Sharing credit cards with an ex is risky, so weigh these options
Dear Liz: My divorce was final in 2016. My ex and I divided our credit cards as part of the settlement. I have several joint credit cards with high credit limits and zero balances. I have used them once a year to keep them in active status. Do I consider canceling them or do I risk lowering my credit score if I do?
Answer: If these truly are joint credit cards, then your ex potentially could run up a balance and default, damaging your credit. With joint cards, neither party can be removed by the other, so the best option may be shutting down the account.
But joint credit cards are increasingly rare. Most cards used by couples have a primary cardholder and an authorized user. The authorized user is not responsible for paying the bill and can be removed at any time.
Contact the issuers to find out your status on each card: Are you a joint account holder? Primary or authorized user?
If you’re the primary holder on a card and your ex is still an authorized user, ask that your ex be removed. If the account truly is joint or if you’re the authorized user, consider opening one or two cards in your own name before taking any further action.
Your credit scores may still take a hit when you close accounts or get removed as an authorized user, but the additional lines of credit may limit the damage and ensure you still have access to credit.
Updating old trusts and estate plans
Dear Liz: I am 97 with two sons and have a trust prepared in 1991, shortly before my husband died. You warned there can be problems with bypass trusts created in older estate plans. I suspect that’s what I have.
The attorney who created my trust died years ago, so I asked my son to do the research. He found an attorney near where I live who told us we should terminate my existing trust. We’re told it would avoid capital gains and my sons would enjoy a stepped-up basis in the assets. The charge would be close to $5,000.
If I do nothing, the assets transferred to my sons will have no stepped-up basis and will incur capital gains taxes. I am thinking of a second opinion.
Answer: A second opinion might be a good idea, but please don’t delay. Your sons could wind up paying a potentially large and unnecessary tax bill if you don’t take action soon.
As mentioned in previous columns, bypass trusts were a common feature in estate plans back when the exemption limit was much lower.
Although the trusts still have their uses, they’re often not necessary and cause problems for survivors and heirs.
Estate plans should be revisited after a major life change, a revision in estate tax laws or five years, whichever comes first.
A widow’s Social Security problem
Dear Liz: My dear friend lost her husband a few years ago. The husband did something wrong with working and collecting Social Security, so they are now withholding her $2,000 monthly Social Security check, which is devastating to her.
Can she be punished for what he did unbeknownst to her? She is stuck and doesn’t know what to do.
Answer: People who start Social Security before full retirement age face the earnings test, which reduces benefits by $1 for every $2 earned over a certain amount (in 2022, the amount is $19,560).
It sounds as though the husband didn’t properly notify Social Security about his earnings and the overpayment wasn’t discovered until after his death. Whenever Social Security is unable to recover an overpayment from someone, the agency can collect from anyone else receiving benefits on that person’s earnings record, said William Meyer, founder of Social Security Solutions, a benefits claiming site.
The letter notifying her about the overpayment would have included a section about her appeal rights. If the earnings information was incorrect, for example, she would have 60 days to appeal and supply the correct amount of his earnings.
She also can call the agency’s toll-free number, (800) 772-1213, and request that less be taken from each check. As long as the total owed is paid off within 36 months, the agency will comply, Meyer says. If she can’t afford to repay the overpayment within 36 months, she can request a longer term but she’ll have to provide proof of her income, resources and expenses, he said.
If she’s in dire straits and can’t afford to pay any of the money back — in other words, if she can’t meet her “ordinary and necessary living expenses” — she should submit an SSA-632, “Request for Waiver of Overpayment Recovery” form, Meyer said.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.