Starter Home, or Dream Home?

Dream-HomeIf you’re like most first-time homebuyers, you have a long list of must-haves and a tight budget. But while it can be tempting to hold out for a house that has everything you want (even if it comes at a price), there’s a lot to be said for the starter home.

Here are a few things to keep in mind when you’re weighing the pros and cons.

A starter isn’t forever. Most people only stay in a starter home for five or so years, or until they need more room for a growing family. If you see yourself changing jobs or moving to a better school district, then there isn’t a lot of sense in buying something to grow into.

Just because you’ve been approved for a larger loan doesn’t mean you should use it. When lenders do the math on your mortgage, all they care about is whether you’ll be able to make your monthly payments, not whether you’ll be able to make them and have enough left over to take a vacation or renovate the bathroom.

Buying at the upper end of your limit may get you the features you want, but the heftier down payment could deplete your savings in the short term, and monthly payments could keep you from building them back up in case of emergencies. Whatever option you choose, make sure to do the math.

Even if the home you really want is out of reach, you can still build equity. Depending on your area, buying a small starter home can be cheaper than paying rent, and you get to build equity (at today’s fairly low interest rates) for your later move.

Starter homes can be good investments. A lot of starter homes have plenty of room for improvement, which means room for you to increase the value of your property. Plus, with real estate prices on the uptick in many areas, choosing wisely now may mean dollar signs down the road, even without a lot of work.

The bottom line?

It doesn’t pay to take on more house than you need, or can afford. If you have the income and the desire to stay put for twenty or more years, go ahead and buy your forever home. If not, there are plenty of other options, from cute bungalows to condos that could make you the perfect starter home.

4 Fast Solutions for Last Minute Mortgage Problems

problem-solvingGetting a mortgage can be stressful, especially when last-minute issues crop up that can stop the process in its tracks. These surprises are unpleasant, but they don’t have to spell disaster for your mortgage if you act quickly.

Problem: Additional Documentation is Needed

Your lender calls you days before closing and requests additional documentation. This most often occurs when the lender needs to verify closing funds or requires proof that all conditions for approval are satisfied, such as settling a debt.

Solution: To rectify it quickly, take the required paperwork to the lender in person, if possible. If not, see if you can send it by email or other digital means. The final option is to send a fax directed to the attention of the loan officer who is working on your mortgage.

How To Avoid It: Contact your lender no less than one week before closing and make sure there’s no additional paperwork you need to turn in.

Problem: Paperwork Error

An error in your paperwork has brought the loan process to a halt. This issue can range from the misspelling of a name to erroneous financial figures.

Solution:Include all necessary supporting documentation when you submit the corrections to increase your chances of a timely closing.

How To Avoid It: Review all of your application and loan paperwork well ahead of closing and keep an eye out for errors, no matter how trivial. Be especially diligent about the loan amount, down payment, interest rate and closing costs.

Problem: Unavailable Payments

Lenders require you to pay the funds for your down payment and closing costs on closing day from certified funds, and this is often done by a direct bank transfer. However, bank errors and other delays can cause this option to fail, leaving you unable to close.

Solution: You can’t use personal checks for this purpose, so your only option to fix this situation fast is to request a certified or cashier’s check from your bank and bring it with you to closing.

How To Avoid It: Arrange for the transfer to happen a few days in advance of the closing date to leave room for possible hiccups.

Problem: Unexpected Problems During Final Walk-Through

Lenders require assessment of the property before signing off on a mortgage. This is often done near the end of the process, which can be trouble if the condition of the property has deteriorated since the first appraisal inspection.

Solution: After discussing the extent and costs of the repairs with the inspector, talk to your real estate agent about having the sellers pay for any necessary repairs. This is usually negotiated by requesting the seller’s escrow funds or by increasing their closing costs to cover the expenses.

How To Avoid It: Request the inspection a few weeks before closing to ensure that any problems are found and dealt with before you’re at the table.

Should You Save for a Down Payment, or Pay Off Debt?

saving_picThese days, debt free is the end game for a significant chunk of the population.

But if you’re still not quite there yet and you’re itching to start building equity in a new house, you may be wondering where exactly your priorities (and your savings) should lie: in an account marked “future down payment” or in your creditors’ pockets.

The quick answer? It depends.

