Ask Liz Weston

Get smart with your money

Q&A

Q&A: What to do when your bank gets picky about accepting a power of attorney

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Dear Liz: My husband’s brother had a stroke and is now incapacitated. My husband needs to take over his finances. The bank will not accept the durable power of attorney that they set up 14 years ago because it is “too old.” Another bank asked me if it was set up less than six months ago, because that would avoid problems. How can you do the right thing if there are so many obstacles?

Answer: Banks and other financial institutions have gotten so persnickety about accepting powers of attorney that some states have passed laws forcing them to do so — and yet people still report having problems, even in those states!

Many institutions want you to use their own forms, which may not be possible once someone is incapacitated. Even if the person is willing to fill out the form before the fact, using a financial institution’s power of attorney can create problems if the language in those forms contradicts the person’s other estate planning documents. Then there’s the sheer hassle factor, especially if the person has accounts at multiple banks and brokerages.

You may be able to break through this logjam by hiring an attorney to contact the bank. You can get referrals to lawyers experienced in this issue from the National Academy of Elder Law Attorneys.

Q&A: When to merge 401(k) accounts

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Dear Liz: I have $640,000 in a previous employer’s 401(k) and $100,000 in my new employer’s plan. Do you recommend I merge the two? Both funds offer similar investment options. My only motivation is based on simplifying paperwork during retirement, although there may be other advantages I am not aware of.

Answer: The choice of investment options matters less than what you pay for them. If your current plan offers cheaper choices, rolling your previous account into your current one makes sense if your employer allows that.

If the previous employer’s plan is cheaper, though, leaving the money where it is can make more sense. Once you actually reach retirement age you can decide whether to consolidate the plans or roll them into an IRA.

IRAs give you a wider array of investment options, but keeping the money in 401(k) accounts has other advantages. Larger 401(k)s often offer access to cheaper, institutional funds that aren’t available to retail investors in their IRAs. A 401(k) may offer more asset protection, depending on your state’s laws, plus you can begin withdrawals as early as age 55 without penalty if you no longer work for that employer.

Q&A: Many factors go into rental choice

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Dear Liz: You recently answered a reader who didn’t want to keep and rent out the home she inherited with her brother. You mentioned that if he refused to buy her out, she could go to court to force a sale.

Another option is to hire a property management company to provide a buffer between the siblings but also between them and the tenants. The house will provide a healthy income to both bro and sis.

Answer: Actually, we don’t know that. While Mom-and-Pop landlords can make a tidy profit with single-family homes in some areas, just breaking even is hard in others. In many high-cost areas of the country, rents aren’t enough to cover the considerable costs of ownership, especially if the property still has a mortgage.

Even if it’s paid off, the house could need extensive repairs or be damaged by future tenants. Vacancy rates could be high in that area, and the property management company would still need to get paid. The siblings also will need additional liability insurance to protect against being sued.

The sister could get a much better return from investments that require a lot less from her. Mutual funds don’t call to tell you the roof is leaking or the furnace needs replacement.

The home could turn out to be immensely profitable and still be a bad investment for a sister who’s an unwilling business partner and who resents the brother who refused to buy her out when he had the opportunity.

Q&A: Using your home’s equity to pay off credit card debt is a dumb move

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Dear Liz: My ex-husband is a self-employed carpenter who just turned 64. He’s gotten a bit over his head with his credit cards. He tried for a home equity loan since he has plenty of equity and high credit scores. His mortgage lender says he doesn’t make enough money and that he needs a co-signer.

He owes only $50,000 on the house and needs about $40,000 to pay off his bills. Why should he be punished for working hard all these years? This is crazy and stupid. Is a reverse mortgage the way to go for him?

Answer: Possibly, but it’s concerning that he has so much credit card debt. Too often people who tap their home equity to pay off debt wind up worse off in a few years. They don’t fix the problem that caused the debt in the first place, so they continue to overspend — but now they have less of a home equity cushion to fall back on in case of emergency.

That’s especially true with a reverse mortgage. These loans allow people 62 and over to borrow against their home equity without having to make payments or repay the loan until they sell, move out or die. However, any amount they borrow and don’t repay will grow over time, typically at a variable interest rate. People who use reverse mortgages to pay off debt early in retirement can wind up unable to access their equity later, when they may need it more.

The lender isn’t trying to punish your ex for working hard, by the way. It’s saying he doesn’t appear to have enough income to pay his mortgage, cover the new loan payments and take care of his other bills. Your ex may think the lender’s standards are too strict, and it’s true many lenders are more reluctant to lend to the self-employed. He may find another lender that’s more cooperative if he shops around. But that huge amount of credit card debt indicates a serious problem that needs fixing, and another loan may not be the answer.

Since your ex feels comfortable sharing financial details with you, you might suggest that he discuss his situation with a credit counselor (the National Foundation for Credit Counseling offers referrals) and with a bankruptcy attorney (the National Assn. of Consumer Bankruptcy Attorneys). Each can assess his situation and offer different potential options he could consider.

Q&A: Can an executor withhold a copy of a will?

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Dear Liz: What rights does a sibling survivor have to get a copy of a mother’s will, if the sibling is not the executor?

Answer: From the way you phrased your question, it sounds as if your sibling is serving as executor of your late mother’s estate and refusing to let you see her will. That’s unfortunate. In many states, the executor is required to give you notice of the probate proceedings, and some states also require that you receive a copy of the will if you’re named in it or the guardian of a minor child who’s a named beneficiary, said Jennifer Sawday, an estate planning attorney in Long Beach.

If you’re not a beneficiary, you could still get a copy if the estate is probated. Probate is the court-supervised process of distributing someone’s estate. Rules vary by state, but small estates may bypass probate or qualify for a streamlined version. If formal probate is required, the case is typically opened in the county where the person died and the will becomes public record. Some county courthouses make records available online, while others require you to show up in person to request a copy of the public record.

If the executor fails to file the will or open a probate case when one is required, you can go to court to force the issue. You’ll want to discuss this option with an attorney.

The rules are different if your mother created a living trust rather than a will. Beneficiaries typically receive copies after the creator’s death, but living trusts are designed to avoid probate and don’t become public documents.

If she didn’t actually have a will or living trust, the laws of your state determine who gets what. Surviving spouses and children are usually first in line.

Q&A: Don’t believe this credit score myth

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Dear Liz: Is it true that no credit is as bad as bad credit? I recently paid off my house and have no car loans. I use four credit cards every month, including one for automatic monthly bills. All are paid in full as soon as I get the bills. So practically speaking, I have zero debt. Am I making a credit history if I don’t have debt? I had excellent credit scores before I paid off my house.

Answer: You still do. You don’t have to carry debt to have good credit scores.

The myth that you do — that the only people with good credit are the ones in debt — is unfortunately a persistent one, typically spread by people who don’t understand how credit scores work. Rest assured that using your credit cards lightly but regularly, and paying the balances in full every month, is the right thing for both your scores and your finances in general.

Your paid-off mortgage should remain on your credit report for years to come, and it will continue to help your scores. Scoring formulas typically reward evidence that you can handle a variety of credit, including installment loans such as mortgages and revolving debt such as credit cards. Even after the mortgage disappears from your credit reports, however, your consistent and responsible use of your credit cards should keep your scores high.