Ask Liz Weston

Dear Liz: Please remind your readers to regularly check on their safe deposit boxes, particularly after a bank merger. Our bank was recently taken over by a larger one, and I could not believe what happened. Even though I have an active checking account and am a “preferred” customer, the bank claimed that my box had been closed and no one could find my signature card (which I had signed within the last year to access the box).

Rather than contact me, the bank was about to turn the contents over to the state. I was treated poorly and was forced to identify contents of my box in front of bank employees.

I did not think bank employees were ever supposed to be allowed to view contents of boxes, and I am extremely distressed and horrified by the entire experience. But if I hadn’t checked, I could have lost precious family heirlooms. If you have any suggestions as to how to make banks more accountable for these types of errors, please do let me know.

Answer: Banks are supposed to try to contact customers before turning a safe deposit box’s contents over to the state unclaimed property department, but as you’ve discovered those efforts sometimes fall quite short.

You can make a formal complaint to whatever state or federal agency regulates your bank. You can call the bank and ask, or visit the Federal Financial Institutions Examination Council’s website at http://www.ffiec.gov and click on “National Information Center” to access a searchable database. You also can contact your lawmakers and push for legislation that would hold banks more accountable for this kind of error.

Dear Liz: In 1985 my father set up a Uniform Gift to Minors Act brokerage account for my son. By 1997, my father had withdrawn all the money and put it back into his personal account. My son should have gained control of the money last year, but there was nothing left. Didn’t the investment firm have a responsibility to prevent my son’s grandfather from doing this?

Answer: In a word: no.

Your father is the one who is ultimately responsible for his actions. As custodian, he had the legal right to withdraw money and use it for your son’s benefit. It’s not up to the brokerage firm to police what happened to the funds after they left the custodial account.

What your father did was, of course, wrong – legally and in every other sense. Once the money went into the account, it belonged to your son.

Your options at this point, however, are pretty limited. You can point out the funds weren’t his to take, and ask him to return the money. If he refuses, your son could sue him, but lawsuits among family members tend to make future holiday gatherings rather tense. Unfortunately, this kind of situation isn’t uncommon, and many families decide the fight to regain the promised money isn’t worth the upset.

Dear Liz: In a recent column you discussed the issue of fairness in gifting college funds to nieces and nephews. We have an issue closer to home in setting up our bequests to our grown children.

We have been giving our daughter financial assistance that we have not given our sons because we don’t feel they need it. Our daughter is in her mid-20s and has a learning disability. Our sons know we have been helping, but they don’t know the exact nature or value of the assistance.

We want to ensure that our daughter gets a larger inheritance to compensate for her disability, but how do we do that while being fair to the others? Our attorney helped us set up a family trust in which our three children will receive equal shares of the bulk of our estate.

At his suggestion, the special assistance will go to our daughter by naming her a sole beneficiary of one or more of our retirement accounts. Does this sound like a good plan?

Answer: Tread very, very carefully here.

There’s a fundamental difference between doling out assistance unequally while you’re alive and doing so once you’re dead.

While you’re alive, your sons are paying the “success tax” — not getting as much from you because they’re doing well. Many grown children in this position are able to accept the disparity because there’s an unspoken understanding that you would help them, too, if they fell on hard times.

Once you’re gone, though, there are no more opportunities for help. How you bequeath your estate is pretty much the last word, and your kids may very well see in your distributions a reflection of your love for them.

That’s why even minor inequalities in estate distribution can set off nasty, hugely emotional battles among heirs. These bad feelings can, unfortunately, translate into lifetime estrangements, which is surely not an outcome you’d want.

Of course, if your daughter’s disability is severe and will clearly affect her lifetime earning potential, then an unequal distribution may well be justified. You shouldn’t necessarily assume, however, that her disability will translate into failure. Plenty of successful people have overcome learning disabilities, including Virgin Atlantic Airways founder Richard Branson, inventor Thomas Edison, actress Whoopi Goldberg and artist Pablo Picasso.

You also can’t assume that your sons’ success will continue unabated. Accident, illness and business reversal can affect anyone, so that the child who seems like a highflier now could be the one who needs the most help in the future.

If you do decide on an unequal distribution, consider discussing your estate plans with your children.

This is probably a talk you’d rather avoid, but openness now will avoid an unpleasant shock later and give all concerned a chance to discuss their feelings about the situation. You may or may not hear something in this discussion to change your mind, but at least you’ve given your heirs a chance to be heard — an opportunity that’s obviously lost once you’re gone.

