Q&A: Adding sister to a house deed

Dear Liz: A reader recently asked about giving a rental house to the sister that has been living in it for 10 years. You mentioned that the reader would have to file a gift tax return since there is a max of $15,000 for a gift exemption. Couldn’t the owner simply add the sister to the title so when they pass the sister becomes the sole owner of the house without having to deal with taxes, probate, etc? Similarly, if the sister dies first the current owner would retain ownership to give, sell, donate as they choose.

Answer: Adding the sister to the deed would be considered a gift, so the reader would still have to file a gift tax return.

Owning the home together would avoid probate and give the surviving sister a tax break, and that half of the house would get what’s known as a step-up in tax basis at the first sister’s death. Another option, if the reader wanted to retain ownership, would be a transfer-on-death deed, which is available in many states. The reader was clear that she wanted to give an outright gift, but she could consult a real estate or estate planning attorney about other options.

Q&A: How young people can build their credit

Dear Liz: Our 23-year-old daughter has a low-limit credit card from her bank, primarily to build her credit history. For the same purpose, we also added her as an authorized user on one of our credit cards (yes, we can trust her). When she checked her credit reports recently at annualcreditreport.com, one of the agencies produced a report but another claimed they couldn’t find her. Is that normal for a relatively new credit user? Could it possibly be because she has a hyphenated middle name? Should we worry?

Answer: It can take 30 days or more for information to be updated at the credit bureaus, so she should try again and also check the third credit bureau. If two bureaus can’t find her after 30 days, then it’s possible that both credit cards report to only one bureau. In that case, she should consider getting a credit-builder loan from a credit union that reports to all three bureaus.

Otherwise, the problem is likely the credit bureau’s, and she should try ordering the missing credit report via the U.S. mail. The bureau that couldn’t find her will have instructions for requesting a report that way on its site.

Monday’s need-to-know money news

Today’s top story: Student loan pause is extended. Also in the news: A new episode of the Smart Money podcast on what our listeners accomplished this year, 6 Instagram tips for small-business owners, and for young adults, building credit starts now.

Student Loan Pause is Extended
Payments will resume May 2nd.

Smart Money Podcast: What Our Listeners Accomplished This Year, Part 2
This week’s episode continues our celebration of our listeners’ money wins in 2021.

6 Instagram Tips for Small-Business Owners, by Small-Business Owners
Learn how to build an effective small-business Instagram strategy that takes up minimal time.

For Young Adults, Building Credit Starts Now
Building your credit while you’re young will pay off in the future, and it may be easier than you think.

Q&A: Safe deposit box shortcomings

Dear Liz: You recently advised against keeping one’s will in the bank safe deposit box. That was on the grounds that upon death, the bank could seal the box. My daughter is named on my box (she is also named as executrix) — that is, the bank ran her through several hoops, and the result is she can gain access to the box as she wishes. Does your advice hold in this case?

Answer: Find out what the bank’s policy is. If the bank confirms your daughter will have access in the event of your death, ask that the assurance be put in writing.

One problem with keeping anything in a safe deposit box is that the contents can be escheated — turned over to the state — if the bank decides the box has been abandoned. That usually won’t happen if you’re paying the bill for the box on time and making sure the bank has up-to-date contact information, but physically checking the box’s contents once a year or so is a good practice.

Q&A: Storing will and trust documents

Dear Liz: You recently advised a person to leave their original will or trust with their attorney. As a practicing attorney, I cannot tell you how many times original wills and trusts have been lost as the attorney that prepared the documents retired or died before the client. There are requirements to inform clients of a retirement, but very few lawyers follow those rules, unfortunately. The best thing is to buy a home safe or put the documents in double zip-close freezer bags in your freezer (which should be fireproof and is a great preserver of the documents). Or, hire a younger lawyer who will still be around when you want to amend your will or trust or you pass away.

Answer: Thanks for sharing your perspective, but freezers are not fireproof. A fireproof home safe would be a better option for those who want to keep their wills at home.

There is, unfortunately, no one perfect option for storing wills. You’re quite right that people often don’t stay in touch with the attorneys who create their documents, even though estate plans should be reviewed and updated regularly. The risk of losing a will may not be as high if the attorney is part of a large firm, but even those can go out of business.

Some states allow you to file your will in advance with the probate court or a registrar of wills, so that’s another avenue to consider.

