Q&A: What to consider when deciding how to bequeath your home

Dear Liz: I’m at 74-year-old retired woman living in a completely paid-off condo in California. I hold title in my name only. I would like to add my partner of 20 years and my married adult daughter to my home title so they will not have to go through probate if something happens to me. What would be the easiest way to do that? Someone told me a quick deed to each person giving them a third of the condo. I want it as joint tenancy so the condo would just go to the survivors. My parents always held title with my brother and myself. Do you see a problem with this?

Answer: The “quick deed” to which you refer is probably a quitclaim deed, which would transfer your entire interest in the property to someone else and possibly create gift tax issues. That’s not what you want.

Another option is a revocable transfer on death deed. Like many other states, California now offers this option so that real estate can bypass probate. You would retain ownership of the condo until you die, when it would pass to the people you designate.

But please think carefully before bequeathing a home to two people, especially two who aren’t related or married. What if your daughter needs to sell the house to raise cash and your partner doesn’t want to move? What if your partner needs to remodel the home as she ages but your daughter refuses to share in the costs? Would one have the wherewithal to buy out the other?

Another way to avoid probate would be to create a revocable living trust that allows your partner to live in the home until her death, said Los Angeles real estate attorney Burton Mitchell. The property then could be transferred to your daughter. It may not be the right solution, especially if your partner and daughter have similar life expectancies, but it’s one of many you should explore with an experienced estate planning attorney.

Q&A: Credit cards just keep coming

Dear Liz: I use only two credit cards. But I have several credit cards I never use. When the cards expire, the issuers send me new ones. I just received two more cards, with new expiration dates, which I will not use. I keep hearing that cancellation of cards results in lower credit scores. How can I cancel all the unused cards I have without affecting my 797 score, and how can I stop them from sending me new ones without my authorization?

Answer: Your issuers can continue sending you new cards until the accounts are canceled. Your “authorization” isn’t necessary once you’ve applied for the card. Some credit card companies will close an account that hasn’t been used in more than a year, but others will keep accounts open hoping you’ll start using the cards again someday.

Having several credit cards is typically good for your scores — of which you have many, by the way, not just one. But you don’t have to keep unwanted cards forever. If your scores are in the high 700s you can close the occasional credit card account.

What you don’t want to do is shut down a bunch of cards at once, or close your highest limit cards. Credit scoring formulas are sensitive to the amount of your available credit you’re using. Anything that significantly reduces the amount of available credit you have can hurt your scores.

Q&A: Credit score after bankruptcy

Dear Liz: This is just to add to your observation that credit scores tend to improve after a bankruptcy. I filed Chapter 13, which required a five-year repayment plan. At that point my score was around 640. The day of the discharge, I was able to get a car loan at 3% interest. Also, the bankruptcy dropped off my credit reports seven years from the filing date, and my scores actually dropped a good bit.

Answer: It’s pretty unusual for scores to go down after a bankruptcy drops off your credit reports. It’s possible you weren’t looking at the same type of score because there are many different formulas in use. It also could be there were other changes that happened simultaneously, such as a high balance on a credit account or an old, paid-off loan that a creditor stopped reporting.

It’s not unusual, though, for someone who completes a Chapter 13 to get a competitive rate on a loan where there’s collateral, such as an auto loan, assuming he has a job, credit score expert John Ulzheimer said.

“Debt free plus employed equals not a bad risk, especially if they put down a decent down payment,” Ulzheimer said.

Q&A: Mixing family and finances

Dear Liz: I have a relative who is a certified financial planner. He suggested we invest in annuities from which he will make commissions. When I asked him about his commission amount, he said he doesn’t feel the need to disclose that information because the fees don’t come out of my investment, therefore making them irrelevant. He says his fiduciary responsibility makes disclosing his commissions unnecessary. Is this correct?

Answer: Your relative needs to review the CFP ethical requirements. He wasn’t required to disclose dollar amounts or percentages of compensation until you specifically asked for that information. Once you did, he’s obligated to tell you. He (and you) can learn the details on the CFP Board of Standards site (www.cfp.net).

Commissions are far from irrelevant, especially when the product is as expensive and complicated as an annuity. Before you invest in any annuity, you should run the investment past a fee-only certified financial planner. Fee-only planners are compensated only by fees their clients pay and not by commissions that could influence their advice.