Dear Liz: My brother and I are nearing our mid-50s. He is married; I am not. Neither of us has children. When our parents died 11 years ago, we inherited their house equally.

I live in it; my brother and his wife live in another state. He and I share taxes, insurance and a home equity loan. Other than that, all expenses are — and should be — my responsibility. He is livid that I am not leaving him my half of the house when I die, even though he is leaving his half to his wife — which I completely understand.

When I realized he was furious about this, I offered to make him the sole beneficiary of the house in my will if he will do the same for me. He will not, yet he remains angry, somehow believing that my being single should restrict my choice of beneficiaries. What am I missing here?

Answer: Once you step back a bit from the spat, you might see that neither of your positions is entirely unreasonable.

A home is typically a major asset, and you want to be able to leave it to a beneficiary of your choosing. So does he, and his wife is the natural choice.

But he’s also probably dreading the idea that you’ll die first and he’ll end up owning the property with someone else. The constant negotiations and decisions required in homeownership can be excruciating and a cause for major conflict even when you have familial ties to bind you. It can be much worse when you don’t.

The other problem with your solution — “I’ll leave you mine if you leave me yours” — is that you’d need to have a lawyer draw up what’s known as a will contract to make your promises binding, said Los Angeles estate planning attorney Burton Mitchell.

But remember, things change, and your agreement may not seem so good years later.

“The sister could always marry in the future. The brother could always get a divorce. Either could adopt a child,” Mitchell said. “No one should assume that the future is static and the facts won’t change.”

Before you do anything, you should check how your home is currently titled. If you and your brother are joint tenants, then he typically would automatically inherit, regardless of what your will or other estate planning document says.

If you want to leave your share to someone else, you probably would need to hold title as tenants in common.

There are a number of options you might want to consider and discuss. Among them:

• Take out a mortgage and buy him out. This could have financial implications for both of you. You might have trouble making the payments on a new loan, and he probably would owe capital gains tax for half the appreciation since your parents died.But he would get his share of the asset in cash, and you should be relieved of any future recriminations on the beneficiary issue.
• Sell the house and split the proceeds. This means that you’ll have to move and that both of you could have a tax bill. (Because this is your primary residence, you’re allowed to avoid paying tax on up to $250,000 of the gain since your parents died. If your profit is more than that, you will owe capital gains tax on the excess.)But this could solve the issue of who leaves whom what.
• Wait a decade or so and then get a reverse mortgage to buy him out. Reverse mortgages allow you to tap the equity in your home without having to repay the loan until you move, sell the house or die.You can get a lump sum, a line of credit or a stream of monthly checks. The older you are when you apply, the more money you can borrow, although there are limits depending on where you live.

  If you’re interested in this possibility, check out the information about reverse mortgages at the AARP website or consult Tom Kelly’s book “The New Reverse Mortgage Formula” (John Wiley & Sons, 2005).

• Do nothing. This is always an option. You should be advised, though, that your brother may have a trump card whether he knows it or not. As a co-owner, he could sell his share of the house or go to court to force a sale of the property. If that’s not an outcome you want, you’ll need to find a solution that works for both of you.

Dear Liz: You recently wrote a column that endorsed an aunt’s plan to give more money to her less affluent sibling’s children for their future college education than she would give to her other, better-off nieces and nephews. I’m an estate planning attorney who has advised clients on their inheritance plans for over 45 years and I’ve found that allocating one’s wealth unequally among family members is a recipe for disaster. No one disputes that people can leave all or a portion of their money or property any way they like. However, in my many years of experience, unequal allocation will ultimately lead to conflict, disharmony and bad feelings no matter the economic or other disparity between one’s heirs.

Answer: When it comes to parents bequeathing money and property to their own children, I wholeheartedly agree. As I explained in a more recent column, these final gifts are often interpreted, rightly or not, as the parent’s last word about how much each child was valued. Even parents who feel justified in making unequal financial gifts during life–usually because they believe one child needs more than the others–should think long and hard before making lopsided bequests after death.

More distant relatives shouldn’t be held to the same standard, however, particularly when we’re talking about gifts to further a specific goal like a college education. As the aunt noted, her other siblings are able to save for their children’s educations, while she fears that at least one of her nieces won’t attend college at all if not for the aunt’s financial support.

