by Archie M. Richards, Jr., CFP^®
April 26, 2004

Alma writes that she and her husband are overwhelmed by credit card debt. They'd like to refinance their home but can't afford the closing costs.

Getting control of your finances, Alma, requires changing your lifestyle. Here's how to start:

• See a credit counseling agency

• Throw away your credit cards. Without cash on hand, you don't buy it.

• Subscribe to HomeEconomiser, P. O. Box 12603, Scottsdale, AZ 85267-2603 (homeeconomiser.com). It's a monthly publication costing $15 a year - a terrific bargain. Back issues cost only $2 each. Buy all ten and study them carefully. From this wonderful, happy family, you'll learn how to make the most of your money and your life.

• Talk with a psychiatric social worker. You don't to be a nutcake to see a therapist.

Changing lifestyles isn't easy, but you can do it. The best of luck.

A couple of weeks ago, I wrote a column saying that when making gifts, emotions count for more than taxes. That was good advice, but the tax advice I also gave in the column was incorrect.

A woman who held $60,000 of Series E Savings bonds considered giving the bonds to her four grandchildren and wondered about taxes.

The correct tax consequences are unfavorable. Gifting savings bonds is different from gifting stocks.

A gift of stock is a non-taxable transaction. The cost basis carries over from the donor to the donee. When the donee sells the stock, he pays tax on the gain from the time the stock was bought by the donor. But until the stock is sold, neither the donor nor the donee pays capital gains tax.

Savings bonds are different. When you gift a savings bond, you pay tax then. You're taxed on the accumulated interest up to the time of the gift.

That's bad enough. But thereafter, the situation becomes horrendous.

The bond is reissued in the name of the new owner. But the certificate shows the date of the donor's original purchase. When the donee later cashes in the bond, he's responsible for the tax on the interest accumulated from the time it was bought by the donor. Only after the donee makes clear to the government that this portion of the tax has already been paid is the donee excused from paying it again.

Note that the donee must prove to the government, perhaps years later, that the tax was already paid by someone else. This is no problem if the gifts are made within a close-knit family of competent people. But what if the donee and the donor live in different states and no longer get along? What if the donor is dead, incompetent, or her records are destroyed? The situation reeks of complexity.

This is an example of the government's general rule of taxation: Get the money, get as much as can, and get it now.

Readers have inquired about where they can obtain a Health Savings Account (HSA), which enables a person to deduct contributions to a savings account. The accumulations in an HSA are used to pay medical expenses up to the amount of the deductible on an underlying medical insurance policy. Thereafter, the insurance company pays the costs.

Here are a couple of companies with whom you can set up HSAs:

• HSABank (hsabankusa.com 800-357-6246). The bank handles the HSA, but the medical insurance policy you must obtain elsewhere.

• Golden Rule Insurance (goldenrule.com 800-444-8990). Here, you may acquire both the HSA and the underlying policy.

Don't expect your will to control who receives your IRAs, pension plans, annuities, or life insurance policies at your death. Those assets go to whoever are specified in the plans. For example, if you're divorced and remarried, change the beneficiaries pronto.

Specify secondary beneficiaries as well. These are the persons who will inherit if the initial beneficiaries die before you.

Making your estate the beneficiary creates probate problems. But recording your living trust as beneficiary is fine.

Your will has no effect on the disposition of retirement plans, annuities, or life insurance policies. Make sure the beneficiaries are correct.