Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: What to do when your financial advisor isn’t doing right by you

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Dear Liz: My husband and I are in our 80s, living in a retirement community. Our investment account is valued at $550,000. This has to see us through till we die. We have no pension, no other assets. Social Security provides $2,760 a month and we are in the lowest tax bracket. Our financial advisor is using tax loss harvesting “to save us from capital gains tax.” We are both uncomfortable with this. Taking a loss on purpose doesn’t feel like a secure path and should be for people with a long-term future. Should we ask him to stop using this method of trading?

Answer: Tax loss harvesting involves selling investments that have gone down in value to offset some or all of the gains from investments that have gained in value. The point is to reduce capital gains taxes. Since you’re in the lowest tax bracket, however, your federal tax rate on long-term capital gains is effectively zero. It’s hard to imagine how your advisor would justify tax loss harvesting, given your situation.

Go ahead and ask them. The answer should give you some insight into how much your advisor knows, or cares, about your individual circumstances. Obviously, you should halt the tax loss harvesting if there’s no good reason to do it, but you might also want to start looking for a new advisor.

Keep in mind that most financial advisors don’t have to put your best interests first. They can recommend investments or pursue strategies that make them money, regardless of whether the recommendations are the best fit for your financial situation.

If you want an advisor committed to putting you first, you’ll need to seek out one who is willing to be held to a fiduciary standard. Such advisors include certified financial planners, certified public accountants (including those who are personal financial specialists) and accredited financial counselors. A fiduciary would have taken the time to understand your financial situation and then crafted a strategy to best fit your circumstances.

Q&A: When an inherited house gets sold, it pays to know the tax rules

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Dear Liz: My sister and I inherited a house from our mom in 2003. Back then, it was appraised at close to $500,000. It’s now worth $1.3 million and we want to sell and split the profits. My sister has lived in the house since Mom passed. Approximately what would the tax liability be?

Answer: You’ll determine the potentially taxable profit by subtracting the tax basis — the amount the house was appraised for at your mother’s death, plus any qualifying improvements — from the sale proceeds. Your sister can exempt $250,000 of her share of the profits, since she has owned and lived in the house for two of the previous five years. If her share of the profit was $400,000, for example, she would owe long-term capital gains taxes on $150,000 of that.

As a non-occupant, you wouldn’t have the option to exempt any of the profit, so you would owe long-term capital gains taxes on your entire $400,000 share. Long-term capital gains rates depend on your income, but the federal rate is 15% for most.

Q&A: A husband dies young, a widow wonders: What are my survivor benefits?

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Dear Liz: My question relates to survivor benefits. How much does the surviving spouse receive in Social Security benefits if the higher-earning spouse dies at 59, before he ever became eligible? He worked for 40-plus years and met all the requirements except not reaching the minimum age. I plan to wait until next year when I’m 60 years old to collect. Will my survivor benefits be based on what he would’ve gotten if he’d reached full retirement age of 67?

Answer: The short answer is yes, but your survivor benefit will be significantly reduced if you start at age 60 and will also be subject to the earnings test, which reduces your check by $1 for every $2 you earn over a certain limit, which in 2024 is $22,320. The earnings test disappears once you reach your own full retirement age.

You’re also allowed to switch from a survivor benefit to your own, or vice versa. Most Social Security benefits don’t allow such flexibility. You could collect survivor benefits while allowing your own to grow, for example, if your own benefit would ultimately be larger.

A paid service such as Social Security Solutions or Maximize My Social Security can help you determine the best claiming strategy.

This week’s money news

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This week’s top story: Weekly mortgage rates dip, home price gains soften. In other news: New digital nomads on the block: families, why you should consider train travel in Europe, and 3 steps to take after transferring a balance to a new credit card.

Weekly Mortgage Rates Dip, Home Price Gains Soften
The drop brings the 30-year fixed rate to about where it was two weeks ago and slightly under May’s monthly average of 7.01%.

There Are New Digital Nomads on the Block: Families
As the cost of living rises in many places, full-time family travel can cost about the same as staying put.

Why You Should Consider Train Travel in Europe
You can easily travel through Europe by train because of its well-developed route network.

3 Steps to Take After Transferring a Balance to a New Credit Card
Moving the debt is just the first step. Have a game plan for paying down the balance before the interest-free period ends.

Q&A: Is getting old reason enough to cancel some credit cards?

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Dear Liz: Recently, someone asked if closing a credit card would be worth the hassle and you responded that there is no compelling reason to do so and in fact, it might hurt your credit scores. As an older person, I can think of two good reasons: theft and fraud. Many of us of a certain age no longer carry a mortgage or other debt. But, I am finding it harder to keep track of my finances. I would like to cancel three of my five credit cards for that reason.

Answer: You misquoted my response. What I actually wrote was, “If there’s no compelling reason to close a card, you might consider leaving the account open and using the card occasionally to prevent the issuer from closing it.”

Wanting to reduce your risk is reason enough to close a card account. All of us would be smart to consider simplifying our finances as we get older, says Carolyn McClanahan, a certified financial planner and physician in Jacksonville, Fla.

You also might think about who could help you manage your finances as the task gets more difficult. A legal document called a power of attorney allows you to name a trusted person to take over should you become incapacitated. You can familiarize this person with your finances and consider giving them online access to your accounts so they can help you spot fraud, theft or missed due dates. Involving them now, when you can help guide them, is generally better than waiting for a crisis and hoping they can figure everything out on their own.

Q&A: My ex-wife lent my money to her boss. What can I do?

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Dear Liz: I recently found out that my ex lent one of her former bosses $2,500 to get his brother out of jail on bond. My ex took the money out of a joint account that I had opened with the inheritance I got when my dad died. It’s now been four years and I haven’t received a penny of the loan back. I could really use the money now as I have medical bills to pay. Question is who do I go after? My ex or the boss?

Answer: You may have read in this column that inheritances can be kept as separate property, even in community property states where other assets acquired during marriage are generally considered jointly owned.

An inheritance can lose its status as separate property, however, if it’s commingled with joint funds. That’s what you did when you opened a joint account with the money: You gave your ex access to the funds.

You certainly can ask the ex and the boss to give the money back. You could try small claims court if that doesn’t work. You also could hire an attorney, but the costs of trying to get the loan repaid may well exceed the amount at stake.