Q&A

Q&A: When paying debt hurts credit score

November 23, 2020 By Liz Weston

Dear Liz: You recently answered someone whose credit scores dropped more than 30 points after they paid off a mortgage. You mentioned that the big drop was probably because the mortgage was the person’s only installment loan. Credit scores like to see active use of both types of credit, installment loans and credit cards. Because this person’s scores were so high, they almost certainly were still actively using credit cards. But you should remind people that if they stop using credit, eventually they won’t have any credit scores at all.

Answer: Consider them reminded. There’s no need to carry balances; just using credit cards regularly is enough.

A few other readers wrote in suggesting the letter writer get a personal loan as a way of increasing their scores. Although personal loans can be a great help to people building credit, there’s really no point in increasing scores once they’re above about 760 on a 300-to-850 scale. Higher scores only get you bragging rights, and it would be a little silly to pay a lender unnecessary interest to get those.

Q&A: Retitling a deed after marriage

November 16, 2020 By Liz Weston

Dear Liz: Our house was titled “joint tenant with right of survivorship” after my husband inherited the property in 1998. As a same-sex couple, we were not married at the time. However, we legally married in 2013. Will one of us get the step-up in tax basis when the other passes, or do we have to retitle the house some way? We also want to avoid probate. We live in California.

Answer: As you know, California is one of the community property states that allows both halves of a property to get a step-up in tax basis when one spouse dies. This double step-up can be a huge tax saver, since none of the appreciation that happened before the death is taxed. Other community property states include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In Alaska, spouses can sign an agreement to make specific assets community property.

In contrast, in common law states, only half of the property gets the step-up to a new tax basis when one spouse dies. The other half retains its original tax basis.

Although assets acquired during a marriage are generally considered community property regardless of how they’re titled, in your case the property was acquired before marriage. The current title of joint tenants with right of survivorship would avoid probate, but it will not achieve full step-up in basis when the first spouse dies, said Mark Luscombe, principal analyst for tax research firm Wolters Kluwer.

Q&A: Retirees and mobile home parks

November 16, 2020 By Liz Weston

Dear Liz: I’ve been following the discussion of the reader who was 70 and trying to decide between renting in a senior living facility versus buying a second-floor condo with no elevator. There is a third choice for people who are older and cannot stay in their present residence. We moved to a senior citizen manufactured-home park. It has a clubhouse, and before the COVID epidemic the park had all kinds of activities. It is a great place for seniors.

Answer: That’s a good suggestion and actually just one of many choices people have to age safely. Many mobile home parks are “naturally occurring retirement communities,” a term for areas that weren’t necessarily created for seniors but that nonetheless have a high concentration of older folks. At their best, these organic retirement communities provide services and activities that benefit seniors, including opportunities for socializing and the sense that their neighbors are looking out for them.

Q&A: A young widow seeks help with Social Security survivor benefits

November 16, 2020 By Liz Weston

Dear Liz: My husband died at 30, making me a widow at 29. I did receive Social Security survivor benefits for our underage children, but what, if anything, am I entitled to as his wife? At the time of his death, we were living separately, although we were still legally married.

Answer: The earliest a widow or widower can get survivor benefits is typically age 60, unless they are disabled, when survivor benefits can begin at 50. Starting benefits before their own full retirement age of 66 to 67 means accepting a reduced payment, but widows and widowers have the option of switching to their own retirement benefit later. (Retirement benefits begin at a reduced amount at age 62 and reach their maximum at age 70.)

Like other Social Security benefits, survivor benefits also are subject to the earnings test if you start them before full retirement age. The earnings test reduces your benefit by $1 for every $2 you earn over a certain amount, which in 2020 is $18,240.

You mentioned receiving survivor benefits for your children, but you probably also received benefits then. A spouse caring for the children of a deceased worker is entitled to survivor benefits until the youngest of those children turns 16. (A child’s survivor benefits can continue until age 18, or 19 if the child is still in high school, or indefinitely if they are disabled and the disability began before age 22.) Each family member can receive up to 75% of the deceased worker’s benefit, but there’s a maximum any household can receive based on one worker’s earnings record. The limit varies but is generally 150% to 180% of the worker’s benefit.

If you had been divorced rather than separated when he died, you would still have been entitled to survivor benefits as the caretaker of underage children, no matter how long the marriage lasted. You would only receive regular survivor benefits at 60, however, if your marriage had lasted at least 10 years.

Q&A: Your prized collection isn’t going to sell itself

November 9, 2020 By Liz Weston

Dear Liz: I am in the process of winding down my duties as executor of the estate of a 91-year-old gentleman who, like the reader who wrote to you, had a prized collection. I had repeatedly urged him to dispose of his prized things. I reasoned that because he was retired and had the time, and because he knew the story behind his prized items, he was in a far better position to find a buyer than I would ever be. (Knowing the provenance of the item is important because people purchase the story, not just the item itself.) He did dispose of some of the more valuable things and actually got some good cash, which he was able to enjoy. But he didn’t follow my advice completely, which meant that when he died, I had to deal with his remaining prized collectibles.

My suggestion to any older person who has collectibles is: Don’t wait to dispose of items that have market value. If you’re retired and have the time, sell the items yourself! If you don’t need the cash, deposit the money into the bank account that will pass to your heirs in due course. Don’t burden your executor — who is probably still working full time and who has bigger things to deal with, like your house, car and investment accounts — with disposing of your collectibles.

Answer: Obviously, parting with collectibles can be tough. The alternative, though, could be that precious items wind up in a yard sale or a dumpster. Collectors who sell get the satisfaction of knowing that the items are going to people who really want them.