If your debt is high interest, then pay it off as fast as possible. That generally means any debt with an interest rate over 7%, like most credit card debt. The logic behind this is pretty simple—at the moment, interest rates on mortgages are still on the low side, and low-interest debt is generally preferable to high-interest debt.

If you’re if you’re investing your savings or keeping them in a high-interest account, then go ahead. keep on saving. So long as your savings are growing at a faster rate than your debt, there’s no problem with it.

If you’re concerned about how much loan you can qualify for, then paying down your debt may help. This is because lenders take into account your debt-to-income (or DTI) ratio when calculating the size of the loan they’re willing to offer you, and your interest rate.

The Third Option

Of course, if you’re still on the fence, you could always wait a little longer until you’ve both saved up enough for a down payment and paid down your debt.

For many, this may actually be the ideal path. Most financial experts advise that you have enough liquid assets to cover 3-6 months of living expenses in the event of job troubles or emergencies. Without that cushion, you may find yourself strapped for cash if your new home suddenly needs a new septic tank.

Five Ways to Lower Your DTI

dti ratioYour debt-to-income (DTI) ratio is one of the three most important factors that lenders look at when deciding whether or not to approve you for a mortgage (the other two? Your FICO score and the loan-to-value ratio, which varies with the price of the house you plan to buy).

DTI is considered especially important in determining your ability to repay the mortgage.

It is computed with your total monthly debt payments and gross monthly income (before taxes are taken out). It is expressed one of two ways, either including your estimated monthly mortgage payments (”back end”) or your debt obligations before you take out the mortgage (“front end”).

In 2014, an important new rule promulgated by the Treasury Department had a major impact on DTIs. Known as the QM Rule and designed to toughen ability-to-repay requirements, it had the effect of limiting DTIs to 43 percent. That means borrowers with DTI’s above 43 won’t get loans.

In practice, lenders are actually even more conservative; the median back end DTI is about 37 percent for approved mortgages. That means most monthly debt payments including mortgage payments total no more than 37 percent of total monthly gross income.

DTI can be a killer for young adults making sizable student loan payments or for consumers who have run up debt. However, even those with long term debt payments like student loans, auto loans, or back taxes can get a mortgage if they improve their DTI.

Here are five steps anyone can take to lower their DTI.

1. Pay off your smallest debts first. Even a hundred dollars on a credit card requires a minimum monthly payment, which will increase your DTI. Pay these off in full. Dollar for dollar, you will get more debt reduction with this tactic than any other.

2. Refinance high APR credit card debts with a low APR card. APR means annualized percentage rate—the actual interest you pay over a year. It’s a way to look at the interest you are paying without focusing on special introductory rates, which can be misleading. Many lenders offer cards with very attractive APRs to customers who have good credit ratings.

If you have cards that are past their introductory period, though, you may be paying a higher APR than you need to. Contact one of the major credit card lenders to see what they will offer in the way of a lower APR card. When you find one, consolidate your high APR debts under your new low APR card. You will reduce your monthly debt load and pay at a lower rate of interest. In a year, review where you stand. If the marketing rate that made your new card attractive has expired, consider finding a new one and consolidating again.

3. If you thought you outfoxed the dealer and got a great deal on a new or used car, check again. You might be paying interest at a rate much higher than you need to. The median APR for car loans today is 4.38% for a 60-month loan (five years) on a new car and 5.2% on a 36-month loan a (three years) for a used car[1]. Refinance your car with the most competitive rate you can find from an online lender.

When you refinance, you can increase the length of time of the loan if you have had your car for a reasonable length of time. Lowering the interest and stretching out the principal over a longer period of time could significantly reduce your monthly payments.

4. Refinance long term debt to lower your monthly debt payments by stretching out the term of your loan and take advantage of lower rates. If you graduated more than three years ago, chances are good you can find a better interest rate today, depending on your credit rating. Remember, if the interest rate is the same, when you refinance a loan to lengthen its term, you will be paying more in interest over the long term than you would have if you had not refinanced.

5. Borrow from your 401K retirement plan at no interest to pay off smaller debts or pay down larger ones. As you make future monthly contributions to your plan, a portion will go towards paying off the amount you withdrew. You will also have to pay taxes on your withdrawal. Repay the withdrawal as soon as you can to keep your retirement savings on track.

The bottom line?

Take a hard look at your debt situation before you start applying for a loan. Compute your DTI. Count only income you can document with pay stubs or tax returns.  If you find yourself close to the 37 percent threshold, take steps now to reduce your monthly debt payments.

