Improving Your Credit Score
Description
Your credit score is a number that lenders use to gauge how likely you are to repay debts on time. It’s important to know what your score is and how you can keep it as high as possible.
Your credit score is a number that lenders use to gauge how likely you are to repay debts on time. It is derived from information compiled in a credit report, including your payment history (whether you have missed or been late with any payments for bills or loans), the amount you owe creditors compared with the amount of credit that is available to you, and the extent of your credit history (how long various accounts have been open).
Know Your Number
Before launching a campaign to raise your credit score, know what you are shooting for. Get a current copy of your credit report and review it for accuracy. All U.S. consumers are entitled to free annual credit reports from the major credit reporting agencies, which are Experian, Equifax, and TransUnion. You can request all three reports at www.AnnualCreditReport.com. Unlike credit reports, your credit score is not free. You can purchase your score from one of the above-mentioned agencies or from www.myFICO.com. A typical credit score will range between 300 and 850 points. Although all lenders make decisions based on the particulars of the lending situation, generally speaking, the higher your score, the lower the perceived risk to the lender, and the more attractive the interest rate you will be offered.
Room for Improvement
A few tips for raising or maintaining a higher credit score include:
- Paying your accounts on time and keeping your balances low. Lenders are looking for a proven track record of making timely payments. Payment history determines about 35% of your credit score.
- Being conservative in the amount of available credit you use at any given time. About 30% of your score is determined by what the industry refers to as your “utilization ratio,” which is the amount you owe in relation to the amount of credit available to you. If that percentage is more than 50%, your score will be lower.
- Holding on to older, unused accounts. The longer an account has been open and managed successfully, the higher your score will be.
- Maintaining a diversified credit mix. If you hold an auto loan, a home mortgage, and credit cards that are well managed, you will generally have a higher credit score than someone whose credit consists mainly of finance companies.
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November 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Dan Federman, CFP®, a local member of FPA.
Required Attribution
Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2011 McGraw-Hill Financial Communications. All rights reserved.
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Home Sweet Home – Protecting Your Greatest Investment
For most Americans the purchase of a home is the greatest investment they will make. With the recent severe weather, including tornadoes and hurricanes, many people have been reminded of the importance of insuring their homes and protecting them from nature.
There are many other issues, however, that people should consider when getting their house in order. Many challenges that arise from home ownership are easily preventable, but diligence is necessary.
First and foremost, understand your mortgage. After the foreclosure crisis hit a few years ago, many people learned this lesson the hard way. Mortgages are either open or closed. An open mortgage can be paid off at any time; a closed mortgage cannot. What is the interest rate on your mortgage? Is it possible that it may rise in the future? Think long and hard about obtaining a reverse mortgage. While reverse mortgages may be appropriate in some situations, they can be complicated transactions and should not be used without legal advice.
Second, review your insurance policies frequently. If a home is not properly insured, damage may not be covered after a loss. Even when proper coverage is in place, some acts of nature may not be covered by a policy. If you live in a flood zone, then you should have a flood insurance policy. If you have built a free-standing addition to your home, then it may not be insured by your old policy. Homeowner’s insurance policies often do not cover expensive jewelry or other personal items that may merit individual policies.
Third, always read your policy thoroughly before calling the insurance company after suffering a loss. Be especially aggressive if you see any kind of mold in your home. Some kinds of mold are covered by homeowner’s insurance and others are not. Because there are so many different kinds of water damage (rain, floods, tidal erosion, groundwater, frozen pipes, sewage, septic, etc.) insurance companies often dispute a claim involving mold, or at least dramatically delay the payment of the claim by requesting laborious documentation. Avoid this situation by fighting mold early and often.
Ask the local fire department to conduct a fire safety inspection of your home every few years. Finding and fixing potential fire hazards could save not just your life, but it could also prevent your insurance company from claiming that your own negligence caused a fire.
Also be aware that if you call the insurance company with a question about coverage for minor damage, the company may flag your file, and if you do file a claim for more serious damage in the next year or two, then the company may consider you a high risk and drop your coverage.
Finally, make sure you know how your home is titled and the tax basis of your home. Homes can be titled in tenancy by the entirety, joint tenancy with right of survivorship, fee simple, or tenancy in common. If a home is not properly titled, significant problems can occur when one attempts to sell it to a new owner or devise the property in a will. Additionally, whenever you improve or renovate your home, be sure to keep all receipts, because this will increase your tax basis in the home in case you sell it during your lifetime.
