Q&A: Does Social Security pay survivor benefits in same-sex unions?

Dear Liz: I am 65 and was recently laid off after 26 years with the same company. My life partner of 25 years died in 2010. We had been legally married in 2008. I’d like to wait until I’m 70 to collect my Social Security. Is there any way I can collect her Social Security until then? I don’t know what the federal laws are regarding this and whether they have caught up to the intent of the law regarding same-sex unions. I’m sure I’m not the only one wondering about this, so any guidance you could provide would be greatly appreciated.

Answer: Yes, you should be entitled to a survivor benefit that’s either equal to what your wife was getting at her death, or what she would have received at full retirement age if she died before applying for her benefits.

A reduced survivor’s benefit is available starting at age 60. You can’t backdate your application until then — the most you can get if you apply now is a lump sum equal to six previous months of benefits. You retain the ability to switch from a survivor benefit to your own (or vice versa for that matter). That’s one of the many ways that survivor benefits differ from spousal benefits, since the ability to switch from a spousal benefit to one’s own benefit is being phased out.

Q&A: Conflicting credit scores

Dear Liz: Why is there such a difference between my FICO 4 and FICO 8 scores? My FICO 4 score is 646 while my FICO 8 score is 678. I want to buy a home and I know some lenders may still use the FICO 4.

Answer: Most (not just some) mortgage lenders use outdated versions of the FICO credit scoring formula. The agencies that buy most mortgages, Fannie Mae and Freddie Mac, accelerated acceptance of credit scores in the mid-1990s when they made FICOs part of the underwriting required for the loans they purchased.

But the agencies haven’t authorized lenders to use the newest versions or alternative scores, such as VantageScore. So an old collection or other misstep that’s ignored by modern versions of the FICO formula could hurt your efforts to get the best rates and terms on a mortgage.

There are several ways you can boost your scores in the coming months. First, get your actual credit reports from all three credit bureaus at www.annualcreditreport.com. (You don’t need to provide a credit card. If you’re asked for one, you’re on the wrong site.) Scan the reports for errors, such as accounts that aren’t yours or late payments showing when you paid on time. Dispute those and prepare to follow up with any creditors that insist on reporting false information. (Complaints to the Consumer Financial Protection Bureau can help you get the creditors to cooperate.)

Make sure you’re making all credit account payments on time and pay down any credit card balances. Your goal is to use 10% or less of your reported credit limits, and to pay your balances in full each month. (Homeownership is expensive enough without dragging costly credit card debt into the financial picture.) It may take a few months to start seeing improvements, but they should come.

When you’re closer to pulling the trigger on a home purchase, consider buying your FICOs for all three credit bureaus from MyFico.com. In addition to the FICO 8, which is the one other creditors use most often, you’ll get your FICOs for the mortgage, credit card and auto loan industries, which can give you a clearer picture of where you stand.

Q&A: Divorced, and in debt

Dear Liz: I recently got divorced and found myself in about $50,000 of credit card debt. While I’m struggling to slowly pay off this debt, I do have some money saved in a tax-sheltered annuity as well as a small Roth IRA. Should I use those, take a personal loan or file for bankruptcy?

Answer: A good rule of thumb is to leave retirement money alone for retirement. Early withdrawals can trigger taxes and penalties that eat up one quarter to one half of what you take out. You can always withdraw your contributions tax free from a Roth, but any earnings can trigger taxes and penalties. The biggest cost, though, is the loss of future tax-deferred compounding that can equal 10 times or more of what you take out.

If your credit is good, low-rate balance transfer offers could help you lower the interest rate on your debt so you can pay it off faster. A personal loan from a credit union, your bank or an online lender could work if it offers a low, fixed rate and a repayment term of five years or less.

If you can’t pay this debt off within five years, then you should talk to both a credit counselor (visit the National Foundation for Credit Counseling at www.nfcc.org) and a bankruptcy attorney (referrals from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org).

Q&A: How does a lottery winner find a financial advisor she can trust?