Long Wait Ahead For HomeBuyers

The notification of ministry of environment, forest and climate change (MoEFCC) on August 19, 2015, notified that the eco-sensitive zone around Okhla Bird Sanctuary was to be 100 metres from the eastern, western and southern boundary of the Okhla Bird Sanctuary and 1.27 kilometres from the northern boundary of the Sanctuary.

Long Wait Ahead For HomeBuyers Earlier, the National Green Tribunal (NGT) had directed authorities not to issue completion certificates for construction projects within a 10-kilometre radius around the sanctuary even where construction was complete, till the boundary of the eco-sensitive zone was notified by the government. Due to this, apartments located within 10-kilometre radius of the Okhla bird sanctuary have not yet been handed over to allottees due to non-issuance of completion certificates, despite construction of these apartments being complete. This notification gave respite to many flat owners who had booked apartments in these residential complexes and were waiting to receive possession.

As per the Uttar Pradesh Apar tment ( Promotion of Construction, Ownership and Maintenance) Act, 2010, in order to transfer an apartment, a completion certificate has to be obtained by the builder/developer and further possession cannot be handed over without executing an appropriate transfer deed which has to be duly registered.

In furtherance of this legal requirement, Noida Authority in its recent statement had clarified that the builders/developers had to comply with the provisions of the Act and the rules framed thereunder before handing over possession to the allottees.

Since the land in Noida had been allotted to builders/ developers on perpetual lease or longterm lease basis, they needed to comply with the terms of their respective lease deeds. As per the statements of the Noida Authority, in order to receive a completion certificate, the builders/developers had to clear all their dues pertaining to their respective land parcel. Further, in case the builders had made any changes or deviated from the project’s layout plans, they would have to obtain a no-objection/ consent from the allottees. Therefore, to apply for a completion certificate, the builders should have cleared all dues pertaining to their land parcels and obtained no objections from each of the allottees, if applicable.

Thus, completion certificate would be issued by the appropriate authority only after the builders/developers, whose residential complexes are located outside the eco sensitive zone, have complied with the above stated conditions.

Upon obtaining the requisite completion certificates, the builders/developers can proceed with executing transfer/conveyance deeds and handing over possession to the allottees.

After the MoEFCC notification, the general public assumed that the possession of their apartments will be handed over.

However, even if the residential complex is no longer within the purview of the ecosensitive zone around Okhla Bird Sanctuary, due legal process is required to be followed by the builders/developers.

Prior to handing over possession, a completion certificate for the project is a legal necessity and for that the requirements under the Act need to be complied with.

Investors focus on the greenback as global stocks rally

Global stocks rallied on Monday after a weaker-than-anticipated jobs report from the U.S., which swayed investors to rethink the timing of an interest rate rise, with a 2016 hike now looking more likely.

Markets welcomed the worse than expected data, with many interpreting the news as a return to the rising trend in stocks after a terrible third quarter.

But when planning a longer-term outlook for stocks as earnings season gets underway, investors looking to plan for the final three months of the year are fixed on the strength of the dollar.

“We have the seasonal patterns that really take over now. I do think if you contrast where we were with last year – the chart patterns look very similar to the S&P 500 and the Russell 2000 small cap index,” chief investment officer (CIO) at Palisade Capital , Dan Veru told CNBC.

“But the big difference is the big appreciation in the dollar over that time. So I think it is going to be a much more selective recovery of shares, it is going to be more the domestically focused companies, more towards the small caps rather than the multi-nationals which have big international exposure,” he said.

Read MoreThe third quarter by the numbers

Veru expects interest rates to move next year, partly on concerns over the dollar as 45 percent of S&P 500 revenues comes from outside the U.S., meaning greenback strength could seriously weigh on earnings.

“I think first quarter at the very earliest, (for an interest rate rise) the Fed is very concerned from everything they have announced, that this economy could slip back into recession,” said Martin Leclerc, CIO and portfolio manager at Barrack Yard Advisors.

U.S. stocks traded about 1 percent higher Monday, attempting to extend a recent recovery from correction levels, as investors awaited earnings reports and digested implications from Friday’s jobs report on the timing of a rate hike.

Few analysts could find any positives in the September jobs report, which showed the U.S. economy created 142,000 jobs, a number far below the expected 203,000. August and July figures were also revised lower.

