Hoarding Money Because of Irrational Fears Won’t Do Your Family Any Good

Q My husband and I are fighting about money. Not because we don’t have any, but because we truly have more than enough and I’d like to give more to our adult children. I gave him your column about reducing future estate taxes by giving away money now, but he refuses to consider the idea. He says we never know when we might need it. He does give them money in dribs and drabs when they ask for it, but I’d like to give them a real chunk that they could use to start a business or buy a house if they wanted.

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A If you really do have more than enough, then the issue--as you may suspect--probably isn’t about money. It’s about losing control. Your husband may relish the power he has by doling out the dough in small portions, keeping your children on a string. He may fear that they won’t need him anymore if he gives them a larger amount.

Also, some people find it nearly impossible to give away what they’ve accumulated, preferring to hoard it in the event of some unlikely disaster rather than trust that their good fortune will continue. Sometimes this fear defies all logic, but you can start addressing it by using the rational approach: Meet with your financial advisor for a real nuts-and-bolts talk about your financial situation. If you don’t already have an advisor, you can get a list of fee-only financial planners from the National Assn. of Personal Financial Advisors at (888) FEE ONLY.

Have your advisor prepare projections about how much money your husband is likely to need in his lifetime and how much he is likely to die with. Your husband or the advisor could also play with the Monte Carlo simulations at https://www.financial engines.com--an Internet site that uses all kinds of scenarios from worst-case to best-case--to get an idea of the probability of his outliving his money.

Once it is established that he truly does have enough, have your advisor detail exactly what will happen, in terms of money lost to taxes and lawyers, if he doesn’t take advantage of the opportunity to reduce his estate before he dies.

If he’s still fearful about losing control of the money and there are grandchildren in the picture, investigate the possibility of establishing accounts for the little ones in a state-run college savings plan. He can give money for the children’s future educations and it will grow tax-deferred, outside of his estate. But he can also get the money back if necessary (although he would have to pay taxes and penalties on the withdrawal).

This feature is pretty unusual in the world of estate planning--typically money given away is gone, period. But college savings plans treat contributions as a completed gift for estate planning purposes while still allowing the contributor to get the money back. You can get more information by calling the National Assn. of State Treasurers at (606) 244-8175 or by visiting its Web site at https://www.collegesavings.org.

Chances are good he’ll leave the money alone once it leaves his white-knuckled grasp. Meanwhile, you can always give gifts from your half of any jointly owned accounts and from any separately owned property you have.

Retire From Job, Retire Debt?

Q You have told people in the past that using savings or a retirement distribution to pay off a mortgage is not a good idea. But I have heard that people nearing retirement should pay off their debts. We’re close to retirement and have more than enough savings to retire our mortgage at the same time.

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A It’s an excellent idea to be out of debt by the time you retire. That’s why some people increase their mortgage payments as they near retirement, to pay down the principal more quickly and make sure they don’t have that monthly albatross around their necks when they kiss their paychecks goodbye. If you can afford to pay off the whole mortgage without tapping tax-deferred retirement money, and you want to do so, then go for it.

You’re probably not getting much tax advantage from your mortgage anyway, since only mortgage interest--not the whole payment--is tax deductible. In the early years of a mortgage, you get to write off nearly all of your mortgage payment, because nearly all of it is interest. Over the years, however, the proportion of the payment that represents the principal slowly (verrrry slowly) rises. In the last years, most of your payment will be nondeductible payments toward the principal.

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Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She regrets that she cannot respond personally to queries. Questions can be sent to her at [email protected] or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at http://video.nohib.com./moneytalk.