NEW YORK (CNN/Money) -
Not for nothin' Carm, but we gotta talk. Tony Soprano is a good provider, but if he gets whacked you're in trouble.
He says "you'll be taken care of," a vague promise that has caused agita for countless wives who left money matters to their spouses. A word of advice? Get yourself a solid financial plan.
"Tony is in a volatile career and that career could go away at a moment's notice," said Ray Lucia, a certified financial planner from San Diego. "What's Carm going to do then?"
A husband's promise isn't enough
Of course, we're talking about the season opener of the hit HBO series "The Sopranos." In it, Carmela wants to talk about the future after seeing the widow of Big Pussy (whacked by Tony in the second season) handing out sausage samples at the supermarket.
"We need an estate plan," she pleads. Tony, played by actor James Gandolfini, refuses to discuss it, saddling her with a string of unresolved issues that could leave her penniless. Sure, this is fiction. But Carmela's quandary is a harsh reality for plenty of women who fail to take ownership of their finances. It just as easily could be your mother, your neighbor or the wife of a CEO facing jail time.
To take back control, Carmela, played by Edie Falco, should convince Tony to take out a life insurance policy to cover her living expenses in case he ends up sleeping with the fishes. Let's assume she needs $15,000 a month, or $180,000 a year, to maintain her upscale lifestyle in northern New Jersey. She'd need a policy of around $4 million.
We'll assume for the sake of argument that Tony lies about his occupation, his smoking habit and the fact that he's seeing a psychiatrist. Were he to fess up, he'd have a hard time getting any coverage at all. (Obviously, we're not advocating anyone lie to an insurance company.)
For an overweight, 43-year-old man from North Caldwell, N.J., with no other health problems, the premium on a 20-year term insurance policy of $4 million could be $700 to $1,100 a month, according to insweb.com, a Web site that calculates insurance quotes. A 30-year term could be $2,200 to $2,400 a month. (Click here for more on life insurance. Or, click here to calculate how much you'll need and here to figure out whether to go with term life or whole life.)
Making the money last
She also needs to start thinking about where to park that cash. After all, the life expectancy of a mob boss ain't so great. It won't be long before Carm will have to figure out where to invest the proceeds from Tony's life insurance plan. Since she'll be living off it for the rest of her life, she'll need a portfolio of 55 percent bonds, cash and preferred stock for income and 45 percent stocks and real estate for long-term growth, Lucia said.
On the fixed income side, Lucia recommends inflation-indexed bonds, tax-free municipal bonds and a mutual fund that invests in adjustable-rate mortgages. On the stock side, he recommends 20 percent in income-producing real estate investment trusts. Carmela could put the rest in a mix of index funds or comparable actively-managed funds. (See accompanying chart.)
Likewise, it wouldn't hurt Carm to open an IRA for some tax-deferred growth. Since she has no income, she would qualify for a deductible, spousal IRA if the couple earns less than $150,000 a year, Lucia said. A spousal IRA allows a non-working wife or husband to open a retirement account. He'd recommend she start investing in Vanguard 500 Index. When the balance rises to $5,000 or $10,000, she could diversify by investing the same amount in a value fund such as Vanguard Windsor; and then do the same with PBHG Small Cap and Oakmark International. She'll build up a heftier balance with an all-stock lineup by the time she can start withdrawing at age 59-1/2.
Protecting the nest egg
Investments are only part of the equation, however. An irrevocable life insurance trust is also necessary to protect the entire $4 million inheritance from Uncle Sam, said Roger Levine, an estate-planning lawyer from East Brunswick, N.J. The trust would become the owner of the insurance policy and the children would be the beneficiaries. Upon Tony's death, the trustee would oversee how to invest the cash, and Carmela would live off the income. She could use some of the principal for certain costs, such as health insurance premiums or to pay her mortgage. Then, when she dies, the kids get the remaining amount tax-free.
And to safeguard the Soprano homestead from creditors and lawsuits, Carmela may want to consider a qualified personal residence trust. The home would go into the trust and she would be the beneficiary for seven years, according to the rules. Then her children would take ownership and she would pay them "rent," another useful estate-planning tool to give children money without a tax sting.
Still, given the nature of Tony's work, Carmela may have reason to worry about her home and other assets, according to Barry Burke, a veteran trial attorney based in New York. Any assets purchased with so-called "ill-gotten gains" could be subject to federal forfeiture, he said.
Most recently, questions arose about the assets of former Tyco chief Dennis Kozlowski, who was indicted on fraud charges. Prosecutors are investigating whether the $10 million he used to post bail, provided by his ex-wife, were derived from ill-gotten gains. They may try to argue his bail should be revoked.
"The government could seize every asset it believes is the product of a criminal act," Burke said. His advice? Carmela needs a clear paper trail showing the home was purchased with legitimate income.
If Carmela is smart, she won't count on a suitcase full of cash or a numbered Swiss bank account. Then again, Tony has always taken care of his own. If she does get that financial windfall, it will open up a whole new realm of investing possibilities, making it doubtful she'd wind up hawking sausages.
Should you worry Carm? Fuggedeboudit.