Weak for how long?

Meanwhile the dollar weakened against the euro to $1.12 as traders pushed back expectations of a Federal Reserve rate rise to early next year.

But with the European Central Bank buying up bonds at the rate of 60 billion euros per month and the central bank’s President, Mario Draghi, pledging more quantitative easing if needed, analysts are not convinced of the long-term trend of dollar weakness.

Read MoreBen Bernanke: This is what’s weighing on US economy

Stocks in Asia and Europe surged on the poor jobs data on Monday, with the pan-European STOXX 600 rallying close to 3 percent, with miners topping indices as risk appetite prevailed.

“The euro in the second quarter just past was the biggest tailwind for earnings for 20 years in terms of the fall in the currency, so of course the U.S. are on the other side of that,” said head of European equity strategy at UBS, Nick Nelson.

“We have volatility in the next few weeks, I think the message in Europe is profits are very depressed and these are starting to turn,” Nelson added.

Earnings outlook

Japanese fund manager Nikko Asset Management moved to a “neutral” stance on global equities from “overweight” for the first time since 2011 as the group has turned less optimistic on U.S. corporate earnings.

The Tokyo-based firm forecast that U.S. equities will underperform over the next six months to March 2016, thus earning an “underweight” stance, whilst predicting Europe and Japan will outperform over the next six months, with the group boosting its allocation to “overweight”.

“We calculated that global equity valuations are at reasonably fair levels and that stocks can rise in Europe, Japan and Australia, but because we are less optimistic on the United States, we do not think it is worthwhile, especially with the recently increased volatility, to be aggressive on global equities overall,” said chief global strategist and head of the group’s investment committee John Vail.

“We have been overweight global equities for U.S. dollar-based investors, except for one neutral quarter, since September 2011 but we now believe that neutral is the proper stance,” Vail added.

Did you land a new job? Don’t forget about that 401(k) plan

During the excitement that comes with taking a new job, make sure you don’t forget about the retirement money you socked away in your former employer’s 401(k) plan.

“People in their working years tend to switch jobs a lot and can lose touch with their [accounts],” said Kristi Sullivan, a certified financial planner and owner of Sullivan Financial Planning. “That can get messy after several job changes.”


Although leaving the money in the legacy 401(k) might be possible, there are three other options for your nest egg: Move it to your new employer’s plan if permitted, move it to an individual retirement account, or cash it out and pay a penalty. Additionally, if you have company stock in your 401(k) plan, separate rules apply.

Financial advisors say that while each scenario comes with pluses and minuses, the ideal choice depends on your individual circumstances. Here’s a look at your options.

Leaving it behind

Workers these days spend fewer than five years at a job, according to the Bureau of Labor Statistics. Moreover, about 29 percent of workers age 25 or older remain with the same company for at least 10 years.

So clearly, job-hopping is the new norm. But, say advisors, racking up a collection of 401(k) accounts should not become a standard.

“I’ve found in way too many situations that when workers leave [the 401(k) money] where it is, both employees and employers lose track of each other,” said Lenard Cohen, a CFP and investment advisor with CF Services Group.

Indeed, Cohen has a client who is struggling to tap a six-figure 401(k) account from a company he left 25 years ago.

Read MoreFinancial planning: More than 401(k) plans

The company went out of business, which means the 401(k) plan is no longer in existence. So while the account exists with a custodian, accessing the money is an aggravation for both Cohen and his client.

“We’ve received verification that the money is there — it’s been growing and has performed all right — but the [custodian] isn’t prepared to release the money, because we can’t find anyone who is authorized to release it,” Cohen explained.

Additionally, say advisors, there’s another downside: losing track of your asset allocation.

“It’s hard to know what your investment mix is if you have different accounts all over the place,” said Sullivan of Sullivan Financial Planning.

However, there is one time that advisors say it often makes sense to leave your money in the old employer’s 401(k): If you are not yet age 59½ — when legally you can tap a 401(k) or individual retirement account — but are at least age 55.

That’s because the so-called Rule of 55 allows you to take withdrawals from your 401(k) penalty-free if you leave the workforce in the year you turn 55 or later. If you move the money to an IRA, you lose that ability.

“If you’re going to retire early and you’re at least 55, it might make sense to leave the money there,” Sullivan said.

Rolling over

Moving your 401(k) plan money to a new employer’s retirement plan or to an IRA is called a rollover.

