Finding Guides on How to Read Annual Reports
Q: I am trying to become a more knowledgeable investor. Is there some place or some resource to which I can turn to get trained in how to read and understand an annual report? --J.M.
A: There are many sources for the information you want.
The New York Stock Exchange offers the Individual Investor Information Kit, which includes a pamphlet called Understanding Financial Statements. Other pamphlets include a basic explanation of stock and bond trading, a margin trading guide, tips on selecting the right broker and a glossary of 250 financial terms and phrases. The kit is available for $12 by sending a large, self-addressed, stamped envelope to the New York Stock Exchange, P.O. Box 5020, Farmingdale, N.Y. 11736.
The National Assn. of Investors Corp. also offers a variety of investment advice to members. Group members are entitled to buy nearly two dozen investment guides at a 20% discount. Among the books offered are “Financial Statement Analysis: The Basics and Beyond” by Rose Bikics, published by Probus Publishing, and “One Up on Wall Street” by Peter Lynch, former manager of the well-regarded Magellan Fund, published by Penguin. To join the club, send $30 to the National Assn. of Investors Corp., 1515 E. 11 Mile Road, Royal Oak, Mich. 48067.
The American Assn. of Individual Investors gives its members a subscription to its investment journal, a periodical that routinely includes tips on investing and discussions of investment strategies. Upon joining, group members are sent a copy of the Individual Investors’ Guide to No-Load Mutual Funds. To join, send $49 to the American Assn. of Individual Investors, 625 N. Michigan Ave., Suite 1900, Chicago, Ill. 60611.
Other books that should be available in a library or bookstore are “Keys to Reading an Annual Report” by George Friedlob and Ralph Welton and Dun & Bradstreet’s “Guide to Your Investments.”
Adding Names to Deed Can Spur Tax Increase
Q: My 65-year-old bachelor brother added my name and that of my sister to the deed of his house. His home, valued at $44,000 under Proposition 13, was reassessed to nearly $254,000. No money changed hands, and my brother continues to live in the house. Was the assessor correct? --P. C. S.
A: You might think that simply adding two names to the ownership of a home, with no other changes in circumstances, wouldn’t trigger the drastic action that befell your brother. But you would be wrong. Even though no money changed hands and your brother continues to reside in his home, for the purposes of property tax reassessment, your brother’s home underwent a change in ownership. And under Proposition 13, such changes trigger a reassessment in property taxes.
The only exceptions for property transfers made within a family are for those involving parents and their children. In these cases, the law allows transfers of a personal residence and other real estate up to $1 million in value to pass between parents and children with no reassessment. Transfers among siblings are not exempt.
Calculating Tax Basis Heir of Part of Home
Q: My wife and I own a duplex with a $160,000 tax basis and a $1-million market value. Upon the death of the first of us, our daughter will inherit the deceased’s half of the property. What will her tax basis be? --H. B.
A: Your daughter’s share will be valued as of the date of death of the deceased. If the property is worth $1 million at that time, her tax basis would be $500,000.
A question that you did not ask is what will be the value of the surviving spouse’s share? If the property is held in joint tenancy, the survivor’s share is set at half the original tax basis, or $80,000. However, if the property is held as community property, the survivor’s share is subject to being stepped to the value on the deceased spouse’s date of death. Given a $1-million market value for the property, the value of the survivor’s share would be set at $500,000. Quite a difference just for holding the duplex as community property, isn’t it?
Some attorneys argue that couples holding property as joint tenants can get the advantages of community property vesting by simply attaching an addendum to their wills stating that their assets are community property and that joint tenancy vesting is only a convenience. On several occasions this column has reprinted the wording of such an addendum that one Los Angeles attorney prefers. However, the issue is not clear-cut.
The Executive Committee of the Trusts and Estates Section of the Los Angeles County Bar Assn. cautions that California has no specific law allowing couples to hold property in joint tenancy while still claiming the benefits of a community property vesting. However, the group notes that the state’s Law Revision Commission is studying the issue.
Although some attorneys argue that the absence of a law allowing couples to take advantage of both types of vesting doesn’t prohibit it, the Trusts and Estates Section of the L.A. Bar doesn’t agree. Until the law is revised, the panel says, couples should choose between the two types of vesting and not try to have their cake and eat it too.
