January 12, 2015 By

Q&A: Battling over mother’s estate

Dear Liz: Our mom did a wonderful job of preparing her estate, but she made a mistake in that she started giving away her real estate holdings to her two children a few months before her untimely death. She died before she had the chance to equalize these transactions. As her son and executor, I equalized the real estate after her death. My sister is now protesting this because she said “legally” what was given away before death is not part of the estate, but I say that our mom would have wanted this equalized because she was very firm in her belief that her assets be divided equally. What’s your experience?

Answer: You just provided an excellent example of why it can be problematic to have an executor who has a personal stake in how an estate is settled.

You wouldn’t be the first executor to decide that what Mom really wanted was for you to reap a larger benefit than your sibling, despite the explicit terms of a will or trust. Even if the estate documents gave you some discretion, you should have consulted an estate-planning attorney before deciding to help yourself to a bigger portion of your mother’s assets.

This is more than an ethical issue. Executors have a legal responsibility known as a fiduciary duty to the estate and all its beneficiaries. Basically, that means acting with the utmost integrity and putting the interests of the estate and beneficiaries ahead of your own.

Your sister may be able to file a lawsuit against you or ask a court to remove you as executor. You shouldn’t let it come to that. Talk to an attorney now about the best way to resolve this situation amicably.

Filed Under: Estate planning, Q&A Tagged With: , ,
January 12, 2015 By

Q&A: Social Security disability insurance and survivor benefits

Dear Liz: My first wife died six years ago at age 60. I was 52 and we had been married 27 years. My wife was on Social Security disability for 15 years before her death. My only dealing with Social Security after her death was to cancel her payments. I received no benefits of any kind. I am now remarried. Were there any Social Security benefits that I failed to request? Is there any effect on my future retirement?

Answer: You may have been eligible for a one-time payment of $255, but that’s likely all.

We’ll assume your wife was receiving Social Security Disability Insurance payments, which are disability checks paid to workers who have enough work credits in the Social Security system. SSDI is different from Supplemental Security Income, or SSI, a need-based federal program for low-income individuals who are disabled, blind or over the age of 65. Survivor benefits aren’t available under SSI, but they are under SSDI.

The rules for SSDI survivor benefits are similar to those under regular Social Security. Survivor benefits typically are available starting at age 60. Survivors who are disabled can begin receiving the benefits starting at 50, and survivors at any age can qualify if they’re caring for the deceased person’s child who is under 16. When you remarry before age 60, you can’t claim survivor benefits based on your first wife’s Social Security record unless the subsequent marriage ends in death or divorce.

Filed Under: Estate planning, Insurance, Q&A Tagged With: , , ,
January 12, 2015 By

Q&A: Renovations with high returns

Dear Liz: What renovation projects reap the most return when selling? Replacing windows and carpeting is what I had in mind.

Answer: Remodeling magazine’s latest Cost vs. Value report puts window replacement near the top of renovation projects that pay off, but none of the projects the survey tracked recouped more than they cost.

In 2014, a homeowner could expect to recoup about 79% of the cost of window replacements, assuming the home was sold soon after the improvement. Major kitchen remodels offered a 74% return on a mid-range project that cost about $55,000, or 64% of a high-end project that cost about $110,000. The amount you can expect to recoup usually declines over time as the improvements start to get dated or suffer wear and tear.

The survey doesn’t track projects that are typically considered more maintenance than improvement, such as replacing carpeting or painting. Those projects may, however, get a home sold faster if done just before the house is put up for sale.

Filed Under: Q&A, Real Estate Tagged With: , ,
January 5, 2015 By

Q&A: Terminating private mortgage insurance

Dear Liz: I bought my first home about a year ago. Because I had very little money for the down payment, I have to pay private mortgage insurance, which is a whopping $385 each month. My burning question about this is: How can I get rid of it? There must be a way to pay the loan quicker or pay more each month or something to make it go away.

Answer: Mortgage insurance protects the lender in case you default on your loan. Since loans with small down payments have a higher risk of default, mortgage insurance is typically required until your balance falls to 80% of the original value of your home. At that point, you can request in writing that the mortgage insurance be canceled. If you don’t make the request, the lender is still typically required to terminate PMI when your balance reaches 78% of the home’s original value.

To speed that day, you can pay down your principal, but do it the right way. Call your mortgage servicer and ask how to be sure the extra money you submit is reducing your mortgage balance. Otherwise, your extra money may just be applied to the next month’s payment, which won’t help reduce your balance much.

Filed Under: Insurance, Q&A, Real Estate Tagged With: , , ,
January 5, 2015 By

Q&A: Paying a deceased person’s debts

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.