“These are generally the two good choices,” said Cohen at CF Services Group. “It works if you’re moving to a company with a robust 401(k) plan or to an IRA and can invest in [almost] anything, including low-cost index funds.”

If your new employer’s 401(k) plan accepts rollover contributions from an old plan, it can make sense to do it because you are consolidating your retirement assets and can better manage your investments.

Read More401(k) loans are a bad idea

You also can move your 401(k) plan money to a rollover IRA. If done properly, it’s a tax-free event.

But again, be aware of the different rules applying to 401(k) plans and IRAs.

One advantage to moving 401(k) money to an IRA deals with distributions if you are in retirement, Sullivan said. All 401(k) distributions include a 20 percent withholding for taxes whether or not you actually owe that much at tax time. With an IRA, she said, you can control the amount of tax withholding.

Cashing out

It’s a rare circumstance where a financial advisor would recommend taking an early distribution from your 401(k).

Be aware that companies are permitted to kick you out of their 401(k) if your account’s value is below $1,000. If they cut you a check, they automatically will withhold 20 percent of it for taxes. If you cash the check, you will also pay a 10 percent penalty for accessing the money before age 59½.

If between $1,000 and $5,000 is in your former employer’s 401(k) plan, the company can still give you the boot. But it must put the funds in a rollover IRA for you.

Read MoreRetirement plan portfolios explained

For the majority of people, taking the distribution early rarely makes sense. Not only will you pay taxes on the money and the penalty (in most situations), you will also lose out on letting that pretax retirement money grow.

“The fourth choice — withdrawing the money — is almost always a bad decision,” Cohen said.

Company stock

If you have company stock in your 401(k) and leave your job, you can take advantage of what’s known as the net unrealized appreciation strategy.

Say you paid $1,000 for shares of your company’s stock and the value is now $5,000. The difference — $4,000 — is the gain.

Investment gains are taxed either as short-term (held less than a year) or long-term. Short-term gains are taxed at your regular income-tax rate. Long-term gains are taxed differently.

If you roll over your company stock to an IRA, be aware that all distributions from an IRA will be taxed as ordinary income, whether they involve company stock or not.

“For most people truly saving for retirement, I believe in consolidating assets in one account. That’s how they will know where all their assets are.”-Lenard Cohen, investment advisor with CF Services Group

Alternatively, say financial advisors, you can move your 401(k) company stock to a taxable brokerage account and take advantage of long-term-gain tax rates, which generally are lower than ordinary income-tax rates.

If you do this, you immediately pay income taxes on the original cost of the shares — the cost basis — which in the above illustration is $1,000.

The gain, however, is not taxed until you sell the shares, whether it’s the next day or years later. And then the gain is taxed as long-term. That means you pay less in taxes on the gain than you would if you had put the company shares in a rollover IRA.

“It only makes sense to do this if you’re invested in company stock that has increased substantially,” said Joel Gemmell, a CFP and vice president of wealth management for McLean Asset Management.

Regardless of your situation, the most important aspect of taking care of your old 401(k) accounts is making sure don’t lose track of them.

“For most people truly saving for retirement, I believe in consolidating assets in one account,” said Cohen. “That’s how they will know where all their assets are.”

Serving as executor to an estate

So, you’ve been asked to serve as the executor of a friend or loved one’s estate. It’s an honor, no doubt, but it’s also a significant burden.

Before you consent, said Erika Safran, a certified financial planner and founder of Safran Wealth Advisors, consider the commission with care. Educate yourself on how much work is involved (it can take up to two years to settle an estate) and honestly assess whether you’re willing and able to handle the job.

Executor wills

“If you know that you are not financially astute and [are] completely disorganized, don’t do it,” said Safran. “An executor must be organized, diligent and able to execute tasks.”

Indeed, failure to perform your duties effectively could leave the will-maker’s assets vulnerable and, worse, expose you to legal risk. Executors can be sued for damages that result from acts of gross negligence, fraud or the perception of unethical actions taken in managing the estate, such as attempting to skew the wording of the will for personal gain.

But such lawsuits are hardly the norm. If you do decide to commit, you can insulate yourself from liability risk by exercising sound judgment, communicating openly with beneficiaries and refraining from seeking personal profit from your position above and beyond any compensation to which executors are entitled.