Q&A: How to protect an elderly widower from financial predators

Dear Liz: Our mother recently died after a long illness. Our father is in his 70s and is getting a lot of attention from ladies at his church and the senior center. We’re concerned because of a pattern we’ve seen in other families, where the widower remarries and the new wife convinces him that his kids are only after his money. When he dies, she gets everything. The kids and grandkids are left out in the cold. We love our dad and don’t want him to think we’re gold diggers. We also don’t want someone to take our father from us and take advantage of him. What can we do?

Answer: If your father is willing to consider it, an irrevocable trust could go a long way toward protecting his assets from avaricious future wives and any number of other financial predators, including scam artists and unethical financial advisors. The trust could continue to pay income to him while allowing the underlying assets to be transferred at his death to the heirs he chooses now, when his judgment is presumably not impaired.

This is not a do-it-yourself project. Transferring assets to an irrevocable trust could create a gift tax issue for your dad. An attorney who specializes in trusts will have to carefully craft the language to avoid that, Los Angeles estate planning attorney Burton Mitchell said.

The problem may be convincing your dad that he’s vulnerable to impaired judgment. Although our financial decision-making abilities peak in our 50s and our cognitive abilities decline fairly rapidly after age 70, our confidence in our abilities continues to rise as we get older.

Financial literacy expert Lewis Mandell likens it to driving ability. Other research has shown that older drivers often don’t perceive their driving skills as deteriorating, despite declines in sensory ability that come with aging, said Mandell, author of the book “What to Do When I Get Stupid: A Radically Safe Approach to a Difficult Financial Era.”

But the same research found that when the drivers took an objective test that demonstrated their decrease in skill, they were more willing to alter their driving behavior to reduce the probability of accidents.

It may help to have a third party, such as a fee-only financial planner or an estate planning attorney, talk to your dad about the importance of protecting his assets at this stage in his life.

If that effort fails and he marries the type of woman you fear, try to remain in his life, no matter what. She may try to pick fights with you and then demand he take her side as a way of isolating him. Avoid conflict where possible and maintain contact with regular calls, letters and visits. It will be harder for her to demonize you if you remain a constant, loving presence in his life.

Q&A: How to evaluate consumer options and not get cheated

Dear Liz: Although I’m able to pay my bills, it’s the decisions regarding cable, telephone, Internet and various insurance options that drive me nuts! I’ve tried to seek out independent groups that discuss such issues, but none exists in my area; and these decisions are not covered by my financial planner, nor do I wish to pay a senior money manager for this advice. As an elder orphan, I’m finding these decisions and others regarding repairs, workmen, etc. very stressful. Friends don’t really want to help and be held “responsible” if their recommendations don’t work out. What do you suggest?

Answer: Sometimes it feels like a full-time job to evaluate your options as a consumer and not get snookered. This isn’t an issue that’s unique to older people. But as we age, our financial decision-making abilities tend to decline, and we become more vulnerable to fraud or bad decisions. So you’re smart to want a trustworthy helper to guide you.

A lot of Internet sites clamor to be that helper, but not all are as objective as they seem to be. They may be steering you toward the companies that pay them the most. Make sure you read a site’s disclosure statements so you understand what its conflicts of interest might be.

One outfit you can trust is Consumer Reports, which has a print magazine as well as an online subscription with objective advice on thousands of products and services. Consumer Reports doesn’t accept advertising and has been helping people make smarter decisions since 1936.

Finding good people to work on your home is trickier. Sites such as Angie’s List and Yelp offer reviews from other consumers and can help lead you to reputable firms. You shouldn’t take the results as gospel, though, because both rely on advertising from the companies being reviewed.

If you don’t feel up to the task of researching and sorting your options, please reconsider your aversion to hiring a daily money manager. You typically can pay such a manager by the hour to help you make these decisions. You’ll also have a chance to “test drive” his or her services since you may well need help with paying bills and other financial tasks down the line.

Q&A: Social Security calculators may overestimate your benefits

Dear Liz: All of the Social Security calculators that I have found assume that you will work until you start drawing Social Security benefits. However, I plan on retiring around 62 but not drawing my benefits until age 66 or later. Whenever I calculate my future benefits, the calculator assumes that I will continue to draw the same salary as I have today until I start benefits. I’m worried the calculators are overestimating my benefit.

