Dear Mr. Berko: My dad passed away about three months ago, and Mom, who is 84 and very healthy, got $25,000 from Dad's life insurance policy. Mom also was left an individual retirement account worth $185,000, which is invested in a certificate of deposit at her bank. She also owns a mobile home, worth $30,000, has $31,000 in CDs and checking, owns a 2001 Buick, owns 80 acres of farmland — which we intend to rent — and has no debt. The insurance agent recommended we sell the farmland (worth about $120,000), for which he has a buyer, and combine that with the $25,000 of insurance money to buy a paid-up whole life policy that would give my wife and me $190,000 when Mom joins Dad. The agent made an important point that the life insurance policy would be free from federal taxes, and he said we should buy life insurance with Mom's IRA, too. Mom, who will be moving in with us, gets Social Security plus Dad's pension and doesn't need more income. What do you think of this insurance idea? Also, I have 30 shares of Facebook, which I bought more than a year ago at $31. What do you think of the stock now that it sells for about $50? Should I sell it?
DC, Jonesboro, Ark.
Dear DC: Ouch! Holy cockroach, from under what kind of rock formation did this insurance guy crawl? It's tough being a senior out there, especially a senior senior. Seniors, particularly women, are the largest and most frequent target of financial scamsters, and this ganef takes the cupcake. Most certified public accountants will tell you that estates worth less than $5.25 million are not subject to federal estate tax. And from the information you presented, your mom's estate seems to be worth a lot less than that number.
If the acreage and the IRA and other properties are properly titled, everything should pass to you and your wife without the knots of costly red tape and legal mumbo jumbo that lawyers love to love. Meanwhile, don't allow your mom to sell her 80 acres. Because I'm modestly familiar with farmland prices in Arkansas, I know there are several real estate agents in the Jonesboro area who can give you an accurate and bankable value. They also can advise you on the rental income you can expect to receive. Farmland with good irrigation rents for between $250 and $350 an acre. But you must know there's a big difference between farmland and pastureland. According to the Federal Reserve Bank of St. Louis, in Arkansas, Missouri and parts of Mississippi, prices for good farmland rose more than 20 percent last year, to an average of $5,672 an acre. However, the average value of pastureland in that area rose only about 1 percent, to $2,372 per acre. So either your mom has some lousy pastureland or the insurance salesman is a crook and must be nailed to a cross, given a pedicure and a shave, and then beaten like a rented mule. But he should be allowed to retain his insurance license.