You can also minimize the administrative burden considerably by working closely with the will-maker (i.e., the person who named you executor) before he or she passes on to clarify any poorly defined requests and simplify the estate.

“If you know that you are not financially astute … don’t do it. An executor must be organized, diligent and able to execute tasks.”-Erika Safran, certified financial planner and founder of Safran Wealth Advisors

“Their will might say they wish to leave a certain amount of money to their school in Idaho, but ask them to clarify which school they mean,” said Safran. “Those are the kind of nebulous requests that can get people into trouble.”

Likewise, if they have 20 different mutual fund accounts, multiple individual retirement accounts, dozens of old savings bonds and a collection of stock certificates, ask them to consolidate those assets into as few accounts as possible while they’re alive,” said Safran, noting each financial institution will require a separate death certificate and a written letter of instruction once the will-maker has died.

The will-maker may not be willing to disclose details about his or her personal or financial affairs just yet, and doesn’t have to, but they should at least notify you as to the location of the will and give you the information necessary to retrieve it when the time comes.

It may sound simplistic, but if it is held in a vault at an attorney’s office, you’ll need the name and contact information for that office. If it is kept in a safe-deposit box, you’ll need to know the name of the financial institution, box number and location of the key.

“When someone asks you to be their executor, you may not know what their financial lives look like and they may not want you to, but you want to at least ask if that person can compile an inventory of their assets,” Safran said.

Along with a list of assets, she said, ask for (along with the will) a list of online passwords to both banking and social media sites and clear copies of life, homeowner’s and auto insurance policies.

Finally, said Safran, secure contact information for the will-maker’s tax accountant and attorney.

After death

The role of the executor, sometimes called a personal representative, is to distribute estate assets to the beneficiaries and settle any outstanding taxes and debt when the testator (will-maker) dies. That’s when the real work begins.

Within the first few weeks, you will need to file a copy of the will with the probate court and notify all financial institutions, credit card companies and government agencies, including the Social Security Administration, of the decedent’s death.

To do so, you will need to provide copies of the death certificate, typically distributed by the funeral home.

Most likely, you will also handle the funeral arrangements according to instructions in the will.

After the probate of the will and grant of letter of testamentary (a document granted by the court that states you are the legal executor), the clock starts ticking.

“Every state is different, but most have some form of notice provision to interested parties within a proscribed time frame,” said Elizabeth Roberts, senior vice president and chief fiduciary officer at Bryn Mawr Trust, noting it is typically 90 days. “That time goes quickly.”

Your state may also require executors to place an advertisement in the legal notices section of the newspaper, advising creditors that the deceased has passed away and providing contact information for making claims.

“You want to cut off the creditors within a year, but you need to follow procedures for doing that,” said Roberts.

In the weeks immediately following the will-maker’s death, you will also need to have all tangible assets professionally appraised, including houses, cars and artwork, so the value can be included in the final death income-tax return.

As administrator of the estate, it is your responsibility to maintain the will-maker’s home, continue making mortgage, utility and insurance payments, and protect all personal property held within so it can be distributed to the beneficiaries.

That’s why it’s a good idea to consider changing the locks on the door and putting any valuables into storage, Roberts explained.

At the same time, you will need to note the value of any appreciated financial securities (stocks and bonds) in brokerage accounts at the date of death, since beneficiaries enjoy a step-up in cost basis, which minimizes their capital gain.

That means when they eventually sell those assets, they will only be required to pay taxes based on the increase in value since the day they inherited it, not its value when they were originally bought.

Also on the to-do list: the disbursement of any cash bequests noted in the will. It’s wise to have recipients sign a legal receipt acknowledging they received the asset and that they release the executor, said Roberts.

Next, you must contact the will-maker’s accountant to have him or her prepare the final income and estate tax returns and pay any death taxes from the estate. (Executors can potentially be held liable for unpaid taxes on the estate.)

“Ask if you can get a copy of the last three years of income-tax returns,” said Roberts. “That’s a good way to trace back to make sure you didn’t miss any assets and look for brokerage accounts.”

Depending on the state in which the decedent died, the estate may also be required to pay inheritance or estate taxes, usually within nine months of the date of death. Some, including Pennsylvania, offer a 5 percent discount for paying within three months of the date of death, so it pays to perform your duties promptly.

The home front

The balance after all debts and administrative expenses are paid and bequests distributed is your “residue,” or leftover assets, said Roberts, and it’s wise to retain that cushion until you’re sure all creditors are satisfied and all taxes have been paid.

