Q&A: Changing the executor of a will

Dear Liz: You recently wrote about a stepmom who dismissed her deceased husband’s son as an executor. Sometimes a will provides that someone such as the surviving spouse can alter the executor pattern. This is done to keep the children in line.

Answer: That’s certainly a possibility. But if that’s the case, the stepmother could simply show at least that portion of the will to the other children to allay their fears. The fact that she hasn’t shared the will, which should be a public record at some point, is reason for concern.

Q&A: Why surviving spouses aren’t always entitled to Social Security benefits

Dear Liz: I am confused. I thought all wives were entitled to Social Security if the husband’s earnings qualified. My husband is deceased and he received a larger Social Security benefit than I because he worked longer in a qualified system. We were married almost 49 years. Most of my earnings are from a job that didn’t pay into Social Security. I was told because I had a high retirement income, I could not qualify for a percentage of my husband’s benefit. I didn’t know there was an income basis for Social Security. My income was severely reduced when he died. I appreciate any resource in understanding Social Security you could provide.

Answer: It sounds like your survivor’s benefits were eliminated by something known as the “government pension offset,” or GPO. While this sounds draconian, the GPO is actually meant to ensure that people in your situation don’t wind up getting a bigger benefit than people who paid into the Social Security system.

If you had paid into Social Security, you would get the larger of either your own benefit or your husband’s after his death. You wouldn’t be able to continue receiving both checks. Since you’re receiving a government pension from outside the Social Security system, you would be receiving much more than a typical survivor if you could keep that pension AND get your husband’s check. The GPO reduces your survivor benefit by two-thirds of your government pension to compensate. If your pension is big enough to completely eliminate your survivor’s benefit, that means you’re still better off than you would have been just receiving your husband’s check.

Q&A: Effects of closing credit card accounts

Dear Liz: I would like to know how to close credit card accounts and not get a bad credit rating for doing so. We are trying to improve our credit after filing for bankruptcy seven years ago.

Answer: If you’re trying to improve your credit, then avoid closing credit accounts. Doing so can’t help your scores and may hurt them. Credit-scoring formulas are sensitive to how much of your available credit you’re using. The formulas like to see a wide gap between your credit limits and the amount you charge, both on individual cards and in the aggregate. When you close an account, you reduce your available credit, which narrows that gap and can ding your scores.

If you want to speed up your recovery from the bankruptcy, continue using the cards lightly but regularly and paying the balances in full every month. Make sure to pay all your bills on time so that a skipped payment doesn’t undo all the progress you’ve made. Review your credit reports and dispute any errors, including accounts that were included in the bankruptcy but are still showing up as active debts.

That doesn’t mean you can never close unwanted credit accounts. You just don’t want to do so now, or when you’re in the market for a major loan. You can close an account or two once your scores are in the high 700s on the 300-to-850 FICO scale and you don’t plan to apply for credit in the near future.

Q&A: Stepmom alters terms of dad’s will

Dear Liz: My father recently passed away and his will named my stepmom’s daughter as executor along with my brother. My stepmother just informed my brother that she removed him from that role, telling him it’s easier to just leave her daughter as the executor as she lives much closer. Is this legal to remove him after my father’s death? The rest of his five children have not been able to see that will.

Answer: Your stepmother doesn’t get to alter the terms of your dad’s will after his death. As mentioned in a previous column, a probate case should be opened in the county where your dad died and the will is among the paperwork that should be included in that case. It would become public record at that point so you would all be able to read it.

Your stepmother’s unwillingness to play by the rules indicates that you may need some legal help to make sure your dad’s wishes are carried out. The five of you should consult a probate attorney.

Q&A: How to avoid hiring a Madoff-like financial advisor

Dear Liz: What is the best way to pick a financial advisor to make sure they don’t make off with all your retirement money? I don’t want Bernie Madoff handling my retirement savings.

Answer: Even if you turn over day-to-day investment decisions to an advisor, you should make sure your money is invested at an independent custodian such as a nationally known brokerage or mutual fund company. That won’t immunize you from fraud, but Ponzi schemes are a lot harder to pull off when there’s third-party oversight.

Returns that are too good to be true, investments that you don’t understand or pressure from an advisor to invest are other red flags for fraud.

Protecting yourself from fraud is important, but so is protecting yourself from bad or conflicted advice. You need to check out any advisor thoroughly. Ask about experience, credentials and other qualifications. Find out how they get paid. Fee-only advisors are compensated only by the fees their clients pay and don’t accept any commissions for recommending products. Fee-based advisors, by contrast, may accept fees and commissions.

Your advisor should be willing to sign a fiduciary oath to put your interests first. That’s not currently required. Advisors can put you in expensive or underperforming investments just because those options pay them higher commissions and there’s little legal recourse for investors unless they can prove that the investments were clearly unsuitable for their situation.

Starting next year, advisors will be held to a fiduciary standard when counseling clients about retirement funds. There’s no reason you should wait for that rule to kick in, though. You can download a copy of a fiduciary oath for your advisor to sign at www.thefiduciarystandard.org.

Q&A: Guaranteed income in retirement

Dear Liz: Is there such a thing as guaranteed income in retirement? Private pensions are gone and public pensions aren’t far behind. There are calls for pension reform and I’m not sure if anything is guaranteed anymore. As far as annuities are concerned, insurance companies are on shaky ground and the U.S. government had to bail out AIG. My kids, in their 20s, have told me they aren’t expecting Social Security to be there when they retire. The term “guaranteed income” has lost its meaning.

