Money Management Q&As

August 17, 2007

40l (k) plans; insurance gap; shareholder news

Leaving assets to a minor child

When I die, I want two-thirds of the assets in my pension and retirement accounts to go to my wife and the rest to go to my teenage daughter. Is stating this on the beneficiary forms sufficient?

Not if your daughter is a minor, since minors generally can't own such assets directly. One possibility, assuming you trust your wife to honor your wishes, is to leave all the cash to her and tell her to give one-third to your daughter. But that still sets up a potential nightmare if you and your wife both pass while your daughter's still a minor. Her legal guardian could face unnecessary hassles and expenses to tap the money for your daughter's benefit. To avoid that possibility, it's best to set up a trust for your teenager and list the trust as the beneficiary for her share. If you're also planning to leave life insurance assets to your daughter, handle that beneficiary designation the same way.

A fire heavily damaged a friend's home, and his insurer won't pay the cost of upgrading the electrical system to meet current building codes. Isn't that part of a standard replacement-cost homeowners policy?

Not necessarily. Often homeowners must buy a separate "ordinance or law" endorsement to cover such costs, which could include expensive repairs such as structural upgrades, rewiring the entire electrical system, or revamping the plumbing. If you haven't already checked your own policy, you'd be wise to do so. You may also want to call the local municipal planning department to find out how local building codes have changed since your home was built. That may help you determine whether you need to boost your insurance coverage, and if so, by how much.

Why stock investors must watch the news

A company I owned shares in recently merged with another firm. I assumed that I'd just get shares of the new company in exchange for my old ones, but instead my stock was sold without my permission and the cash placed in my brokerage account. Shouldn't the company have notified me first?

Not necessarily. Companies aren't required to notify shareholders directly about "material news"-that is, information a reasonable investor would consider important. They simply need to disseminate it through press releases or other forms of public communication. If you don't have the time or inclination to periodically check for updates on the companies you invest in, make sure you're working with a broker who'll keep you apprised of any changes that could affect your decisions.

Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics, 123 Tice Blvd., Suite 300, Woodcliff Lake, NJ 07677-7664, or send an e-mail to memoney@advanstar.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.

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