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Liz Weston

Beware high-risk homes that drive up insurance

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When house hunting, the price of homeowners insurance probably isn’t top of mind. But homes with hidden risks can make getting coverage difficult, expensive or both. Learning how to identify them could save you a bundle.

This could be a particularly important concern for first-time homebuyers and those moving from cities to suburban or rural areas who may not be aware of common hazards, says Jennifer Naughton, risk consulting officer for North America for Chubb, an insurance company.

In my latest for the Associated Press, learn how to identify high-risk homes.

Monday’s need-to-know money news

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Today’s top story: Mortgage Outlook: A pre-election pause for October rates? Also in the news: A new episode of the SmartMoney podcast on the unequal employment recover and the case for used cars, many avoid bankruptcy out of fear, and how to opt out of pre-screened credit offers.

Mortgage Outlook: A Pre-Election Pause for October Rates?
Rates are standing still.

Smart Money Podcast: Unequal Employment Recovery, and the Case for Used Cars
Used cars are a no-brainer if you’re trying to save money.

Many avoid bankruptcy out of fear
People often wait too long to file, draining retirement accounts or other assets that would be protected

How to Opt Out of Pre-Screened Credit Offers
Reducing your junk mail.

Q&A: Weekly free credit reports

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Dear Liz: In a recent column, you wrote that credit reports are now available weekly from AnnualCreditReport.com. Most people understand that they are entitled to a free credit report once a year via that site. Please explain what is meant by “now available weekly?” By signing up for a paid service from one or more of the credit reporting agencies, or for free, or what?

Answer: AnnualCreditReport.com was created to provide free annual reports, but now you can get your free reports every week.

If you navigate to AnnualCreditReport.com, you’ll see an announcement from the three credit bureaus that the site will provide free credit reports weekly until April 2021.

Free means free. You don’t have to pay or provide credit card information, although the bureaus may try to sell you credit monitoring or other services.

Q&A: Social Security survivor benefits

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Dear Liz: My husband passed away at age 59 last year. He was sick and unable to work the last four years of his life. I will be 56 in October. My understanding is I will not be able to draw his Social Security benefits until I am age 60. Is this correct? I struggle financially and need that money now. Also, could he have drawn his Social Security benefits before he turned 60 since he was unable to work?

Answer: Your husband could not draw retirement benefits before age 62, but he may have been a candidate for Social Security Disability Income or Supplemental Security Income if his condition was severe enough to prevent him from working. SSDI is available to people who have worked long enough to be “insured,” which generally means 10 years in jobs that pay into Social Security. SSI is intended for aged, blind and disabled people with low incomes and few assets.

You won’t be eligible for survivor benefits until you’re 60. If you’re struggling, please visit Benefits.gov to see if you’re eligible for other government programs. You also can call 211 or visit 211.org to see what resources in your community may be available to help you.

Q&A: Changing tax law may have made home trust unnecessary

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Dear Liz: I was told my father’s house did not qualify for a step-up in tax basis at his death because he had put the house in a qualified personal residence trust (QPRT). With your recent column mentioning the step-up when a home is inherited, I’m wondering if I paid unnecessary taxes.

Answer: In at least one sense, you may have.

Qualified personal residence trusts were a popular technique when the estate tax exemption limit was much lower. (Currently the limit is $11.58 million per person, but 20 years ago it was $675,000.) Putting a home in this kind of trust essentially froze its value for estate tax purposes while allowing the person who created the trust to continue living there for a certain length of time. At the end of that period, ownership of the home was transferred to the heirs and the person who created the trust had the option of renting the home from those heirs.

If the house hadn’t been put in a trust, the heirs would get a new tax basis when the owner died. The basis would be “stepped up” to the home’s current value, so there would be no capital gains tax owed on all the appreciation that occurred during the owner’s lifetime.

When a home has been placed in a QPRT, on the other hand, there’s no step-up in tax basis when the trust creator dies because the home already belongs to the heirs. When the heirs sell the home, they typically have to pay capital gains taxes on the appreciation that happened during the trust creator’s lifetime.

People who created these trusts were gambling that the estate taxes they would avoid would be substantially greater than the income taxes the heirs might owe. When estate tax limits were raised, many lost that bet.

So you didn’t pay unnecessary taxes in the strictest sense — you had to pay the taxes by law because the house was given to you before your father died. But in the larger sense, the tax bill you paid could have been avoided if the home hadn’t been put in that type of trust. If your father’s estate wound up being below the estate tax limit in the year he died, then the trust provided little benefit.

Friday’s need-to-know money news

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Today’s top story: Credit card preapproval vs. pre-qualification. Also in the news: 3 ways to keep your distance with contactless payments, why sustainable investing could get a lot harder, and a look at your debt options.

Credit Card Preapproval vs. Pre-Qualification
Pre-qualification is a soft yes on qualifying for a card. Preapproval is a guarantee — but it can be a red flag.

3 Ways to Keep Your Distance With Contactless Payments
Touchless methods are convenient and secure, but the hygiene factor in the pandemic era could get more people on board.
Sustainable Investing Could Get a Lot Harder
The Labor Department wants to keep socially responsible investments out of 401(k)s and private pensions.

What Are Your Debt Relief Options?
Exploring the possibilities.