Children should think of Mom first, then their inheritance

Dollars & Sense

October 20, 2002|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

My mother-in-law is quite elderly, and her liquid assets are almost gone. We've been advised that her house should be placed in a trust, which would make her eligible for Medicaid. Would this transaction be valid? The children are her beneficiaries and are anxious to protect their inheritance.

They are, are they? Are they at all anxious to do what's best for their mother?

The question must be asked when it comes to Medicaid, the government medical program for the indigent. Medicare, the program for people 65 and older, generally doesn't pay for nursing home care, so some people try to impoverish themselves or their loved ones artificially to qualify for Medicaid, which pays for what is called custodial care.

Many people have an ethical objection to this kind of planning because Medicaid was intended to aid the poor, not to protect inheritances.

There's a practical aspect to this issue, too. Simply put, your mother probably will have more options and access to better care if she pays for it herself. She might be able to do that, and boost her monthly income, if you help her arrange a reverse mortgage on her home. That would allow her to get a monthly check in exchange for giving up some or all of the equity she has in her house. It would mean a smaller inheritance for her children, but could mean a better quality of life for her.

As for the trust, that might work to help her qualify for Medicaid if it's constructed correctly. It also might be unnecessary because, if she has few other assets, she might qualify for Medicaid now.

These are issues that she and her children must discuss with an attorney who specializes in elder law. The National Academy of Elder Law Attorneys at www.naela.org can offer referrals. If it turns out that what's best for Mom and what's best for the kids' pocketbooks are in alignment, that's great. If not, let's hope concern for Mom wins out.

I've read your advice about the importance of checking your three-digit FICO credit score, as well as your credit report, before applying for a mortgage. You mentioned the site www.myfico.com. But did you know that when you pay $12.95 for a credit score from MyFico, you're given only one of the scores that are given to lenders - the highest one? Lenders typically use a median or average of all three to make a decision on a mortgage. This can be devastating if you thought you had a better score (in my case, a high score slightly above 700), but the lenders give you a higher interest rate because your median score was actually below 700. The problem in my mind is that MyFico makes no mention of the fact that you will get only one of the scores - and not the right one - when it charges you $12.95 for the information.

You're right that the score provided by MyFico, a joint venture of credit bureau Equifax and credit scoring company Fair Isaac, is only one of the three FICO scores lenders may pull when evaluating a mortgage.

But the MyFico score is not necessarily the highest.

The MyFico.com service gives you your FICO score based on your credit report at Equifax. Your score might be different at Experian and TransUnion. Although all three use the basic FICO formula developed by Fair Isaac, each score is based on information the individual credit bureau has on file about you. Equifax might include some accounts that Experian lacks, for example, and vice versa. Rarely does one person have exactly the same credit report at all three bureaus. This isn't surprising, given that all three are private companies that compete with each other for information. Your score also can change over time as new information is added or errors are deleted.

Regardless of the source, however, more than half of Americans have credit scores above 720, a level that generally qualifies them for the best rates lenders have to offer. Their credit is good enough that variations in the three bureaus' scores are likely to be minor and probably won't hurt them that much.

When a score is borderline, as yours was, it can pay to work on improving it before you apply for a loan. Start by checking your credit report at all three bureaus and correcting any errors. If you have accounts with a long, positive history - you've had the credit for many years and made every payment on time - you can ask the creditor to report it to any bureau that's missing that information.

Other steps to take to improve your score include reducing credit card debt. Make sure, too, to pay all your bills on time, every time, because prompt payments can help restore damaged credit while late payments can devastate it.

Whatever you do, don't close any accounts while you're trying to boost your score. Despite what some ill-informed loan officers or mortgage brokers tell you, closing accounts can't help your score, and might hurt it.

Liz Pulliam Weston is a columnist for the Los Angeles Times, a Tribune Publishing newspaper.

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