If the money had no restrictions on its use, or if the aunt were passing out birthday checks, then yes, the amounts should be roughly equal. But to ask her to reduce her gift to the neediest child so the others can have a surplus of money for the same goal–a college education–seems the opposite of fair.

Might some relative object to receiving less or nothing at all from Auntie? Of course, but most reasonable people will understand her actions if she decides to gift according to need. At worst, they may suspect Auntie of favoritism, but that kind of partiality is a lot easier to take from a parent’s sibling than from the parent.

Dear Liz: My husband and I are far from “drowning” in debt, but we’re trying to pay off our credit card bills by Christmas because we would like to buy a house by next summer. We have a good-size savings account but I hate to use it for credit card payments. On the other hand, we are living like paupers trying to pay down this debt. Any idea how to make life a little easier?

Answer: Sure. Get over your hate.

It makes little sense to have money sitting in a relatively low-rate savings account when you’ve got credit card debt that’s almost certainly accruing finance charges at a higher rate. Use your savings to pay down your cards. Once that debt’s been paid off, you can beef up your savings again by redirecting the cash that had been going to pay the credit card companies.

If you had been planning to use your savings as a down payment, you may need to delay your home plans by a few months as you rebuild the account. But it’s important for you to get in the habit of paying off your credit card bills in full every month for your financial security and your future peace of mind.

Dear Liz: I have always thought I had good credit. I pay my bills on time and don’t carry credit card balances. But when I moved into my current apartment, the landlord ran a credit check on me. It wasn’t horrible–my credit score was 683–but certainly wasn’t as good as I imagined. A few things on the report struck my attention. First, the report has Fresno as one of my former residences. Not only have I never lived in California, but I have never even stepped foot in the state! Second, it appears that I am in collections for some long distance phone charges when I in fact have never had an account with the company that’s listed. How can I get these errors cleared off my record?

Answer: Collections agencies have become increasingly aggressive about seeking payment on old debts, and some of them aren’t too picky about making sure they’re going after the right people. The result is that someone else’s collection account can land on your credit report, as apparently happened here.

Start by pulling your credit reports from all three major credit bureaus: Equifax, Experian and Trans Union. You’re entitled to free reports from each of the bureaus once a year under federal law by calling (877) 322-8228 or visiting the bureaus’ central Web site, www.annualcreditreport.com. (If you’ve already had your free look for the year, you can order copies individually from the bureaus, typically for a fee of $8 to $9, or you can order your reports and FICO scores from all three bureaus for about $45 from MyFico.com.)

With your reports, you’ll be given instructions on how to dispute errors such as the bogus address and the incorrect collection account. With any luck, the erroneous entries will disappear. If not, you’ll have to take your fight directly to the collection agency. Send it a letter, certified mail, return receipt requested, informing them that this is not your debt and demanding that they “validate” the account–which means that they must provide proof that you owe the money and that they are entitled to collect the debt. If it’s not your debt, they won’t be able to provide such proof and the entry should disappear from your report.

It’s also possible, although less likely, that you’re the victim of identity theft. In that case you might want to check out the resources at the Identity Theft Resources Center at www.idtheftcenter.org. Typically, an identity thief will open more than one bogus account and you would find plenty of other errors, collections and delinquencies in your report.

Don’t rest until you’ve resolved this issue. A 683 score may not seem all that bad, but more than half of American adults have FICO scores over 700 and you typically need a score of 720 or above to get the best rates and terms. The score you have now could cost you thousands of dollars of unnecessary interest should you need a loan, so it’s worth investing the time to get this matter corrected.

Dear Liz: My husband and I are far from “drowning” in debt, but we’re trying to pay off our credit card bills by Christmas because we would like to buy a house by next summer. We have a good-size savings account but I hate to use it for credit card payments. On the other hand, we are living like paupers trying to pay down this debt. Any idea how to make life a little easier?

Answer: Sure. Get over your hate.

It makes little sense to have money sitting in a relatively low-rate savings account when you’ve got credit card debt that’s almost certainly accruing finance charges at a higher rate. Use your savings to pay down your cards. Once that debt’s been paid off, you can beef up your savings again by redirecting the cash that had been going to pay the credit card companies.

If you had been planning to use your savings as a down payment, you may need to delay your home plans by a few months as you rebuild the account. But it’s important for you to get in the habit of paying off your credit card bills in full every month for your financial security and your future peace of mind.