Question: We have an 84-year-old mother who is healthy and spry but who wishes to consolidate her financial affairs to make it easier for us when she dies. A will has been made and her bank accounts combined. She's concerned about how to handle her house, which is in all of our names--hers and her children's. Would it be better to take her name off now for inheritance purposes or should we leave it as it is?
Answer: Financially speaking, it's good your mom is in such fine shape. Had she died with the house in all of your names, you probably would have lived to regret it.
It's almost always a bad idea for a parent to add a child, or anyone other than a spouse, to the title of a home, for both tax and legal reasons.
The way it stands now, you and your siblings would owe tax on most of the appreciation that's occurred since she bought the house. If she's owned the house for a while, or if she lives in an area where home prices have risen dramatically, that could mean a hefty tax bill.
If the house were in her name alone, it would get a completely updated value for tax purposes when she dies. You and your siblings would owe tax only on any appreciation that occurred between the time she died and the time you sold the house. That means if you put the house on the market shortly after her death, you probably wouldn't owe any tax.
Your mother also is taking an unnecessary legal risk with her home. Should you or one of your siblings be sued or declare bankruptcy, the creditors involved would have a claim against the house.
Have a chat with an attorney who has estate-planning experience about the best way to put this right. If your mother is concerned about avoiding the costs of probate, which is the court process that follows death, the attorney can talk to her about putting the home in a living trust.
Debt Settlement Firm Uses Dubious Tactics
Q: You've talked about the scam of marking "paid in full" on a $10 check, pointing out that such a tactic won't work with credit card companies. But I have a question about debt settlement companies. I have contacted a financial service to help pay off a $4,000 credit card balance. This service claims that since Sept. 11 most banks are willing to settle debts for approximately 15 cents on the dollar. I'm supposed to pay them an $800 initial fee and empower them to negotiate on my behalf so I will pay only $600 to settle the debt. They claim it would show on my credit report as "settled and paid as agreed" and improve my credit score by lowering my debt-to-income ratio. Is this too good to be true? Should I use this to pay off my department store cards? I'm currently trying to pre-qualify for a home mortgage and need to improve my credit score.
A: Of course it's too good to be true. This company's tactics could trash your credit score and prevent you from getting your mortgage.
Sometimes lenders will agree to accept less than what they're owed, but the settlement shows up as a negative entry on your credit record. People in serious financial trouble may resort to such debt settlements, but you shouldn't.
By the way, didn't it strike you as the teeniest bit slimy that this outfit was willing to exploit the terrorist attacks for its own ends? And don't you feel a little weird looking for a way out of a debt that you're apparently perfectly capable of paying?
The way to improve your credit score is to apply for credit sparingly, pay your bills on time and stop looking for shortcuts that ultimately will be far more expensive.
College Savings Can Be Consolidated
Q: You've written about college savings plans before, and I have a question. Can I transfer my son's Education IRA into his 529 college-saving plan without penalties or tax implications? His Education IRA account is rather small and I thought it might be good to consolidate his savings plans.
A: You can make the transfer without owing any taxes or penalties, said Joseph Hurley, a certified public accountant and guru on college savings plans.
You just have to make sure the deposit to the 529 plan takes place in the same year as the withdrawal from the Education IRA (now known as Coverdell Education Savings Accounts), Hurley said. Because the beneficiary of both accounts is the same person--your son--the transfer is allowed.
When you complete your son's tax return for the year, classify the withdrawal as "qualified use" of the Education IRA money and no tax will be due, Hurley said.
Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at money firstname.lastname@example.org or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times' Web site at www.latimes.com/moneytalk.