Ask Liz Weston

Get smart with your money

Elder Care

Q&A: Bad boyfriend plagues grandparents’ finances

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Dear Liz: We have raised our granddaughter since birth. She is the apple of our eyes. Then she fell in love. The boyfriend had no job, no car. My husband co-signed a loan for this boy! He didn’t even know the boy’s last name. I was devastated, as we are on Social Security so our income is limited. Our granddaughter couldn’t afford the payments and the boy was useless. They got so far behind that we ended up having to mortgage our home to pay off the truck. We hoped to sell it but of course the kids have broken up and the boy disappeared. When I asked the Department of Motor Vehicles what I could do to get him off the title, they said I couldn’t do anything.

Answer: Your husband is showing signs of cognitive impairment. Co-signing a loan can be (and often is) a lapse in judgment; co-signing for a virtual stranger indicates a more serious problem.

A study for the Center for Retirement Research found that people’s financial decision-making abilities peak in their 50s. By our 70s, our problem-solving abilities typically have declined enough to make us more vulnerable to bad decisions and fraud.

That’s why it’s important to simplify our financial lives in retirement and to consider safeguards that can keep us from being victimized.

Freezing your credit reports at the three major credit bureaus is one good option. That can keep criminals from opening accounts in your names. You would have to thaw your reports to apply for a loan or credit card, and adding that extra “speed bump” to the process could give you time to rethink a bad decision.

If you had children you could trust, you might have your financial institutions send them duplicate statements and discuss any large purchases or investments with them. If you don’t have someone you trust, a licensed fiduciary could serve a similar function. California has a Professional Fiduciaries Bureau within its Department of Consumer Affairs where you can learn more.

At this point, you should check the vehicle title to see if the names are listed with an “and” between them or an “or.” If it’s an “or,” your husband should be able to transfer title to the new owner. Otherwise, you may need to get an attorney to help you get a legal order to remove the boy’s name from the title. Check with your local bar association to see if there are any pro bono or legal aid services that can help you.

Q&A: Paying a deceased person’s debts

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Dear Liz: When I read the letter from the woman about her mother’s debts, it brought back my situation with my brother and mom. My brother was trustee to my mother’s living will and told her she had no money. At 90, she became worried and wanted to cut back on the care she needed. My brother had the same attitude as the woman who wrote you that her mother’s property was not an asset for her to use but something to be hoarded for the heirs.

Answer: That’s not the situation the daughter described. She was asking whether she and her sister were responsible for her mother’s debts. They are not. The mother’s estate would be responsible, and her estate would include her home. If the estate’s assets aren’t sufficient to pay all the bills, however, the creditors wouldn’t be able to come after the daughters. Still, some collection agencies have been known to contact survivors, telling them they have a “moral obligation” to pay the dead person’s debts.

Q&A: The tax implications of downsizing

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Dear Liz: My mother just turned 75 and wants to downsize from her four-bedroom house. My father passed away six years ago. She owns her home outright, and at the time of my father’s death the value of the house was estimated at $1.2 million. Right now she has enough income from retirement accounts and investments to live comfortably. She could even buy another smaller property if need be. As the executor of her estate, I’m trying to help her decide what to do with the house. She could let another family member live in it who couldn’t pay rent but could help with upkeep; she could rent it out for market value; or she could sell. We see advantages and disadvantages with all three options. What do you think?

Answer: If she hasn’t already, your mother needs to hire a good estate-planning attorney who can help her evaluate her options. Consulting a fee-only financial planner and a tax pro may be a good idea, as well.

If she sells, your mother could face a sizable capital gains tax depending on where she lives. Federal law allows a certain amount of capital gains on the sale of a primary residence — $250,000 per person — to be excluded from income, but after that, capital gains taxes apply.

