrangements to manage your heirs and assets, you may need an attorney who is also a CPA. or hold a master’s degree in legal studies (LLM). These types of planners are, naturally, more expensive. If you have a simple estate – perhaps a house and some investments that you plan to divide equally among your heirs, you’d probably be perfectly fine with a cheaper attorney. When it comes to fixed costs, I like to know what something is going to cost before I commit. Plus, with a flat rate, you can ask as many questions as you want and not worry about the bill going up. I also understand that the fixed fee includes questions you may have after the documents are completed and, in some cases, changes to your documents in the future.
Legal Services for Seniors has offices in Seaside and Salinas and provides limited estate planning services, including preparation of wills, power of attorney for finances, and advance health care directives. Their services are free, so LSS can be a great option if you just need some simple planning.
Liza Horvath has over 30 years of experience in the areas of estate planning and trusts and is a licensed professional trustee. Liza is currently President of Monterey Trust Management. It is not legal or tax advice. If you have a question, call (831) 646-5262 or email [email protected]