Ask Liz Weston

Get smart with your money

Q&A

Q&A: Adding daughter as co-owner of mother’s home could trigger costs

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Dear Liz: My father passed away last year, and my mother wants to add my name to her house so there is no probate. Do I need to change the title or the deed or both? Are there any negatives to doing so? Also, we already have a durable power of attorney between us. Does that offer me any benefits as far as real estate? What does it offer me in general?

Answer: A deed is the legal document that transfers the title or ownership of a property. Please don’t alter the home’s documents until you consult an estate-planning attorney. Your mother’s desire to avoid the costs of probate could inadvertently trigger much larger costs.

Adding you as a co-owner could mean giving up a big tax benefit, for example. If your mother bequeaths the house to you when she dies, you won’t owe any tax on the gain in the house’s value during her lifetime. If she adds you to the title, she’s gifting you half the house. In that case, you potentially could owe tax on some of that gain even after she dies. If she wants to preserve tax benefits while avoiding the court process known as probate, she may need a living trust.

There could be other complications if you should die or be sued, which is why it’s important to get good advice before proceeding.

As for the durable power of attorney: It isn’t designed to give you benefits. Powers of attorney allow you to make decisions for your mother if she becomes incapacitated. Those decisions need to be in her best interest, not yours.

Q&A: Catching up on retirement savings

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Dear Liz: I just found out I am cured of cancer. I thought I would be dead in three years and thus did not save very much. I’m 62, single, with no children and an annual salary of $85,000. I’m now contributing the maximum to my employer’s 403(b) retirement plan plus $6,500 to a Roth IRA. My mortgage balance is $380,000 on a 30-year loan fixed at 3.65%. I have about $380,000 in equity. I have about $30,000 saved outside of my $10,000 emergency fund. What should I do with it to get the highest return with minimal risk?

Answer: There’s no such thing as an investment that offers high returns with minimal risk. You get one or the other.

There’s also no such thing as “making up” for decades of not saving, short of an extremely unlikely windfall such as a lottery win or a big inheritance. This is why financial planners tell young people to start saving for retirement from their first paychecks and not to stop or touch those funds prematurely. Waiting until the last minute simply won’t work, and the longer you delay the tougher it will be to catch up — until catching up becomes impossible.

Still, at some point you won’t be able to keep working, so you need to save what you can. The more you save, the better off you’ll be.

Continue to take full advantage of your retirement savings options. Thanks to catch-up provisions, you can put up to $24,000 in your workplace retirement fund (the 2016 limit of $18,000 plus a $6,000 “catch up” for those 50 and over) and $6,500 into an IRA or Roth IRA (the 2016 limit of $5,500 plus a $1,000 catch-up). You’ve saving more than a third of your income, and several years of contributions like that will go a long way toward easing your final years. A balanced approach to your investments, with 50% to 60% in stocks, should give you the growth you’ll need to overcome inflation over the decades to come.

Your home could be another source of funds. Downsizing or moving to a lower-cost area could free up some of your equity to bolster your nest egg. Another option could be a reverse mortgage, but make sure you get objective, expert advice before you proceed.

Finally, it’s crucial to delay claiming Social Security as long as possible, since this benefit is likely to comprise most of your income in retirement and you want that check to be as large as possible. Try to put off claiming until age 70 when your benefit maxes out.

Q&A: Finding fee-only financial planners

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Dear Liz: Every so often your column mentions an organization that lists financial planners that are fee-only. I cannot find this information on your site. Please keep mentioning this in your column.

Answer: You can get referrals to fee-only planners who charge by the hour at www.garrettplanningnetwork.com. If you’re looking for fee-only planners who charge a retainer or a percentage of assets, you’ll find those at

Q&A: Fixing a wounded credit score

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Dear Liz: My wife and I co-signed on our daughter’s mortgage, then the home went into foreclosure. My wife and I have no debt and a net worth that exceeds $1 million. We purchased our cars with cash and the single credit card we have with a $35,000 limit is paid off in full each month. Since the foreclosure, our FICO score has been in the “fair” range. We have no plans to take out a loan for anything and plan to continue our “cash and carry” lifestyle. However, the low FICO is a little disconcerting. It appears the only cure is time (measured in years). We welcome any additional guidance.

Answer: You can’t fix your wounded FICO scores overnight, but you could speed up your credit score rehabilitation by adding one or two more credit accounts to your mix. At least one of those accounts should be an installment loan, since scoring formulas want evidence you can handle different types of credit. If you don’t want an auto or personal loan, then consider a “credit builder” loan that puts your payments into a certificate of deposit that you claim when all the payments have been made. Credit builder loans are offered by credit unions and some online lenders.

Is it worth the effort, even though you don’t plan to borrow? In most states (although not California), credit scores heavily influence what you pay for auto and homeowners’ insurance. People who don’t have the best scores can pay hundreds of dollars more each year for coverage. Credit scores also may be used to determine deposits for utilities and wireless service. If you need to rent an apartment, your credit scores matter as well.

If none of those are a concern, you can continue to take the slow road to rebuilding your credit, since the foreclosure will fall off your credit reports after seven years. If you want to speed things along, though, another credit account or two should help.

Q&A: Options for paying a big IRS bill

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Dear Liz: I sold one mutual fund to invest in another fund with the same company. The tax statement shows this as a capital gain so large that I cannot afford to pay it all in one payment to the IRS. This is a disaster. Is there anything I can do?

Answer: Absolutely. File your tax return on time, since the failure-to-file penalty is much higher than the failure-to-pay penalty. Pay as much as you can when you file the return, and then consider your options.

If you can come up with the remainder within 120 days, then do so. There’s no need to arrange a formal payment plan, but you will owe interest and penalties on the balance until it’s repaid.

If you can’t pay within 120 days, you can ask for an installment agreement. You’ll find an application in most tax software or you can find Form 9465 on the Internal Revenue Service website. You also can try calling the IRS at (800) 829-1040, but prepare for a long time listening to hold music. Budget cuts have left the agency severely short-handed and wait times are considerable.

You also should consider borrowing the money from another source, such as a low-cost personal loan. Another option is to charge what you owe to a low-rate credit card. You’ll pay a small fee for the privilege, but ultimately it may be cheaper than paying interest and penalties to the IRS.

Q&A: How much does a fee-only financial planner cost?

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Dear Liz: You frequently suggest consulting a fee-only financial planner, such as those who are members of the Garrett Planning Network, which seems like great advice. Can you provide any guidance on how much one should expect to pay for the services of this type of planner? We are a couple living in Los Angeles looking for a pre-retirement evaluation. That would probably include evaluation of existing investments, insurance needs, Social Security, long-term care, etc. How should we evaluate a quote of $3,000 for a full review estimated at 10 hours or $300 an hour?

Answer: The cost for a comprehensive financial plan varies depending on where you live and the planner’s experience level, among other factors. Nationally, the range is typically from $150 to $300 an hour, so $3,000 for 10 hours in Los Angeles is at the high (but not unreasonable) end of the scale, assuming the planner has several years’ experience.

Another way to get a feel for going rates is by interviewing a couple of other fee-only planners in your area. If the cost you’re quoted is dramatically lower, though, make sure the planner isn’t accepting commissions as well. Some planners are “fee based,” which means they accept both fees from clients and commissions on the products they recommend. You can ask for the planner’s Form ADV, a form filed with the Securities and Exchange Commission. Part II of this form contains information about how the planner is compensated.