Answer: As you probably know, Social Security uses your 35 highest-earning years to calculate your benefit. When you work longer than 35 years, you’re typically replacing your lower-earning years in your teens or 20s with higher earnings from your 50s and 60s.

Free Social Security calculators usually assume that pattern will continue. If you stop working or earn less, the calculators may overstate your benefits. To get a better estimate, you’ll need to shell out $40 to use MaximizeMySocialSecurity.com, which allows you to customize your future earnings assumptions.

Q&A: Getting help with credit scores after identity theft

Dear Liz: Would you please help readers learn how to fix credit scores after identity theft? I have been a victim at least eight times in the past five years. I have filed three police reports regarding these matters and sent them along with other proof to the big three credit report agencies. Only one quickly answered and deleted the false entries.

Answer: You have a friend in the Consumer Financial Protection Bureau.

In the past, complaints about credit bureaus went into a black hole. The Federal Trade Commission collected them but warned consumers that it couldn’t expect any action on their individual cases. The Consumer Financial Protection Bureau, by contrast, forwards consumer complaints directly to the financial company and works to get problems solved. The bureau says 97% of complaints get a timely response.

Before you make your complaints, though, you should check your credit reports again. One bureau may have been faster in responding, but the other two may have since deleted the bogus accounts.

Q&A: What to consider when investing in target date retirement funds

Dear Liz: I have 100% of my 401(k) in a fund called “Target Retirement 2030.” This fund is made of several other funds, so does that qualify as “diversified”?

Answer: It does. Target date funds have become increasingly popular in 401(k) plans because they do the heavy lifting for investors. The funds select asset allocations and grow more conservative in their mix as the retirement date approaches.

Target date funds aren’t perfect, of course. Some are too expensive. The typical target date fund charges about 1%, but Vanguard and Fidelity charge as little as 0.15%.

Another issue is the “glide path” — how quickly the funds get more conservative. There’s no consensus about what the right glide path should be, and investment companies offer a lot of different mixes. Any given glide path may be too steep for some people and too shallow for others, depending on their circumstances. As an investor, you can compensate for that by choosing funds dated later or earlier than your targeted retirement date. If the 2030 fund gets too conservative too fast for your taste, for example, you could choose the 2040 fund instead.

Despite the downsides, you’re likely to be much better off in a target date fund than you are in some of the other options. Too often novice investors take too much or too little risk without realizing it. They may have all of their money in “safe” low-return options, which means they’re losing ground to inflation. Or they may have all their money in stocks, including their own company’s stock, and would be unprepared for a downturn wiping out a good chunk of their portfolio’s value.

Even those who know they should diversify often do it wrong by randomly distributing their contributions across their investment options. If you don’t know what you’re doing, or you simply prefer investing professionals to take charge, target date funds are a good way to go.

Q&A: Life insurance for people over 65

Dear Liz: Can you give us some direction on how to get good term life insurance when you’re over 65? We had 25-year term policies and the premiums skyrocketed, so we are looking. Will getting a group plan (such as the one offered by AARP) help me? I’ve had two heart valve surgeries and knee and hip surgeries but don’t drink or smoke. We are concerned that we may not have enough saved. My wife is still working, but I have not been able to find employment since I lost my job due to a downsizing.

Answer: The options available to you are likely to be limited or expensive or both.

The life insurance program offered through AARP provides up to $100,000 in term coverage that ends at age 80 or $50,000 in permanent life insurance that can extend through your life. There’s no medical exam but you do have to provide health information.

Life insurance with higher limits may be available but you’re not going to like the price, said Delia Fernandez, a fee-only Certified Financial Planner in Los Alamitos. Life insurance after 65 is usually expensive in any case, but those heart valve surgeries could make it much more so, depending on how long ago you had them, how successful they were and what medications you’re on.

Fernandez recommends consulting with an independent life insurance agent so you can get a better idea of what’s available and what it will cost. Once you have an idea of the premiums, you’ll have to weigh whether you’d be better off investing that money instead.

As a general rule, you don’t want to be worth more dead than alive — and not just because you don’t want your spouse contemplating ways to collect. More importantly, insurance coverage that exceeds your income-generating capacity signals that you may be spending too much for insurance and need to consider alternatives.