The attorneys at The Estate Planning & Elder Law Firm can assist clients with their estate, financial, insurance, long-term care, veterans’ benefits, and special needs planning issues.
Please call Ariba for a free portfolio review. 1-800-808-7488
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Transferring Assets to a 529 Plan
A 529 College Savings Plan may be an attractive vehicle for those looking to save for a child’s education.1 If you have already committed college-earmarked assets to another type of financial vehicle, such as a Coverdell Education Savings Account or a custodial account for a minor beneficiary, you may want to investigate transferring those assets into a 529 plan.
Making the Move From a Coverdell
Amounts transferred from a Coverdell account to a “qualified tuition program” (IRS lingo for a 529 plan) are viewed as qualified education expenses by the IRS and are therefore tax free as long as the amount of the withdrawal is not more than the designated beneficiary’s qualified education expenses.
There are several reasons why a college saver may want to take this course of action.
- Consolidation with a more generous contribution limit: Whereas Coverdell accounts limit contributions to $2,000 per beneficiary per year, 529 plans typically allow much higher lifetime contribution limits in excess of $200,000 per beneficiary in many states.
- No income restrictions: Unlike Coverdells, 529 plans generally do not impose income limits that restrict the ability of higher-income taxpayers to contribute.
- No taxes or penalties: Moving assets from a Coverdell to a 529 does not trigger taxes or penalties.
But there are also some drawbacks. Keep in mind that Coverdells and 529 plans are still relatively new, so legal and procedural precedents for specific strategies may not be well established yet. Since the funds in a Coverdell are owned by the beneficiary, any assets moved to a 529 plan owned by a parent could be construed as a transfer of ownership from the beneficiary to the parent. This could raise legal issues down the road if the parent subsequently changes the beneficiary. What’s more, Coverdells can be used to pay for primary or secondary school costs, whereas 529 plans are limited to college expenses.
Relocating UGMA/UTMA Assets
Many 529 plans accept rollovers from custodial accounts established for minor beneficiaries, such as those created under the provisions of the Uniform Gifts/Uniform Transfers to Minors Act (UGMA/UTMA). Be aware that the money in an UGMA/UTMA account belongs to the minor, so any subsequent withdrawals after a transfer to a 529 plan may only be used for that minor. Also, since contributions to 529 plans must be in cash, UGMA/UTMA assets first need to be liquidated, with any capital gains taxable to the minor.
Moving Savings Bond Assets
The third option for a transfer to a 529 plan involves cashing in qualified U.S. savings bonds and contributing the proceeds to the plan, in accordance with the guidelines established by the IRS and the Treasury Department’s Education Bond Program.2 You can find more information at the Treasury Department’s Treasury Direct Web site: http://www.treasurydirect.gov/indiv/planning/plan_education.htm.
Source/Disclaimer:
1 By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.
2 Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and, if held to maturity, offer a fixed rate of return and fixed principal value.
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November 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Dan Federman, CFP®, a local member of FPA.
Required Attribution
Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2011 McGraw-Hill Financial Communications. All rights reserved.
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How Does Medicaid Treat Heir Property?
The Estate Planning and Elder Law Firm has been busy analyzing Transmittal #84 to the Medicaid Manual.
Many of the provisions of Transmittal #84, which became effective July 1, 2006 are the result of the passage of the Deficit Reduction Act of 2005, and they are exactly as The Estate Planning and Elder Law Firm has reported in previous editions of the Elder Law News. Because many of the changes in the law will have an impact on Medicaid planning, The Estate Planning and Elder Law Firm will continue to report on the effect of Transmittal #84 in future editions of the Elder Law News. These changes require seniors to think about long-term care planning well before their need for nursing home care.
Some planning opportunities remain unchanged. For example, a recent case presented a common situation in developing a Medicaid asset protection plan for a married couple in Virginia. A community spouse was seeking advice in obtaining Medicaid long-term care assistance for her institutionalized husband who was mentally incapacitated.