Filed Under: Banking, Elder Care, Estate planning, Q&A Tagged With: ,
January 5, 2015 By

Q&A: Follow up on the Windfall Elimination Provision

Dear Liz: You recently addressed the issue of the Windfall Elimination Provision, which reduces Social Security benefits for people who paid into Social Security but who also get a pension from an employer that does not pay into the system. My wife taught for nearly 40 years. Neither she nor her employer contributed to Social Security. As a result she falls under the WEP. This also, however, affects her spousal benefits under my Social Security record. So, because of the WEP, any spousal benefits she would be entitled to are essentially zeroed out since she receives a pension. If she had never worked (thereby not contributing to Social Security), she would be entitled to her entire spousal benefit. That doesn’t seem reasonable to me.

Answer: What you’re referring to is a different provision, the Government Pension Offset. People who receive a pension from a federal, state or local government job that didn’t pay into Social Security can have their Social Security spousal or survivor benefit wiped out by the GPO. By contrast, the Windfall Elimination Provision typically leaves at least half of the worker’s Social Security benefit intact.

The rationale for the GPO goes like this: Spousal and survivor benefits are considered dependent’s benefits. The law has always required that these benefits be offset dollar for dollar by the amount of the person’s own retirement benefit. So if your wife had earned a $1,000 monthly Social Security benefit based on her own work record but a $500 spousal benefit based on yours, she would not receive both. Her own benefit would completely offset the spousal benefit.

Before the GPO, though, your wife could have received a $1,000 monthly pension from a job that didn’t pay into Social Security plus a spousal or survivor’s benefit from Social Security, leaving her much better off than someone who had paid into the system.

Filed Under: Estate planning, Q&A Tagged With: ,
December 29, 2014 By

Q&A: The tax implications of downsizing

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.

Filed Under: Elder Care, Estate planning, Q&A, Real Estate, Taxes Tagged With: , , ,
December 29, 2014 By

Q&A: Social Security survival and spousal benefits

Dear Liz: If my spouse takes spousal benefits from Social Security before his full retirement age, does that ultimately affect the survivor benefits he could receive?

Answer: As covered in previous columns, applying for spousal benefits before his full retirement age of 66 or 67 will lock him into a diminished check and preclude him from switching to his own benefit later. It does not, however, affect what he would receive as a survivor. His survivor benefit would be equal to what you were receiving at your death. To protect him (and yourself, should you be the survivor), you probably should delay starting benefits as long as possible to make sure you’re receiving the maximum benefit.

Filed Under: Couples & Money, Estate planning, Q&A Tagged With: , , ,
December 29, 2014 By

Q&A: Using a separate credit card for online purchases and automatic payments

Dear Liz: I saw your recent column from the couple upset about the inconvenience of having to reset the automatic payments when their credit card was reissued due to fraud. We had the same problem (our credit card has been reissued six times now!) and got some great advice I’d like to share. We got a separate credit card that is used for nothing but automatic payments and online purchases. It has never been hacked like our other card that we use constantly in the community because we earn airline miles. The last two times our regular card had to be replaced was in the Target and Home Depot hacking, but the other card has been fine so far. We are keeping our fingers crossed. Our issuer has now given us a chip card to replace the constantly hacked one, so I hope we have better luck going forward with both credit cards.

Answer: Several other readers wrote to say they do something similar by using different cards for different purposes, including devoting one to making automatic charges.

It might be wise to have a separate card just for online purchases, however, since the incidence of “card not present” fraud (including online and phone transactions) is higher than that for transactions where the card is physically presented to the merchant.

Filed Under: Credit Cards, Identity Theft, Q&A Tagged With: , ,
December 22, 2014 By

Q&A: Talking money before marriage

Dear Liz: My daughter is getting married in September. She recently confided that she and her fiance have never discussed their respective debts (if any), credit scores or financial goals. She is hesitant to bring this up with him but realizes it’s a discussion that needs to happen before they marry. I suggested they consider meeting with a financial counselor so they can have an honest talk about money as a practical matter rather than an emotional one. Would a fee-only financial planner be appropriate in this instance?

Answer: Absolutely. If you’d like, you could make a session with such a planner your engagement present to them.

Of course, they don’t need a professional to start talking about their financial situations. Presumably she knows him well enough by now to have some idea about how best to broach the topic. It could be as simple as “Hey, I was just paying some bills and I realized we probably should talk about our financial situations.”

A way to start the decision is to talk about dreams and goals. Would they like to raise a family? Buy a home? Start a business? Travel a lot? Retire early? All financial planning stems from knowing what your goals are, and then you can figure out how to achieve them. Your daughter shouldn’t be too worried if they aren’t on exactly the same financial page, since few couples are. What’s important at this stage is knowing what’s important to each person.

It can be trickier to talk about the present. Most people have made mistakes with money, and many have more debt and less savings than they’d like. Being a sympathetic listener and suspending judgment can go a long way toward putting a partner at ease in these discussions.

After they’ve had a few talks and feel comfortable, they probably should take a look at each other’s credit reports. Those would give them a fairly good idea of how much each person owes. That can help them understand roughly how much of the family budget will need to go toward retiring those debts and how much is available to achieve their goals.

Filed Under: Couples & Money, Financial Advisors, Q&A Tagged With: , , ,