One final cautionary note: Many homeowner’s policies automatically cancel if a home is unoccupied for 30 days or more, so you may need to obtain a “vacancy permit” from the insurance company.

Serving as the executor of a will is not a job to be taken lightly. To ensure you’ve covered all your bases and haven’t left yourself exposed to risk, Safran suggests hiring a lawyer or financial planner with expertise in probating estates.

“Having a good advisor who is experienced in this process is invaluable,” she said.

4 things you need to consider before investing in art

With major art fairs taking place across the globe from Chicago to Istanbul to Shanghai, art enthusiasts, collectors and sophisticated investors alike are questioning whether to acquire works of fine art as investments. And as significant appreciation emerges in some corners of the art market, we see growing interest from clients about incorporating art into their investment portfolios.

Last year saw more than $60 billion in art sales, a 67 percent increase from 2009. According to the 2014 Deloitte Art & Finance Report, 75 percent of art collectors and buyers are purchasing art for collecting purposes but with an investment view — a sizable jump from 53 percent just two years earlier. In 2014, artworks sold at auction jumped more than 25 percent to $15.2 billion, with a record 1,679 sales worth $1 million or more. That’s four times more than a decade ago, according to data from

Fine art investments

When clients are considering an art purchase, we encourage them to think of art as part of their total portfolio — as they would a second home, private business or real estate investment — but not an asset class that adds diversification in the traditional sense.

From that viewpoint, consider these four factors before investing in art.

Read MoreThink before that splurge purchase

1. Avoid getting caught up in the hype. When any asset class performs well, more investors want a piece of the action. It doesn’t matter if it’s a stock, a piece of real estate or a work of art.

Recent art appreciation has triggered great excitement, but in reality only a handful of artists and artistic periods will generate those big returns. Investors can fall into potentially hazardous behavioral patterns, hoping to ride the wave when a certain asset class performs well. Buying that soon-to-be-discovered artist or that underappreciated art form about to become the next big thing often proves to be the exception, not the rule.

“When considering an art investment, it’s important to step back and take in a holistic view of your investment assets, future cash flows and other tangible assets.”

2. Think of art as you do venture-capital investing. Just as every start-up is unique, so too are works of art. Some have a track record of success, but many are prone to the whims of the market.

What drives passionate collectors is the individual interpretation and unique viewpoints on artwork. That subjectivity also explains why it’s difficult to think of art as an asset class. Unlike start-ups, art has no balance sheet, cash flow or earnings to help determine its true value.

Read MoreTurning your hobbies into cash

To determine the fair market value of a piece of art, work with a reputable art advisor to find the sale prices of comparable works. The gallery or auction house may be able to provide documents showing their own related sales.

It also pays to learn about the artist’s life and times. That information can provide context and meaning for an investment piece. Note any prestigious awards or fellowships the artist has won, academic positions held and notable collectors or museums with the artist’s work. That information can offer positive indications about the long-term value of a piece.

The most expensive paintings ever sold

3. Shun the belief that art sales translate to resale value. The secondary market for art is limited beyond works from “blue chip” artists. Also, before you calculate any windfall, remember the Internal Revenue Service considers art as a collectible — meaning the tax rate on gains is up to 28 percent. Add that to the expenses associated with acquiring, owning and selling art and you may net only 55 to 60 percent of the sale price.

Reflecting the wide spectrum of possible returns from an art investment, focus on non-financial benefits first. View any financial gain as an additional benefit rather than an expected outcome. And if you acquire art as an investment, especially if you’re new to collecting, you’ll likely want to work with a reputable art advisor.

Read MoreArt investing is a long-haul endeavor

4. Value a collection as more than the sum of its parts. This adds a layer of complexity to appraising a collection and raises important planning considerations for wealth transfer or philanthropic giving.

The IRS and others valuing estates after death recognize art as an important part of a portfolio, so make sure you’ve updated your estate plan accordingly. Do you intend to sell your collection before you die? Gift it to your children or donate it to a museum? Each of these options carries a host of unique wealth-transfer and tax implications.

When considering an art investment, it’s important to step back and take in a holistic view of your investment assets, future cash flows and other tangible assets, such as existing art collections. While art often is viewed as an investment, many behavioral factors come into play, as with any other type of asset. We believe every asset serves a purpose in your portfolio, so identifying that purpose in advance is critical to determining long-term objectives for it.

