Q&A

Q&A: How to improve your credit scores

August 8, 2016 By Liz Weston

Dear Liz: I don’t have a credit score. I have one item on my credit report that’s a court judgment. What can I do to get a score? If I pay the balance due for the judgment, would it be removed?

Answer: Paying a judgment doesn’t remove it from your credit reports, but it does limit the amount of time that the judgment can hurt you.

By federal law, an unpaid judgment can remain on your reports for seven years after it was entered against you. But creditors often have 10 to 20 years, depending on the state, to use the judgment to garnish your paycheck or put a levy on your bank account. Some states allow creditors to renew a judgment that hasn’t been paid, which means that it could pop back up on your credit reports after the initial seven-year period has expired.

To answer your other question, you get credit scores by having and using credit. The leading FICO formula needs six months’ of credit history to generate scores. One way to get credit if you don’t have any is with a secured credit card. These cards typically give you a line of credit equal to the deposit you make at the bank that issues the card. Use the card lightly but regularly and pay the balance on time and in full each month. You don’t need to pay credit card interest or carry debt to create good scores.

Another option is a “credit builder” loan, sometimes offered by member-owned credit unions. One form of credit builder loan puts your payments, minus interest, into a certificate of deposit that’s yours to keep once you’ve made the final payment. With one loan, in other words, you build your credit and your savings.

You can build credit either way, but having both types of credit — revolving accounts such as credit cards and installment loans such as a credit-builder loan — can help you build it faster.

Q&A: Amending a living trust

August 8, 2016 By Liz Weston

Dear Liz: My husband and I had a lawyer draw up a revocable living trust and a pour-over will six years ago. We need to amend a couple of areas, and I found it could be done with a form from a self-help legal site. Also, we need to add our home into the trust. My husband doesn’t want to use a lawyer. Can we legally do the amendment and addition of the home without a lawyer?

Answer: Sure. But your heirs may pay for any mistakes you make.

The big red flag is that you haven’t transferred your home to the living trust, even though you’ve had six years to do so. If it’s not in the trust, it will be subject to probate, the court process that the trust is meant to avoid. You need to be extremely diligent if you’re going to try to create a do-it-yourself estate plan, and you’ve already proved that you aren’t. All you’ve done is undermine the estate plan you paid for years ago.

Amending the trust, and having a lawyer help you transfer your home into it, probably will cost a fraction of what you paid originally. It also would give your attorney an opportunity a chance to review the documents in case other changes need to be addressed. A relatively small investment could pay off in peace of mind that the job has finally been done right.

Q&A: How to retrieve old W-2 forms

August 8, 2016 By Liz Weston

Dear Liz: I have several years missing from my Social Security earnings history, dating back to 1999. I have been filing income taxes jointly with my wife but we only kept our files for five years. How do I go about retrieving past income documents like my W-2s? I contacted Social Security and the IRS but can only get tax transcripts dating back to 2009.

Answer: Social Security says you ordinarily have three years to report mistakes. (Actually, being Social Security, it’s “three years, three months and 15 days.”) But you can correct mistakes further back if you have sufficient proof, such as tax forms, W-2s or pay stubs.

You can try contacting old employers to see if they can produce the W-2s you’re missing. Otherwise, write down as much as you can remember about where you worked, including the name of the employer, the dates you worked there and how much you earned. Then contact Social Security again, provide the information you’ve gathered and ask for help in filling in those missing years.

This is one reason why it’s smart to hang onto tax returns indefinitely. Even though you can (and probably should) shred backup documentation after seven years or so, you should keep copies of anything filed with the IRS, including W-2 forms.

Q&A: How to handle money disputes after a death in the family

August 1, 2016 By Liz Weston

Dear Liz: My son recently died. His girlfriend, who lived with him, said he told he would take care of her for the rest of her life. There’s nothing in writing that says this. She has his debit card and is using it. I am not sure, but I thought if a family member dies, the money in the person’s bank accounts belonged to the next of kin. There is a large amount of money missing, but I don’t know if my son used it to pay other debts. How do I clear this up?

Answer: If her name is not on the bank account, then most likely she doesn’t have the right to help herself to the money. Your son’s assets are supposed to be used to pay his final expenses and his creditors. Anything left over would go to the beneficiaries of his will or, if he didn’t have a will, to his next of kin according to state law.

It’s time to call an attorney familiar with probate in your state to walk you through the next steps. As angry as you might be with the girlfriend, consider staying on good terms if you possibly can, since you probably will need access to his home and his records to settle the estate.

Q&A: CPA vs. financial planner

August 1, 2016 By Liz Weston

Dear Liz: I read your recent response to the lottery winner. You made some really good comments and suggestions. However, you suggested that the person seek out a trustworthy, fee-only financial planner.

I am a certified public accountant. As you know, CPAs have historically been one of if not the most trusted advisors. I do get defensive when I read articles such as yours because never do people suggest that a CPA be consulted in situations such as these. In my opinion, financial planners do not have the overall breadth of experience and knowledge of the income tax and estate tax ramifications of decisions that need to be made.

Answer: If you’re holding yourself out as an expert in financial planning, you’d better be one.

There’s no question that CPAs are tax experts. But how knowledgeable are you about investments? Insurance, including life, health, disability and long-term care? Retirement savings and income planning? Education planning and funding? Social Security, Medicare and Medicaid? Employee benefits, retirement plan selection and business succession planning?

Those are only a few of the dozens of topics that a certified financial planner is required to know. CFPs are expected to look at clients’ entire financial picture and understand how the pieces should best work together. They are supposed to know that taxes may be a factor in many financial planning decisions, but taxes shouldn’t be the only or even the driving factor in any of them.

CFPs may not be able to match your breadth or depth of knowledge in your area, but that’s why they would refer clients to certified public accountants for detailed help with those issues. They also would know when to get estate-planning attorneys involved, and insurance agents and so on.

Some CPAs do become comprehensive financial planners by earning the personal financial specialist or PFS credential, which is similar to the CFP. The additional training and experience helps them understand how taxes fit into their clients’ larger financial picture. It also helps them know what they don’t know, so they know when to consult more knowledgeable experts for help.