Ask Liz Weston

Get smart with your money

Liz Weston

Monday’s need-to-know money news

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Pile of Credit CardsToday’s top story: The best credit card tips for January. Also in the news: Less than one month left to shop for Obamacare, how to spend more mindfully in the new year, and what research says about erasing credit card debt.

NerdWallet’s Best Credit Card Tips for January 2017
How you can make 2017 better than 2016.

Less Than One Month Left for ‘Obamacare’ Shoppers
The deadline is Jan. 31st.

How to Spend More Mindfully in the New Year
Paying closer attention.

What research says about erasing credit card debt
Following the best path.

Q&A: These heirs worry their parents aren’t doing enough to minimize estate taxes

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Dear Liz: My parents, ages 75 and 76, have established an irrevocable gift trust for my five siblings and me. Wonderful! With the single trust, they have maxed out their lifetime gifting exemption. What else can they do with their other investments to minimize the inevitable estate taxes that will come with their deaths? They have lived a frugal life of caution and reserve, but before their nest egg can be distributed to their heirs, the government will extract millions of dollars.

Answer: If your parents maxed out their lifetime gift exemption, that means they contributed more than $10 million to the trust. It also probably means they employed an estate-planning attorney, since such trusts aren’t typically do-it-yourself projects. If that’s the case, the attorney probably has reviewed with them their other options for minimizing taxes.

They could, for example, give each sibling $28,000 ($14,000 from each parent) each year — and make similar gifts to each sibling’s spouse and children, if they were so inclined. This annual exemption limit is separate from the lifetime gifting exemption they’ve already used. If each of you is married with two kids, that would move $672,000 out of their combined estates each year.

Another way to move money out of their taxable estate, either now or at their deaths, is to donate to charities.

If they opt not to take further steps, you can take comfort in the fact that the top estate tax rate is 40%, which means the bulk of their estate will still reach their heirs. Also keep in mind that you’re in rare company — only about two estates out of 1,000 are large enough to trigger an estate tax return, now that exemption limits have been raised to $5.49 million a person.

Q&A: Social Security benefits for children

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Dear Liz: My older brothers-in-law signed up for Social Security benefits at 62 and then suspended their benefits so that their children, who were under 18, could receive 50% of their checks. Is this process still available at age 62 for those with children who are below the age of 18?

Answer: In order for family members to receive spousal or child benefits based on the primary earner’s work record, that primary earner has to be receiving his or her own benefit.

In the past, people who had reached full retirement age — which used to be 65, is now 66 and is rising to 67 — had the option of immediately suspending their applications so their family could receive benefits while their own continued to grow. The “file and suspend” option was not available to people who applied for benefits before their full retirement age. And now it’s no longer available period, thanks to Congress.

If you do apply for your benefit early, keep in mind that your checks — and your children’s checks — will be subject to the earnings test. That reduces Social Security benefits by $1 for every $2 you earn over $16,920 in 2017. (The earnings test goes away at full retirement age.) Your benefit also will be reduced to reflect the early start.

Also, there’s a limit to how much a family can receive based on the worker’s record. The family maximum can be from 150% to 180% of the parent’s full benefit amount.

If you’re still working and your children will be younger than 18 by the time you reach full retirement age, it may make sense to wait until then to apply. To know for sure, though, you should use one of the calculators that takes child benefits into account, such as MaximizeMySocialSecurity.com.

Q&A: Advice for an investing newcomer

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Dear Liz: I am not versed at all in money matters. I have no clue where to invest or even if I should invest. I have $5,000 squirreled away that I am totally comfortable investing for 12 months because I feel I would have no need for it before then. Can you make a suggestion where I should put it to make a safe return?

Answer: An FDIC-insured bank account.

Investing requires a longer time horizon and a willingness to risk losing some of your principal. If you can’t do either, you need to stick with low-risk, low-reward options.

6 money resolutions you can actually keep

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Let’s face the grim truth: Those 10 pounds you want to lose will likely be among your New Year’s resolutions next year, too.

If you really want a sense of accomplishment, take care of money tasks that don’t require ongoing discipline and that you typically don’t have to repeat every year. In my latest for the Associated Press, what you can do to create a sense of progress towards your financial goals.

Holiday debt hangover? Here’s how to fix it

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images-2Despite what you often read, credit card debt isn’t typical. One quarter of U.S. households don’t use credit cards at all, and another 35 percent or so regularly pay their balances in full, according to Federal Reserve statistics. Among households that carry credit card balances, the median debt–where half owe more and half owe less–is somewhere around $3,000.

Whopping “average credit card debt” statistics are what grab headlines, though. They’re typically compiled by taking the total amount charged on plastic at the end of the year and dividing it by the number of card-carrying households. Those total charges include amounts that are about to be paid off by us so-called “convenience users,” and often business credit card balances as well. Also, averages can be misleading, since a relatively small number of households carrying a lot of debt can skew the average upward.

If you’re the one with the debt, though, you know it doesn’t feel good. If your balances grew over the holidays, you may be stressing already about how to pay it off. Here are some ideas:

Skip the post-holiday sales. You’ve heard it over and over: You can’t get out of debt if you don’t stop digging. But our brains tells us sales are the exception. We’re saving money! Nope, we’re spending–and adding to our debt stress. Whatever’s on sale likely will be on sale again, so let it go.

Have a no-spend month. I hosted one of these more than a decade ago on MSN, and readers reported saving $300, $400 and more. A no-spend means you spend only on essentials: no eating out, paid entertainment or shopping. You’ll learn frugality skills like planning and making do that can help you save year round.

Check the cushions. You may have money tucked away in various forms–jars of coins, unused gift cards, rewards programs that can be converted to cash back or gift cards. (Sites like Gift Card Granny can help you convert plastic to cash.)

Make weekly credit card payments. Don’t wait until the bill arrives to pay it–start whittling down your balance with regular injections.

Lower your interest rate. If you have good credit, you may be able to qualify for low- or zero-rate balance transfer offers. Use them as a way to speed up your debt repayment.