Answer: I wouldn’t rely on your twenty-something offspring to be oracles of financial wisdom. The reality is that Social Security will collect enough in taxes to pay about three-quarters of promised benefits even if Congress never gets its act together to improve the system’s financial situation. As bad as Americans can be at math, most of us can understand that “75%” is not the same as “0%.” Social Security is an immensely popular government program that millions rely on for most or all of their retirement income, so the odds are pretty good that the system will be there when your kids need it.

Pensions are another common source of retirement income. Private pensions are on the wane but millions of people still have them. If a plan can’t pay promised benefits, the Pension Benefit Guaranty Corp. takes over. The PBGC has a maximum limit for payouts, which may trim the pensions of highly paid employees, but the vast majority of workers get what they were promised.

Public pensions, meanwhile, aren’t impossible to cut, but it’s tough to do, and most government agencies prefer to defer the pain by trimming benefits for younger employees rather than older ones.

Finally, it’s not true that insurers are on shaky ground — the vast majority survived the financial crisis without a bailout. You still should check into an insurer’s financial strength before you buy an annuity, of course, and many financial planners recommend buying only from top-rated companies. If an insurer does fail, many annuities are covered by state guaranty associations up to certain limits (typically $250,000).

Q&A: Naming co-executers

Dear Liz: Is it legal for my parents to appoint me co-executer of their estate, along with my sister, without asking me first if I was okay with this, and keeping me as co-executer after I told them I do not want the responsibility? My sister is more intelligent and competent than I am and would do a better job of this by herself.

Answer: Your parents can name pretty much anyone they want, but that doesn’t mean you’re legally obligated to accept the role when they die. You’ll have the right to decline.

If your parents don’t name an alternate, your sister may be allowed to serve on her own or another executor may be appointed by the court, depending on how the will is written.

Obviously, your parents are being short-sighted by trying to force you to serve when you’ve made your feelings clear. Being an executor can be a time-consuming, complex and often thankless task that shouldn’t be foisted on anyone who’s not willing. If they don’t trust your sister to function alone, they should name someone else—and get that person’s permission before they do. It’s smart to name an alternate or two besides, in case their choices also decide they don’t want to serve.

Q&A: Removing a quit-claim house mortgage from your credit

Dear Liz: I recently divorced and quit-claimed my house over to my ex-wife. She has been making all the payments on time but the mortgage still shows up on my credit. Because of this, I can’t borrow as it is considered my indebtedness still. Do you know of anyway of having it expunged from my credit reports?

Answer: She will have to refinance the mortgage in her own name to get you off the loan. The contract you signed with the lender otherwise remains in force and isn’t affected by the divorce agreement.

It’s good that she’s making payments on time, since a single skipped payment could trash your credit scores.

It’s unfortunate your attorney didn’t advise you of the consequences of quit-claiming the property while remaining on the mortgage. It’s rarely a good idea to give up an asset while keeping the liability. A better approach is to separate your credit before the divorce is final. That means closing all joint accounts and transferring the debt to separate accounts in the name of the person who will be responsible for the payments. If your ex wasn’t able to get approved for a refinance, the house could have been sold so that you wouldn’t be on the hook indefinitely.

Q&A: How to get rid of home-equity loan headaches

Dear Liz: We have taken several withdrawals from our home equity line of credit. Now the balance is close to $100,000. It’s the interest-only type. We don’t know how to pay off this amount systematically. Can you help?

Answer: As you’ve discovered, it’s not a good idea to pledge your home as collateral when you don’t know how you’ll pay off the debt. Home equity lines of credit can be an inexpensive way to borrow initially, but the interest-only period doesn’t last forever and eventually your payments will get a lot more expensive.

Many homeowners who tapped their equity before the financial crisis are discovering this fact — and some risk losing their homes. The initial “draw” period where you pay only interest typically lasts 10 years. After that, you can’t make further withdrawals and you’re expected to pay both interest and principal over the next 20 years. Your payments may jump 50% or more, depending on prevailing interest rates.

A better way to use HELOCs is for short-term borrowing that’s paid off well before the draw period expires. If you can increase your current payments to do that, you should.

If you can’t make pay more than your minimum, though, you’ll need to explore other alternatives. You may be able to arrange a cash-out refinance that combines the HELOC balance with your current mortgage and gives you 30 years to pay it off. If not, you can make an appointment with a housing counselor (you can get referrals at www.hud.gov) to see what options may be available to you as a distressed borrower. If you can’t restructure the debt, a short sale or a deed-in-lieu of foreclosure may be a better option than letting the lender take your home.

Q&A: Getting through to Social Security

Dear Liz: I read your article about checking your Social Security earnings record and benefits. I tried to set up an account with the Social Security Administration to track my retirement benefits (I turn 65 in December). Apparently the Social Security Administration will only text a required security code to a cellphone. I do have a cellphone but live in an area with very sketchy reception. I couldn’t get a signal the day I tried to set up the account. Do you have any suggestions about an alternate source or method for accessing my benefits?

Answer: The Social Security Administration briefly required people to use a one-time code sent to their cellphones in order to set up an online account. You weren’t the only one who was having trouble with this new hurdle, and the administration has since dropped the requirement.

People still have the option of getting and using a code if they’re comfortable doing so. This so-called two factor authentication — which uses both something you know, such as a password, and something you have, such as a code sent to your phone — is a smart idea for any sensitive online account. Banks and brokerages should offer this option to further protect customers’ security, but many of them don’t.

By the way, the Social Security Administration allows only one account per Social Security number, so you’d be smart to continue setting up your account. That will prevent someone else from doing so and making unauthorized claims or changes.