Dear Liz: I’m a middle-aged, single, childless woman who won a very nice lottery prize. I took the “cash value” option and after paying federal tax, I was left with $1.2 million. I would like to pay cash for a home, have a tidy nest egg put aside and have money for travel and other occasional luxuries. I also receive a disability pension of $1,800 a month, which includes medical and dental benefits. Do I need a financial planner at this point? I was figuring I knew what to do, but may need an expert to help me go about doing it.

Answer: One of the things you’ll notice, if you haven’t already, is how people will come out of the woodwork to “help” you with your money. Some position themselves as advisors, while others will be offering “business opportunities” or just looking for handouts.

You would be smart to seek out a trustworthy fee-only financial advisor to help make the most of your money and to deal with all those who want to part you from it. The phrase “That sounds interesting — let me run it past my financial planner” can short-circuit a lot of importuning.

The planner can help you determine a safe spending rate for your windfall and discuss some issues you may not have considered, such as the need for more liability insurance (since you’re now a bigger lawsuit target) and a plan to pay for long-term care.

The advisor you want won’t be found at your doorstep or in your email box, begging for your business. The best planners are too busy advising to run after lottery winners. You can find referrals to fee-only planners at the National Assn. of Personal Financial Advisors (www.napfa.org) and the Garrett Planning Network (www.garrettplanningnetwork.com). Interview at least three and make sure they’re willing to sign a fiduciary oath to put your interests first.

Q&A: Clash over the state of their mother’s estate

Dear Liz: My husband’s mother passed away in January. His younger sister was executor of the estate. His mother had investments of close to $1 million prior to 2008. She supposedly lost half her investments with the downturn. When she passed away, my husband’s sister said that there was nothing left in the estate. What documents can he ask to see in order to make sure the estate is totally depleted? There wasn’t even a will shown to him.

Answer: If your mother-in-law had a will, or if she died “intestate” — without any estate planning documents — the sister would be required to open a probate case to settle the estate. Probate proceedings are public so your husband would be able to see an accounting of what’s left.

If your mother-in-law had a living trust, the sister wouldn’t have to open a probate case but she may be required to provide trust documents and an accounting of the estate to beneficiaries and heirs. The exact rules depend on the state where your mother-in-law died.

If the sister balks at providing this information, your husband may need to take her to court. He’d be smart to consult an attorney familiar with the relevant state’s laws.

Q&A: Co-signing a grandchild’s student loan

Dear Liz: My granddaughter, who will graduate college in a year, has asked me to co-sign her third private loan, which will bring her total debt to $30,000. She needs three people to co-sign. Her parents and the other grandparents have agreed and she wants me to be the third party. I love my granddaughter and trust her intentions, but I really don’t like co-signing a loan for anyone. If I refuse, I’ll really be in the doghouse. Is there any way I could guarantee that I would only be responsible for this loan if the others don’t pay?

Answer: Co-signers are equally responsible for paying a debt. There isn’t a hierarchy. If your granddaughter fails to pay a loan, it will affect the credit reports and credit scores of anyone who co-signed that loan.

It would be unusual for any student loan to require three co-signers. What she may have meant is that her parents co-signed her first loan, her other grandparents co-signed the second and now she wants you to co-sign the third.

In any case, there’s no way to get the guarantee you want. If you’re not comfortable co-signing, don’t. Your family members should be the ones in the doghouse if they pressure you in any way to go along with this scheme.

Q&A: How to make sure your money-distribution wishes are followed after you die

Dear Liz: My first husband died when my oldest child was 1. I remarried and had another child (they’re 5 and 3 now). My husband and I prepared a trust in which I have him and my sister as beneficiaries of my assets. But my husband regrets that he is not the only beneficiary.

My argument is that if I pass away and he remarries, I want my oldest son (not his biological son, nor has my husband adopted him yet) to get what I saved for him, and that my sister will make sure this happens. What would you recommend? Should I have him as the only beneficiary?

