Ask Liz Weston

Get smart with your money

Q&A

Q&A: They lent their friend a van. It’s getting awkward. Now what?

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Dear Liz: A friend of ours had a huge problem with car repairs last year. This friend got ripped off by a mechanic who took money for the work to repair his car and never repaired it. So my husband and I were kind enough to loan him our van for what we thought would be a short time. The loan has now lasted a year. He put a lot of repair work into it, but we need to ask for the vehicle back. It is not titled to him. I feel bad that he has spent money working on the van. Should we offer him any money or reimburse him for the work? I have a feeling it’s not going to go over very well. Any thoughts or advice on how to handle this would be appreciated.

Answer: As you probably know, the pandemic and a lingering microchip shortage have upended the car market, dramatically raising prices for both new and used cars. Interest rates have gone up as well, making car loans a lot more expensive. Your friend may well have made the calculation that repairing a borrowed vehicle made a lot more economic sense than trying to buy a replacement. He avoided lease or loan payments, plus he may have benefited from free insurance coverage if you continued to pay those premiums.

One approach would be to put a rough dollar value on those savings compared with what he spent on repairs and offer to reimburse him for the difference.

Should you ever again want to loan a potentially valuable asset to a friend, consider discussing in advance who will be responsible for maintenance and repairs as well as how long the loan is expected to last. Putting the details in writing could help both parties avoid awkward misunderstandings.

Q&A: Securities Investor Protection Corp. coverage

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Dear Liz: This is a follow-up question to your column concerning stock brokerage accounts and the coverage provided by Securities Investor Protection Corp. My husband and I are puzzled as to how the failure of a brokerage, which does not actually own our shares of stock, could cause us to lose that stock, leaving us to the limited protection the SIPC can provide. Can you explain what the sequence of events would be?

Answer: SIPC coverage kicks in when a brokerage fails and customer assets are missing. You’re correct that brokerages are required to keep customer assets separate from their own, so missing stocks and other investments would probably be due to fraud, which is rare. Most of the time when a brokerage fails, all customer assets are simply transferred to another firm.

SIPC protects up to $500,000, including a $250,000 limit for cash. Many brokerages also have private insurance in addition to SIPC coverage to protect against such losses.

Q&A: Another view of house bequest

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Dear Liz: You recently answered a question about a mother who gave her home to her two children shortly before she died. You wrote that when a home is gifted, the recipients also get the original owner’s tax basis and thus there is no step up in tax basis at death. However, if the mother continued to live in the home and didn’t pay rent, an argument could be made that it wasn’t a real gift and the home should be included in her estate at death. Then the children could get the step up in basis and not owe capital gains taxes when they sell.

Answer: The estate tax experts at Wolters Kluwer tax research firm agree that if the mother continued to live in the house, IRS Code Sec. 2036(a)(1) could apply, “assuming that there was an express or implied agreement between the mother and the children that she would live in the home rent-free until her death.” Then the fair market value of the home could be included in the gross estate and the children would receive a step up in basis at the mother’s death.

A similar argument could be made if the mother had added the children as joint tenants and continued to live rent-free in the home until death.

Making such arguments to the IRS might require hiring knowledgeable tax and legal help, however. Plus, adding children to home deeds can create other problems. The children’s creditors could go after the house, for example, and transfers of home ownership can complicate Medicaid eligibility.

It would probably be much more cost effective to get tax and legal advice before changing a home’s deed than to hope your heirs prevail against the IRS afterward.

Q&A: When Social Security isn’t enough

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Dear Liz: I am 87, divorced for 45 years, never remarried. I applied for my 93-year-old former husband’s Social Security support and qualified. I was refused by the local Social Security office. I really don’t understand why. I am a COVID long-hauler and I get confused. I was a stay-at-home mom until my kids were in college, and my husband divorced me. My Social Security is not enough to support me, and I am seriously in debt. I am set up with Social Security to receive my share of my former husband’s Social Security at the time of his death. What am I doing wrong?

Answer: If your former husband is still alive, it’s possible that your current Social Security retirement benefit is larger than any benefit you would have gotten from his work record. Spousal and divorced spousal benefits are limited to 50% of the primary worker’s benefit at full retirement age.

Should he die, you could be eligible for a divorced survivor benefit, which is up to 100% of the amount he was receiving.

Rather than wait, though, you should consider talking to a bankruptcy attorney about your debt. Consider asking one of your kids or a financially savvy friend to come with you and take notes so you understand your options.

Q&A: Finding free tax help

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Dear Liz: You recently mentioned the AARP Foundation Tax-Aide Program as a resource for getting help with tax returns. I just want to point out that there are other, IRS-sponsored programs that provide free income tax assistance to the elderly and low-income taxpayers. These programs are Volunteer Income Tax Assistance (VITA) and Tax Consulting for the Elderly (TCE). The site where I’ve volunteered for many years does approximately 2,000 tax returns each year. A mention in your column would be a great way to spread the word about this valuable service.

Answer: Consider it done. The IRS has a tool to find VITA and TCE resources using your ZIP Code.

Q&A: Should extra cash go to retirement or emergency savings?

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Dear Liz: I have an excessive amount of money in my bank checking and savings account (about $20,000 in each) and need to know where to invest it. My financial planner advised putting it in my 401(k), but I can’t transfer a chunk of money, I can only increase the percentage I contribute (which is currently at 10% of my salary). I have IRAs, but I can only deposit a certain amount there as well. Where would be the best place for this extra money to go that will pay interest?

Answer: You may not be able to put the money directly into your 401(k), but you could boost your contribution rate at work and tap the “excess” money in your accounts to make up the difference in your paychecks.

First, though, make sure you have an adequate emergency fund. Most financial planners recommend keeping a reserve equal to three to six months’ worth of expenses. This money should be kept in a safe, liquid account, such as an FDIC-insured bank account. You don’t need to settle for the tiny amount of interest many banks pay, however. Some online high-yield savings accounts are now paying over 4%.