Ask Liz Weston

Get smart with your money

Q&A

Q&A: How young people can build their credit

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Dear Liz: Our 23-year-old daughter has a low-limit credit card from her bank, primarily to build her credit history. For the same purpose, we also added her as an authorized user on one of our credit cards (yes, we can trust her). When she checked her credit reports recently at annualcreditreport.com, one of the agencies produced a report but another claimed they couldn’t find her. Is that normal for a relatively new credit user? Could it possibly be because she has a hyphenated middle name? Should we worry?

Answer: It can take 30 days or more for information to be updated at the credit bureaus, so she should try again and also check the third credit bureau. If two bureaus can’t find her after 30 days, then it’s possible that both credit cards report to only one bureau. In that case, she should consider getting a credit-builder loan from a credit union that reports to all three bureaus.

Otherwise, the problem is likely the credit bureau’s, and she should try ordering the missing credit report via the U.S. mail. The bureau that couldn’t find her will have instructions for requesting a report that way on its site.

Q&A: Safe deposit box shortcomings

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Dear Liz: You recently advised against keeping one’s will in the bank safe deposit box. That was on the grounds that upon death, the bank could seal the box. My daughter is named on my box (she is also named as executrix) — that is, the bank ran her through several hoops, and the result is she can gain access to the box as she wishes. Does your advice hold in this case?

Answer: Find out what the bank’s policy is. If the bank confirms your daughter will have access in the event of your death, ask that the assurance be put in writing.

One problem with keeping anything in a safe deposit box is that the contents can be escheated — turned over to the state — if the bank decides the box has been abandoned. That usually won’t happen if you’re paying the bill for the box on time and making sure the bank has up-to-date contact information, but physically checking the box’s contents once a year or so is a good practice.

Q&A: Storing will and trust documents

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Dear Liz: You recently advised a person to leave their original will or trust with their attorney. As a practicing attorney, I cannot tell you how many times original wills and trusts have been lost as the attorney that prepared the documents retired or died before the client. There are requirements to inform clients of a retirement, but very few lawyers follow those rules, unfortunately. The best thing is to buy a home safe or put the documents in double zip-close freezer bags in your freezer (which should be fireproof and is a great preserver of the documents). Or, hire a younger lawyer who will still be around when you want to amend your will or trust or you pass away.

Answer: Thanks for sharing your perspective, but freezers are not fireproof. A fireproof home safe would be a better option for those who want to keep their wills at home.

There is, unfortunately, no one perfect option for storing wills. You’re quite right that people often don’t stay in touch with the attorneys who create their documents, even though estate plans should be reviewed and updated regularly. The risk of losing a will may not be as high if the attorney is part of a large firm, but even those can go out of business.

Some states allow you to file your will in advance with the probate court or a registrar of wills, so that’s another avenue to consider.

Q&A: Why home equity loans are a better option than credit cards

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Dear Liz: My husband is 68, I am 70, both of us are retired and on Social Security. We have little in savings. My husband wants to charge $10,000 to a low-interest credit card to pay for a new furnace and water heater. He plans to pay the minimum each month and at the end of each year transfer the balance to a different credit card with low interest. Is this a good idea?

Answer: You may have better options.

Many credit cards offer low introductory rates that expire after 12 to 21 months, but you typically won’t know before you apply what your credit limit will be.

You may not get a high enough limit to make all your purchases or you could use up so much of the limit that it causes damage to your credit scores. (Scoring formulas are sensitive to how much of your available credit you’re using, and ideally you wouldn’t use more than about 10% to 30% of your credit limits at any given time.) When you apply to transfer your balance to another low-rate card, you’ll run similar risks.

A home equity line of credit or home equity loan might be a better choice. HELOCs have variable rates, but you would have a source of funds you can tap and repay as needed (much like a credit card, but backed by the equity in your home). Home equity loans typically have fixed terms and rates, so you can borrow what you need and pay off the debt over time (often 15 to 20 years).

If paying back the money would be a hardship, a reverse mortgage might be an option. Reverse mortgages can be complicated and expensive, however, so talk to a housing counselor approved by the Department of Housing and Urban Development before proceeding with one.

Q&A: Lump sum vs. annuity

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Dear Liz: You recently answered a question about taking a lump sum retirement versus an ongoing pension. You didn’t mention that the pension will stop when the employee dies (whether it’s after 40 years or 40 days) or when the spouse dies (same thing) if that was chosen. The children get nothing. What about taking the lump sum and putting it in a fixed indexed annuity? Yes, there is a yearly fee, but then the money can continue to the spouse, children and on and on and on.

Answer: See above. There’s more than a single “yearly fee” with these annuities, which are complicated insurance products that tend to have high costs and pay high commissions to the advisors who recommend them. If you’re considering this investment, you should run it past a fee-only financial planner first.

Many people dislike the idea that an annuity stops when they do, which is why insurers are often willing to sell you — for an additional fee — a guarantee that something will be leftover. There may be better, less expensive ways to leave a legacy, which a fee-only planner can discuss with you.

Q&A: What you need to know about power of attorney documents

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Dear Liz: My husband has Parkinson’s disease and is showing early signs of dementia. I’ve been advised to get a financial power of attorney. If all of our accounts are joint, is this necessary? What will that do for me?

Answer: A power of attorney gives you the authority to make decisions on your husband’s behalf. You wouldn’t need one to pay the bills from your joint accounts, but this document could be invaluable if you wanted to take action on jointly held property, such as selling a car or house or refinancing a mortgage. Otherwise, you might have to go to court to get a guardianship, which can be expensive.

Please don’t wait. For the document to be valid, your husband needs to be able to understand what a power of attorney is and what it does. You’ll also need a power of attorney for healthcare, which is sometimes called a healthcare proxy or advanced directive, to make decisions regarding his medical care.

There are do-it-yourself options, but given your husband’s condition you may want to hire an experienced estate planning attorney who can offer personal guidance and help make sure the documents won’t be challenged.