Ask Liz Weston

Get smart with your money

Liz Weston

Why you should freeze your child’s credit

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For years, identity theft expert Eva Velasquez warned parents that freezing their children’s credit reports was difficult, problematic and probably unnecessary.

Velasquez, chief executive officer of the nonprofit Identity Theft Resource Center, has since changed her mind. Or rather, the sheer volume and severity of database breaches — including last year’s breathtakingly huge compromise at Equifax credit bureau — changed it for her. She now recommends that parents “strongly consider” credit freezes for their kids.

“The landscape has changed,” Velasquez says.

In my latest for the Associated Press, how to protect your child’s credit.

Monday’s need-to-know money news

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Today’s top story: How to turn a tax refund into a fatter paycheck. Also in the news: 3 money lessons we can learn from ‘Roseanne,’ what to do when your tax pro botches your return, and how to set money goals with your spouse.

How to Turn a Tax Refund Into a Fatter Paycheck
Make sure you’re not giving too much upfront to Uncle Sam.

3 Money Lessons We Can Learn From ‘Roseanne’
You don’t have to keep up with the Joneses’

Did a Tax Pro Botch Your Return? Here’s What to Do
Double and triple check.

How to set money goals with your spouse.
Framing the conversation.

Q&A: A large foreign bequest could trigger U.S. taxes

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Dear Liz: I have received an inheritance of $445,000 from a relative who died out of the country. Do I have to pay income tax on this money?

Answer: If you inherited from someone who was a U.S. citizen who lived abroad, then that person’s estate may be subject to U.S. estate taxes. The estate would have to be quite large, though. In 2017, estates worth less than $5.49 million per person were exempt from the tax. In 2018, the amount was raised to $11.18 million.

If you had paid any taxes on your inheritance to a foreign government, you could take a tax credit on your U.S. tax return for that amount.

Otherwise, you probably won’t owe any taxes. The federal government and most states don’t levy inheritance taxes on people who receive bequests. The exceptions are Iowa, Kentucky, Nebraska, Maryland, Pennsylvania and New Jersey, which do levy taxes on inheritances. All exempt spouses, and some exempt other immediate relatives.

Q&A: The dark side of reverse mortgages

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Dear Liz: I have had a reverse mortgage on my condo since 2009, due to financial necessity. The interest rate on my mortgage keeps going up. Could the interest rate be reduced by changing lenders or would there be exorbitant fees involved in the process? My financial standing is not good, and I am in credit card debt. However, I do pay the minimum payment each month on each card. Being retired, I need some guidance on relieving the financial pressure I am currently experiencing.

Answer: Please consult a bankruptcy attorney.

Changing reverse mortgage lenders would indeed involve considerable expense and wouldn’t relieve any financial pressure because you don’t have to make payments on this kind of loan. (For those who don’t know, reverse mortgages allow people ages 62 and older to tap their equity in a lump sum, through a stream of monthly checks or via a line of credit. The debt grows over time, typically at a variable interest rate, but the borrower doesn’t have to make payments. The loan is repaid when the borrower moves out, sells the home or dies.)

If you can pay only the minimums on your credit cards, you probably have more debt than you’ll be able to repay. Some people manage to dig themselves out of such debt, often by working two jobs and dramatically cutting their expenses. They may use a debt management plan offered by a credit counselor to reduce their interest rates. Sometimes they sell their homes and use the equity to pay off the debt.

You can explore these options, of course, but chances are they won’t be a solution for you.

You may not be able to find a job, or have the stamina to work. Selling your home to pay off the debt would leave you without a house in your old age and may leave you without income, if you’re getting monthly checks from your reverse mortgage. If you borrowed a lump sum instead, your debt may have grown to the point where you don’t have much equity left anyway.

Your situation is one of the reasons many financial planners are leery about reverse mortgages. They can be an extremely helpful tool in retirement, but sometimes people use them as a way out of a financial jam without addressing the spending or other issues that got them into the jam in the first place.

Q&A: Credit scores come in many forms

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Dear Liz: I am now getting my credit score from three different places: my bank, one of my credit cards and a free online site. Why are all three of the scores always different?

Answer: You don’t have one credit score, you have many and they change all the time. Furthermore, you’re probably looking at scores created with different formulas that may be using information from different credit bureaus.

The FICO 8 is the most commonly used score, but the number you see may vary depending on whether the data is drawn from Equifax, Experian or TransUnion credit bureau and when the score was created. Your scores will change as lenders update the information in your credit report. FICO scores may also be tweaked for different industries, such as credit cards or auto loans, and be on a 250-to-900 scale rather than the 300-to-850 scale of other FICO scores. FICO scores also come in different generations, so your FICO Bankcard Score 2 may be different from your FICO Bankcard Score 5.

Free sites typically offer VantageScores, created by the three bureaus to be a rival to FICO. These scores are also used by lenders, but not to the same extent as FICO scores.

Friday’s need-to-know money news

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Today’s top story: The single parent’s guide to life insurance. Also in the news: How to pay your taxes with a credit card if you must, life insurance and suicide, and how to prepare your kids for “adulting.”

The Single Parent’s Guide to Life Insurance
Protecting your children’s future.

If You Insist on Paying Taxes With a Credit Card, Here’s How
Don’t pay more than you already have to.

Does Life Insurance Cover Suicide?
Practical issues to address.

Here’s how to prepare your kids for ‘adulting’
Having the “money talk.”