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A lot of Money = A lot of Questions.

October 7th, 2006 at 02:33 pm

Question Sent from an eFIPO.com Reader

Hey Jeremie!
So I told you last month that I would start emailing you with lots of questions, so here they come! I recently got the life insurance package from my motherís life insurance, and it was sent to me in the form of a bank account to jackson national life insurance. They gave me a check book and all that can only write checks of a min. of $250. The letter says that the interest rate for the account is 6%, I donít know if that is fixed or not. They also said that I can take the money out at my discretion, so if I want to take it out and put it into anther account I can. The other thing that was said in the letter was that the IRS requires them to report payments made so they will be sending me the tax forms, and im not really sure how much of that money gets taxed and how that might work. My uncle had mentioned taking that money out and putting it into the trust account that is set up for my brother and I. So, my questions are, is it smart to leave it in that bank account, move it into the trust account, or open a different account??? Also, is there a way to avoid taxes taken out on that money, or do you know how the tax situation on life insurance money works? If ya donít know thatís cool, i just thought id throw these q's your way because Iím completely lost and donít really know what the heck Iím doing! I would appreciate any advice you have. Iím sure there are lots more questions ill think of, so you can prob expect a few of these in the near future! Hope your doing well! The website is awesome, Iíve started to get the chance to read up on it more and more and I showed it to my brother, he thought it was great! MadProps.
Talk to you soon!

*Quick background*

This reader and her brother received their parentís life estate (money, house, insurance, and etcetera) and are in a pretty difficult position. They need some advice on how they should handle the situation. I am not specifically going to tell her what to do. I will give her the resources that are needed before she makes a proper decision.

Most of the money should not be taxed according to the estate tax law which is here. What you really needs is to set up a meeting and speak with a CFP (certified financial planner) and estate & trust lawyer. It seems like the insurance company is just trying to hold on to the money as long as possible until you become financially educated to make a proper decision. They will try to sell you a ton of products like variable/fixed annuities, saving accounts, and other retirement benefits. Even though the insurance company is trying to sell you a retirement advice doesnít mean itís correct. They usually try to sell you the products and fail to look at the whole picture. There are so many variables that need to be analyzed before making long term decisions such as: taxes (biggest one in this case), her desired retirement age, her yearly desired spending amount, her social security benefits (if allowed), and more. What I recommend is going to a fee only financial planner. Going to a commission based CFP is usually a bad decision. They donít always have your best interest in mind. They get a commission from the products they sell. Some products have higher commissions which they will try to sell even if they are unsuitable for your current situation. Here are some questions you will need to ask your CFP. If you would like to find a fee only CFP in your area go to NAPFA. Ask if they also have an estate and trust lawyer on-site or around the area.

On the other hand, 6% is a real good rate on a savings account (that better be the rate that they are giving you, not a rate that they charging you). I would use that account for a cash only account. The bulk of the estate money needs to go towards retirement so you will be able to enjoy retired life at a younger age. One piece of advice I would recommend is to fully fund your Roth IRA every year (you can only fund the IRA if you are working), and use the cash account for all your purchases. One thing to keep in mind is to spend money on YOU! You should always be happy and level minded before you make these big choices. Remember to take all the advice you can get and only make a decision when youíre ready.

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