Q&A: Why home equity loans are a better option than credit cards

Dear Liz: My husband is 68, I am 70, both of us are retired and on Social Security. We have little in savings. My husband wants to charge $10,000 to a low-interest credit card to pay for a new furnace and water heater. He plans to pay the minimum each month and at the end of each year transfer the balance to a different credit card with low interest. Is this a good idea?

Answer: You may have better options.

Many credit cards offer low introductory rates that expire after 12 to 21 months, but you typically won’t know before you apply what your credit limit will be.

You may not get a high enough limit to make all your purchases or you could use up so much of the limit that it causes damage to your credit scores. (Scoring formulas are sensitive to how much of your available credit you’re using, and ideally you wouldn’t use more than about 10% to 30% of your credit limits at any given time.) When you apply to transfer your balance to another low-rate card, you’ll run similar risks.

A home equity line of credit or home equity loan might be a better choice. HELOCs have variable rates, but you would have a source of funds you can tap and repay as needed (much like a credit card, but backed by the equity in your home). Home equity loans typically have fixed terms and rates, so you can borrow what you need and pay off the debt over time (often 15 to 20 years).

If paying back the money would be a hardship, a reverse mortgage might be an option. Reverse mortgages can be complicated and expensive, however, so talk to a housing counselor approved by the Department of Housing and Urban Development before proceeding with one.

Why a 401(k)-to-IRA rollover could be a mistake

If you leave a job or retire, you’re often encouraged to roll over your 401(k) or other workplace retirement account into an individual retirement account. That might not be the right move.

In my latest for the Associated Press, why having more investment choices isn’t necessarily better.

Monday’s need-to-know money news

Today’s top story: What to do when your holiday gifts haven’t arrived. Also in the news: A new episode of the Smart Money podcast on financial accomplishments, how pet insurance can keep costs in check, and the benefits of an unpaid internship.

Your Holiday Gifts Still Haven’t Arrived. Now What?
Remain calm.

Smart Money Podcast: What Our Listeners Accomplished This Year, Part 1

Pet Insurance Can Help Keep Costs for Your Furbaby in Check
A pet insurance policy can pick up part of the tab if your four-legged companion gets sick or injured.

Get Skills — Not Bills — at an Unpaid Internship
It can cost thousands of dollars to do an unpaid internship, and many take on credit card debt to get by. Here are ways to limit that high-interest debt.

Q&A: Lump sum vs. annuity

Dear Liz: You recently answered a question about taking a lump sum retirement versus an ongoing pension. You didn’t mention that the pension will stop when the employee dies (whether it’s after 40 years or 40 days) or when the spouse dies (same thing) if that was chosen. The children get nothing. What about taking the lump sum and putting it in a fixed indexed annuity? Yes, there is a yearly fee, but then the money can continue to the spouse, children and on and on and on.

Answer: See above. There’s more than a single “yearly fee” with these annuities, which are complicated insurance products that tend to have high costs and pay high commissions to the advisors who recommend them. If you’re considering this investment, you should run it past a fee-only financial planner first.

Many people dislike the idea that an annuity stops when they do, which is why insurers are often willing to sell you — for an additional fee — a guarantee that something will be leftover. There may be better, less expensive ways to leave a legacy, which a fee-only planner can discuss with you.

Q&A: Look for a fee-only planner

Dear Liz: I am starting to receive marketing mailings from financial advisors inviting me to a free lunch or dinner to listen to annuity investment presentations. I went to one recently by a fee-based financial planner who told me he also acts as a broker when investing in annuities. He’s been pressuring me to invest all of my retirement funds into a fixed indexed annuity. Isn’t this a conflict of interest? I assume he gets paid by both me and a commission from the insurance company if he signs me up for this investment. Why do financial planners force annuities on seniors? Is it because they know they will also get commissions? Is it better to sign up with a fee-only financial planner? I’ve read that the fee-only planner will act only in my interest, not pushing investments that bring in a commission.

Answer: Yes, yes and yes.
Remember your folks telling you, “There’s no such thing as a free lunch”? Remember that the next time you get one of these offers for a “free” meal (or a timeshare presentation, for that matter), because you could end up paying dearly. These presentations are made by salespeople who can be really good at talking people into products that are not in their best interests.

A good advisor would never pressure you or suggest putting all your investment eggs in a single basket. Look instead for advice from a fee-only (not fee-based) financial advisor who will agree, in writing, to be a fiduciary, which means they’re committed to putting your interests ahead of their own.