Managing Money : Depositors Benefit as Law Prods Banks
QUESTION: I deposited a check for a rather large sum in my checking account recently. About a week later, I wrote a check, expecting that the funds would be available. But it took nearly two weeks for my bank to credit my account with the deposit. What is going on?--M. Q.
ANSWER: What has been going on--long waits for banks to credit depositors with their funds--should soon be easing. Under the federal Expedited Funds Availability Act, which became effective Sept. 1, banks, savings and loans and credit unions must give customers--in most instances--access to their deposited funds within one, three or seven business days, depending on the type of check the customer has deposited into the account.
Basically, the law requires that all local checks be cleared within three business days. A local check is defined as one written on an institution in the same metropolitan area or within the same Federal Reserve check-processing region. Non-local checks must be cleared within seven business days. Proceeds from cashier’s checks, certified checks and government checks must be available to depositors the following business day.
These holding periods will decline in the future. By Sept. 1, 1990, the maximum holding period will drop to two days for local checks and five days for non-local checks.
Your bank or savings institution should send a notice explaining the new rules by Oct. 31. Look for it with your next monthly checking account statement.
Although it’s hard to tell from the information that you’ve provided, your problem probably doesn’t fall into the above categories--and probably won’t be solved by the new law. You said you deposited “a rather large sum.” Under the new law, checks for more than $5,000 or deposits totaling more than $5,000 on a single day may be subject to an additional holding period of up to four business days. So if you deposit an out-of-state check for more than $5,000, it could easily take two weeks (the equivalent of 10 business days) for your check to clear.
The new law was approved by Congress last year after repeated consumer complaints that Americans were losing millions of dollars every year because banks were freezing deposited funds unnecessarily long under the guise of waiting for assurances that a deposited check was properly drawn. Consumer lobbyists charged that while waiting for a check to clear, banks were collecting interest on the depositor’s funds--interest that more properly belonged to the depositor. Further, they claimed that banks were also unfairly assessing bounced-check fees against these same depositors because funds were not released fast enough for use.
For their part, banks now complain that the new law makes them increasingly vulnerable to con artists who deposit bogus checks. Without sufficient time to verify the deposits, the banks say they could be caught short by an unscrupulous depositor.
Q: My wife and I are both over age 55. During our marriage we have sold homes twice, each time moving up to a more expensive home and deferring taxes on our gains. We are now thinking about selling our home again and buying something smaller and less expensive. We have some questions about the one-time exclusion of $125,000 from taxation that the federal and California state government allows home sellers over age 55.
What if our total profits from all three sales exceeds $125,000? How is our tax liability figured? Suppose we both die before we sell this house, and our children inherit the house without our having used our $125,000 exemption and paid the remaining tax liability on the previous sales. Are they liable for all of the deferred taxes? Obviously we don’t want to saddle them with any taxes we are responsible for. Is there something we can do?--W. P.
A: In its most simplified form, the law allows you to accumulate tax-deferred profits on the sale of your personal residences until you buy a house that costs less than the previous one. At that point, you become liable for taxes on the accumulated profits, whether or not any portion of them is invested in a new home. However, both federal and California state laws allow the homeowner a one-time exclusion from taxation on $125,000 of accumulated gains.
If your gain is larger than $125,000, the remainder is subject to taxation. If you fail to use your exemption before dying, it is not passed on to your children. However, under inheritance laws, the value of the residence on the date of your death is the value that your children are allowed to use for their tax purposes. They are not liable for your untaxed gain.
Here’s how the system would work. Let’s say you have sold a house for $300,000 and have taxable profits of $200,000. Using your one-time exclusion of $125,000, you are liable for taxes on the remaining $75,000. However, if you die before selling the house, its value to your children would be carried at $300,000. So, if they sell it for $350,000 two years later, their gain is just $50,000.
Q: My father died last year, and his individual retirement account was rolled over into my mother’s account. Before his death, my father had taken two mandatory distributions from his account, including one just before his death. My mother will be required to start taking mandatory distributions from her account in 1989, when she reaches age 70 1/2. What, if any, distribution is she required to take in 1988? Does she have to make a withdrawal for 1988 from the amount rolled over from my father? In 1989, will she be required to take a distribution from both her original IRA total as well as my father’s?--J. B.
A: According to our IRA experts, your mother is not required to take any IRA distributions this year, either from her own account or the account she inherited from her late husband. Basically, once an IRA account rolls over into the survivor’s account, distributions are governed by the survivor’s age and life expectancy. Your mother must start making mandatory next year when she reaches age 70 1/2.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