The husband had inherited an interest in two parcels of real property: one parcel from an uncle named James, and the other parcel from an uncle named William. Neither uncle had a will or a list of heirs on record. Each parcel of real property had an assessed value of about $10,000. The husband had been paying the real estate taxes on both of these parcels of property for years. The wife knew that her husband’s parents were deceased, and that he had four siblings. She also knew that her husband had at least two deceased uncles, but she did not know if he had any other aunts or uncles. This resulted in the institutionalized spouse owning a fractional interest in the two parcels of real property.
Many people of modest means often die without a will. As a result, their assets will pass to their heirs as provided under the laws of intestate succession set forth in the Virginia Code. Frequently, this will result in a large number of heirs owning a relatively small interest in a single piece of real property as tenants in common. These property interests are often called “heir property.” Unless all of the owners can be located and consent to the sale of this heir property, it can only be sold through an expensive and time consuming court action called a partition suit.
How should the interests of the institutionalized spouse in these two parcels of real property be treated on the Medicaid application? The Virginia Medicaid Manual provides that an undivided interest in real property is an asset. Therefore, the property interest must be reported on the application; however, we do not want the entire value of both parcels to be applied to the community spouse’s resource allowance. The Medicaid Manual provides that if a partition suit is necessary to sell real property because there is at least one other owner, then the estimated cost of the partition suit may be deducted from the property’s value. If the cost of the partition suit would result in the applicant securing title to property that does not have a value substantially in excess of the cost of the suit, then the property will not be treated as an asset. (See Virginia Medicaid Manual Sections S1120.010(C)(2) and M1120.215.)
In the case under discussion, the community spouse was directed to execute an affidavit stating that her husband owned an undivided interest in both parcels of real property with his siblings and other family members. The community spouse then obtained a written estimate of the cost of a partition suit for each parcel of real property from a local trial attorney. Because these estimates exceeded the value of each parcel of real property, the community spouse listed each parcel on the application with a zero value. The affidavit and written cost estimates were attached to the Medicaid application.
The attorneys at The Estate Planning and Elder Law Firm provide valuable assistance to families in planning for their long-term care needs, including estate and investment planning. With the recent changes in the law, advance planning is more critical than ever
ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C.
If you are interested in having an Elder Law attorney from The Estate Planning & Elder Law Firm, P.C. speak at an event, then please call them at:
Maryland (301) 214-2229
Virginia (703) 243-3200
Washington DC (202) 223-0270
For a review of your financial plan and investment portfolio, contact a financial adviser at Ariba Asset Management at 1-800-808-7488
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Estimating Your Social Security Benefits
Description
The Social Security Administration has stopped mailing out yearly statements, but you can estimate your retirement benefit online.
Social Media Message:
Social Security has stopped mailing out statements, but you can estimate your benefit online.
With growing uncertainty about the future of Social Security funding, the Social Security Administration (SSA) suspended mailings of its annual statements. The move is expected to save the agency $60 million in fiscal 2012.
Previously, the SSA had sent all working Americans an annual statement about three months before their birthday. The statement included one’s lifetime earnings record, as well as estimates of retirement, disability, and family survivor benefits. It also reported earned credits, which indicated if one would qualify for Medicare at age 65.
Mailings for the remainder of 2012 will be limited to workers over 60, and longer term, the agency is working on an online download option for everyone else.
In the interim, you can access the same information online at SSA.gov, using one of the following methods:
• The Retirement Estimator gives estimates of your retirement monthly benefit, based on your actual Social Security earnings record. The calculator shows early (age 62), full (ages 65-67 depending upon your year of birth), and delayed (age 70). The Retirement Estimator also lets you create additional “what if” retirement scenarios based on current law.
• If you do not have an earnings record with Social Security or cannot access it, there are also other benefit calculators that do not tie into your earnings record. The calculators will show your retirement benefits as well as disability and survivor benefit amounts if you should become disabled or die.
Social Security should be a part of your retirement income planning. Make a point of checking out your estimated benefits at least annually so you know how much to expect — and how much you’ll need to provide from your own savings.
Also, remember that Social Security benefits don’t automatically increase every year. In 2011, benefits stayed the same as the previous year. For 2012, benefits will rise by 3.6% to reflect an increase in inflation
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November 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Dan Federman, CFP®, a local member of FPA.
Required Attribution
Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2011 McGraw-Hill Financial Communications. All rights reserved.
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