Ask Liz Weston

Get smart with your money

Inheritance

Q&A: Inheritance vs Reality

By

Dear Liz: I have really bad credit. I always have because I have never really had any money. So now I am inheriting a lot of property and some cash. Most of the property is rental properties that bring in income. There are no mortgages on them. I may want to sell one or two of them and buy a four- or five-unit apartment building so I can live in one and rent the others out. How do I do that? Unfortunately, it isn’t happening as quickly as it should since one of my siblings thinks it is all hers. So I have to go through litigation first.

Answer: Let’s start with some reality checks.

The kind of litigation you’re talking about can get expensive fast and eat into the estate’s assets. If your sister happens to be the executor, she may be able to have the estate pay for her defense. You’ll need to come up with the money to hire your own attorney to advise you, but often in these cases a settlement makes a lot more sense than a family war.

The next reality check has to do with your bad credit. Yes, it’s harder to pay your bills on a low income, but people do it. In fact, income is not even a factor in credit scoring formulas, since how much money you make doesn’t predict whether you’ll pay your debts. If you have bad credit, it’s because you borrowed money that you didn’t pay back on time, not because you “never really had any money.”

What will change if you get your hands on a substantial amount of money is that your creditors will renew their efforts to get paid. You’ll probably need some more legal advice to deal with those efforts and to avoid getting sued.

What probably won’t change, without some effort, is your poor money management skills. If you don’t improve, you’ll probably blow right through your inheritance. So you should add to your list of advisors a fee-only planner who can help you with budgeting, rebuilding your credit, investing and retirement planning. Seeking good advice and following it are the key to making money last. You can get referrals to fee-only planners from the Garrett Planning Network, http://www.garrettplanningnetwork.com. Another option is the National Assn. of Personal Financial Advisors at http://www.napfa.org.

Thursday’s need-to-know money news

By

download (1)Today’s top story: Are you behind the financial times? Also in the news: How to better organize your bills, talking with your family about inheritance, and learning the five parts of your credit score.

6 Signs You’re Behind the Financial Times
Still writing checks?

4 Ways to Better Organize Your Bills
And kiss late fees goodbye in the process.

On Inheritance, UBS Urges Families to Break the Silence
The importance of difficult conversations.

Everyone Should Know the 5 Parts of a Credit Score; Do You?
Let’s find out.

5 Ways to Make Peace With Money
What to do when money is your nemesis.

Thursday’s need-to-know money news

By

Zemanta Related Posts ThumbnailToday’s top story: Saving money on your summer travel plans. Also in the news: Disappearing inheritances, creative college financing, and the hidden costs of moving.

6 ways to score deals on summer travel
Planning ahead could save you money.

Why You May Not Get An Inheritance (And What To Do About It)
You know that saying about counting chickens before they hatch?

Outside-the-Box Financial Strategies to Pay for College
Thinking outside the loan box.

The Hidden Costs of Moving
You’re going to need boxes, packing tape and a whole lot of cash.

Helping Gen Y Declare Their Financial Independence
Escaping the debt-ridden 20’s.

When inheritances don’t come

By

Dear Liz: I read with interest the question you received from the widower who thought he should inherit from his father-in-law, despite the death of his wife. Your answer was great, but it got me thinking about the mind-set that makes someone even think to ask the question. It’s obvious that the asker and his late wife clearly lived their life expecting to inherit a large amount of money. Which leaves unasked, how did they live and what did they save on their own? Did they take vacations instead of save? Did they not save at all? The bottom line here is that you need to reinforce that there is no “sure thing” in expected inheritances and encourage people to amass wealth on their own. Someone else’s money is someone else’s money, and even if he intends to leave it to you, an illness, a lawsuit or some other loss could wipe out anything he meant you to have.

Answer: People who expect an inheritance to save them from a life of not saving are courting disappointment.

About half of those who die leave less than $10,000 in assets, according to a 2012 study for the National Bureau of Economic Research. Many failed to save adequately during their working lives, but even those with substantial assets can find their wealth eroded by longer lives, market setbacks, chronic illness and nursing home or other custodial care.

Hopes of an inheritance also can be dashed by remarriages, poor planning or both. For example: Dad dies without a will and Stepmom inherits the bulk of the estate, which she gives to her own kids. Or Mom thinks she’s tied up everything in a trust, but her surviving spouse figures out a way to invade the principal. Or Grandma gets victimized by a gold-digger or a con artist, leaving nothing but hard feelings.

Most of those who do inherit don’t get fortunes. The median inheritance for today’s baby boomers is $64,000, which means half get less, according to a 2010 study from the Center for Retirement Research at Boston College.

So you’re right that the best approach for most people is to prepare as if there will be no inheritance, since if there is one, it probably won’t be much.

Elderly parent wants to help unemployed sons

By

Dear Liz: Both of our sons, ages 63 and 59, are currently unemployed. We are 93 and self-supporting with Social Security and my retirement benefits. We live in our own home and are able to handle all our expenses, even though my wife requires a companion for 12 hours each day.

I believe we should financially aid both sons, to the limit of our ability, but my wife disagrees.

They are the two main beneficiaries of our estate. Each one is scheduled to receive about $40,000 upon our deaths. How should we proceed?

Answer: If your estates won’t amount to much more than $80,000 at your deaths, it doesn’t sound as if you have the financial wiggle room to help your sons. Your wife already requires significant care and may need more in the future. Plus, she’s likely to outlive you, which would mean getting by on less (certainly a smaller Social Security benefit, and perhaps a smaller pension amount as well). Any money you give them, in other words, is likely to be to her detriment.

Use inheritance to pay credit cards, not mortgage

By

Dear Liz: I will be inheriting around $300,000 over the next year. My instincts are to pay down debt with this money. I have two homes and for practical reasons need to keep them. One home has a $260,000 mortgage balance at 5%. The other has a $130,000 mortgage at 4%. We have $35,000 in credit card balances. Some are telling us to invest. I think we should pay off all the credit cards and then pay down the larger mortgage by $100,000 or more. Am I on the right track?

Answer: Paying off your whopping credit card debt is a great idea. You need to figure out, though, what caused you to rack up so much debt and fix that problem. Otherwise, you’re likely to find yourself back in the hole.

Paying down a mortgage is a trickier proposition. Most people have better things to do with their money than prepay a low-rate, tax-deductible debt. Before they consider doing so, they should make sure they’re saving adequately for retirement, that all their other debt is paid off, that they have a substantial emergency fund of at least six months’ worth of expenses, and that they’re adequately insured with appropriate health, property, life and disability coverage. Those with children should think about funding a college savings plan.

If you’ve covered all these bases, then paying down and perhaps refinancing the larger mortgage makes sense.