The gain would be the difference between the home sale proceeds and your mother’s tax basis in the home. At least half of the home received a “step up” in basis to the then-current market value when your father died. If your mom lives in a community property state, such as California, both halves of the property would have received this step up at his death. Any increase in value since then would be subject to capital gains tax (minus, again, the $250,000 federal exclusion).

There’s another tax issue to consider. If she dies owning this house, her heirs would get a tax basis equal to the property’s value at her death. In other words, regardless of the state where she lives, none of the house’s appreciation during her lifetime would be taxable.

The tax issues alone shouldn’t dictate what your mother does. But she should be aware of them to make an informed decision about what to do next.

Should daughters be forced to give money to Mom?

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Dear Liz: I read with interest your recent column about the filial obligation law possibly coming into effect in California. I hope this is true. I have three grown daughters who make terrific money and who will not offer a pittance to me. I live on Social Security, period. I could really use a few hundred dollars a month to supplement. They had a glorious childhood and this is really sad and inexplicable. I want to contact someone involved with this law, if possible. I am puzzled and hurt. More than money, this situation has a strange malignity to it.

Answer: Currently, California’s filial responsibility law — which makes adult children responsible for supporting their indigent parents — isn’t being enforced. When similar laws in other states have been invoked, it’s typically because the parent is receiving governmental aid or has racked up a bill with a nursing home that wants to get paid.

One of the reasons the laws aren’t enforced is because most people feel an obligation toward their parents. The fact that your daughters apparently don’t indicates that there’s either something missing in their characters or in your characterization of the situation.

Here’s another perspective:

Dear Liz: I am 67 and live in a retirement home. I strongly feel that children should not have to take care of their parents. We all have time to save for our own futures. I left a marriage with very little other than a small child. We did lots of free events together because there was not money to spend. I did immediately start saving for retirement and her college. It all worked out, but had it not, I would not expect her to support me in my old age. I chose to get pregnant and have her…. She did not chose to have me!

Answer: Thanks for sharing your experience. My guess is that if your financial life had not worked out — if you hadn’t been able to save enough or if your savings had been wiped out — your daughter happily would have stepped up to help if she could. People who do their best to take care of themselves often find the support that isn’t offered to those who don’t.

“Look back” rules limit Medicaid transfers

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Dear Liz: You had an interesting column recently about the filial responsibility laws that most states have on their books requiring adult children to support indigent parents. I have friends that transferred their parents’ funds to the grandchildren so the parents will qualify for Medicaid. Doesn’t the government see through this scam? Besides being unethical, it should be illegal.

Answer: The government does indeed see through transparent attempts to artificially impoverish older people to qualify for Medicaid, which offers nursing home care for the indigent.

Medicaid has “look back” rules that examine asset transfers made within the previous five years. Transfers made during that period can delay the older person’s eligibility for the program. In other words, your friends’ maneuvers may well backfire. You should advise them to consult an elder law attorney. Referrals are available from the National Academy of Elder Law Attorneys at http://www.naela.org.

Was letter writer blaming her parents?

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Dear Liz: In your answer about filial responsibility, your statement that the letter writer’s financial situation is the result of her own choices and that she needs to stop blaming her parents is completely misjudged and inappropriate. Clearly, the writer is not blaming the parents and seems amazingly strong and clear thinking for one with her early background.

Answer: Here’s what the writer wrote about her situation:

“I am an only child in my late 30s and received no financial help from [my mother] from the age of 18. In addition, my father died when I was very young, leaving us fairly destitute with no life insurance. I feel that both of these legacies have contributed to my less-than-optimal financial situation.”

The writer goes on to say that she’s trying to catch up financially but she feels it would be futile because she may have to support her mother in the future.

The writer started her adult life at a financial disadvantage compared with people whose parents helped them pay for college. She may now regret the choices she made — perhaps she took on too much student loan debt or spent more than she earned to make up for early deprivation. Those were her choices, however, and at some point she needs to take responsibility for them. Twenty years later, it’s time to let go of the idea that her financial situation is her parents’ fault.