Answer: No. But your sister probably shouldn’t be a beneficiary either, given your aims.

Any parent who wants to get money to a child should do so with a properly drafted trust, rather than trusting someone else — even another parent — to “do the right thing” by the child. All too often, they don’t. A new spouse, a change in financial circumstances, ill will or basic selfishness can tempt people to justify raiding funds intended for others.

A better way to benefit your children is to set up trusts to receive the money. You can name your husband as the trustee for the younger child and name your sister as the trustee for the elder. Trustees have the legal responsibility to act as fiduciaries, which means they have to put the beneficiaries’ interests first.

You can either create these trusts with your will or they can be part of your living trust if you live in a state with high probate costs, such as California. The advantage of probate is that the court can provide some oversight of the trustee, but that typically involves some additional costs. Your estate-planning attorney can offer guidance about which approach may be best for you.

Q&A: Are credit checks a scam?

Dear Liz: In July last year, I accessed the website for my free credit report before applying for a car loan. I have also been in recovery from cancer treatment and haven’t been great about checking my Visa statement until now. For the past year, my credit card has been charged $19.95 each month for some kind of “credit check” service. I never authorized this, nor did I request this service. I contacted the site, and they will refund me only one month of billing. Is this some kind of scam? How do they get away with this, and what can I do?

Answer: It may not technically be a scam, but the site’s business model profits from people’s confusion about how to get free credit reports.

The site you used is not the federally mandated site for free credit reports. It’s likely one that you found by typing “free credit reports” into a search engine and then clicking on one of the first results, which was probably an ad. To find the real site, you need to type www.annualcreditreport.com into your browser. You won’t need to give your credit card number to get your reports.

You may be able to get another month’s fee refunded by contacting your credit-card issuer and disputing the charge. By federal law, you’re supposed to make such disputes within 60 days after the statement containing the disputed charge was sent to you. Write to the issuer at its address for billing inquiries (not the address where you send your payments) and send it certified mail, return receipt requested.

Q&A: Don’t miss out on spousal Social Security benefits

Dear Liz: How far back can Social Security go for someone who did not know to apply for spousal benefits? I’m 69, still working and did not know I was eligible for spousal benefits from my retired wife when I turned 66. Social Security is indicating six months of retroactive benefits is the maximum.

Answer: Unfortunately, that’s correct. You’ve missed out on at least two and a half years’ worth of spousal benefits based on your wife’s work record.

You still can file a restricted application for spousal benefits only and get a lump sum payment for the previous six months. You also still have the option to switch to your own benefits when they max out at age 70. These strategies aren’t available to younger people because Congress changed the rules last year.

Social Security rules can be complex, and the penalty for misunderstanding or missing deadlines can be huge. “Get What’s Yours,” a book about Social Security-claiming strategies that recently was updated, should be required reading for anyone approaching retirement age.

Q&A: How to get out from under high brokerage fees

Dear Liz: I have two accounts at a full-service brokerage. One is an inherited IRA and the other is a Roth IRA that I opened. Both have a mix of stocks and mutual funds that I chose. My accounts have done well, but I am not happy with the commissions that my brokerage charges when I trade, which I don’t do often. What do I have to do to move these accounts somewhere else that doesn’t charge such high commissions? I don’t want to sell the stocks and funds in the accounts, but to transfer them intact. If I had to sell the funds, I’d end up paying some of the fees that I’m trying to avoid.

Answer: As long as you don’t own any proprietary mutual funds in those accounts, you should be able to transfer the actual investments and your IRAs to another brokerage — just pick a discount brokerage this time. Those high commissions erode the amount you’ll have at retirement and aren’t necessary if you’re managing your own investments.

The new brokerage will be eager to help — just call and explain you want to transfer the assets “in kind.” You’ll be provided with the information and forms you need to start the process, and the new brokerage will take it from there.

Be prepared for one bite in the form of “account liquidation” fees. Many (but not all) investment firms charge these when you close IRAs, and they can range from $20 to $95 per account.