We all want to benefit from something that’s doing well, and the art market is no different. Yet at day’s end, it pays to think about the purpose art serves in both your life and your portfolio.

Finding ways to provide better overall after-tax gains

As investment advisors, we are constantly looking for ways to provide any additional performance in client portfolios. As a tax attorney, I know there are a variety of actions an investor can take during a tax year to avoid or defer—but never evade—taxable investment income. One such technique is called tax-loss harvesting, or maximizing losses to provide a better overall after-tax gain.

In theory, it is quite simple. If you buy Stock A for $100 and it declines in value to $90, why not sell it, harvest the $10 tax loss and “bank it” to offset $10 in taxable gains from other investments? And if you still have a loss at the end of the calendar year after doing so, then you can deduct your losses—up to $3,000—against other income on your federal tax return and carry over excess losses to future years.

down arrow woman at clear board

In practice, it is far, far more complicated. If selling a security to take a loss were the good you’ve accomplished, the bad would be that you’ve lost the opportunity to benefit when the stock recovers its loss. But the Internal Revenue Service doesn’t allow you to sell the stock, take the loss and immediately buy the stock back. That would be too easy. Portfolio-cleansing “wash sale” rules prohibit you from buying a “substantially identical” security within 30 days from the date of the sale of the security used to generate the loss.

There are many complex and intertwined tax rules and investment considerations in working this strategy. You don’t want to run afoul of IRS laws or turn your portfolio into a tax-efficient mess that now no longer resembles your intended investment strategy.

For example, many investors have carefully crafted a thoughtful asset allocation. Selling a security that overweights or underweights an area of the allocation can cause far more investment damage than tax gain. Remember, by definition, you are selling when the security is at a loss, so you really want to be around when there is a rally back. This strategy is not about market timing, since you don’t know when the loss recovery will happen.

If you would like to explore this tax-deferring strategy, let’s consider when it works best and then let’s build your toolbox of what you’ll need to do to implement it properly.

“Tax-loss harvesting is a wonderful way to find a silver lining in the black cloud of investment losses.”

First, this strategy tends to do well in periods of volatility. Sharp movements in the market—say, during inevitable periods of volatility and correction—make this strategy both particularly effective in producing big deferral results and worth its complexities.

When does it not serve you well? When you are in a low capital gains tax bracket this tax year but expect to be in a higher capital gains tax bracket in later tax years, when you might harvest the deferred gains achieved from the harvested losses. There are three tiers of rates for long-term capital gains on investment securities: 0 percent, 15 percent and 20 percent. (Net short-term capital gains—for assets held under one year—are taxed at your ordinary income tax rates.) Consider when you’ll be in which tier.

For investors with increasing income, also consider whether the additional Medicare tax surcharge of 3.8 percent may apply to you later, further increasing your capital gain tax bracket.

Now the tool box of rules and tips:

  • Document the precise tax basis of each purchase of each of your securities to know which lots provide worthwhile tax loss harvest opportunities.
  • Research and select a replacement for the harvested security, that is similar to the one sold and meets your investment criteria. It might track a highly correlated index to the security sold, for example. But remember, if the investment loss you deducted recovers within 30 days of the purchase of the replacement security, you’ll need to hold the replacement at least one year or you will have a dreaded short-term capital gain upon its sale. Epic fail otherwise.
  • Buy and sell in the same day so that you don’t lose any investment exposure to the market. And watch out for trading costs, commissions and redemption fees.
  • You can’t get around the “substantially identical” rule by selling in your personal taxable account and buying it in your IRA. All of your accounts, and your spouse’s, will be scrutinized for wash sale rule violations.
  • Unintended consequence: You could turn qualified dividend income, taxed at capital gains rates, into ordinary income if you hold the new security for, generally, fewer than 60 days from when the dividend is received.
  • Record-keeping is key. Calendar and carefully track the tax basis of each lot owned, with buy date, sale date and replacement security. Make sure your broker’s records match yours, or the annual 1099B tax reporting form won’t reflect your records and planning. Not all brokers’ websites track mutual funds by buy lots, so that may not be your best record-keeping system.

Tax-loss harvesting is a wonderful way to find a silver lining in the black cloud of investment losses. Roiling markets will always give you investment and tax opportunities; take this tax one, but thoughtfully and with great attention to the details and rules.