Ways to Prevent a Less-Favored Child from Successfully Challenging Your Will in Court

When you have more than one child, the easiest way to divide your estate among them is to give each child the same amount. If you have two kids, they each receive half of your assets; if you have three, they each get a third.

But what if you don't want to divide your assets equally among your children? What if you don't want to leave any of your estate to any of your children at all? You need to do some advance planning to minimize the chance of a child successfully challenging your will.

A simple way to prevent a lawsuit over an unequal inheritance is by making your wishes known to your children while you’re alive.

“Many parents assume their kids will understand why they did what they did, but this is usually not the case,” says Candice N. Aiston, an estate planning attorney with Aiston Law in Portland, Oregon. “Parents should communicate their thoughts with their children during their lifetime and get any feedback from the kids that maybe they had not considered. It is much easier to sort out hard feelings while the parents are still alive than it will be after they're gone,” she says. “Parents should communicate their thoughts with their lawyer and get feedback from the lawyer about how successful a plan they have in mind will be.”

Another step to take is to create evidence that you were of sound mind and not acting under duress when you created your will.

If you are older or in poor health, consider having your will executed after your next doctor’s visit, says Margaret T. Campbell, J.D., an assistant professor in the School of Legal Studies at Husson University in Bangor, Maine. You can even take your estate planning attorney to your doctor’s office and ask your doctor to be a witness to the will to make any challenge on the basis of incapacity more difficult, she says.

In addition, you should never include your children in meetings with your attorney discussing the will, or at the execution of the will, Campbell says. While your children might object, especially a child who is your caregiver, it’s for your own protection. Campbell says she follows this practice in all cases, no matter how loving the family, so that no matter how many years later a challenge comes up, “I can testify that I did not allow anyone other than the client into those meetings and thus the favored sibling was not there to unduly influence the parent. I also question closely any client who is considering an unequal division, to assure myself that they are not doing it out of undue influence,” she says.

If you’re concerned about a child using an inheritance irresponsibly but you would otherwise like to leave them something, consider using a trust to provide for them. They might not be thrilled about the decision, but they'll probably accept it more readily than they would being left out of your will. A trust can help prevent conflict and increase the odds of your child using your money responsibly.

For more expert advice on how to allocate your estate among two or more children, read my Investopedia article, Advice on Wills: Should Each Child Get the Same?

Should You Sign Up for a Health Savings Account (HSA)?

This open enrollment season, my husband’s employer offered us a new health insurance option: a high-deductible health plan and a health savings account. This option has been around since the early 2000s, but it was the first time we'd had an employer present it to us.
 
Legally, a "high" deductible can be as low as $1,300 for singles and $2,600 for families. But those are minimums, and the plan offered to us has a $1,500 deductible for singles and a $3,000 deductible for families. That's more than four times the deductible we would pay under a traditional PPO, which is the plan we’ve had for years.
 
So why would we even consider it? First of all, the premiums are $900 lower per year. If we manage to be extremely healthy next year, we’ll pay less for health care.
 
But the real draw is the HSA. Contributions are tax free, investment gains are tax free and withdrawals for qualified medical expenses are tax free. You can take these accounts with you from one job to the next and roll the balance over from year to year. So while you can use an HSA like a flexible spending account for current medical expenses, an even better way to use it, if you can afford to, is like a retirement account.
 
To be eligible to have an HSA, you must have a high-deductible health plan. That means we’re taking a chance on having higher out-of-pocket medical expenses next year. But my husband’s employer has mitigated the risk significantly by kicking $1,000 into the HSA for families ($500 for singles) for any employee who signs up. Even if we have high medical expenses next year, my calculations show that we’ll come out ahead with the HDHP and the HSA. It helps that both plans we can choose from have the same coverage; the only differences are the deductibles and premiums.

Our goal is to use the HSA as a retirement savings account and not use it for medical expenses until we’re 65. Instead, we’ll try to pay for expenses up to our $3,000 deductible out of pocket. If we get hit with a large bill all at once, we’ll try negotiating a discount or getting a monthly payment plan, both strategies that have worked with us in the past. Once we meet our deductible, we’ll be responsible for 20% coinsurance in network, which we’re used to paying.
 
We’ll take our $5,750 contribution to the HSA plus the $1,000 from the company—$6,750 is the maximum a couple under 50 can contribute in 2016—and invest it. Investing $6,750 for the next 25 years with an average annual return of 6% will give us more than $30,000 to put toward health care expenses in retirement. The sacrifice we’ll make next year seems small compared to the long-term benefits.

The decision was difficult to come by. But we think it will pay off for us, and it could for you, too. Whether you’re shopping through the Affordable Care Act marketplace or getting insurance through your employer, take a close look at any high deductible health plan that’s offered to you. 

Along the way to making this decision, I did a lot of research and discovered that HSAs aren't just a great tool for saving money on current medical expenses; they're an even better tool for saving for retirement. Learn more in my Investopedia articles, How to Use Your HSA for Retirement and  Switch to a High-Deductible PPO to Get an HSA? And get the complete scoop on HSAs in my tutorial, How HSAs Work.

Is There a Limit to How Many Times You Can Refinance Your Mortgage?

I've learned a lot about personal finance over the years from Jonathan Ping of My Money Blog. One important lesson I learned from his blog posts about refinancing his home is that there's no reason not to refinance your mortgage repeatedly as long as you're coming out ahead each time. So I have, three times in five years. How and why did I do it, and how much money did I save? Find out in my latest Bargaineering post: I’m into serial refinancing … You should be, too.

Should You Buy a Home or Keep Renting?

It's a question we see all the time in headlines, especially when rents in a particular city are similar to what the monthly mortgage payment would supposedly be on an equivalent home that you could purchase. I say "supposedly" because a lot of assumptions go into that comparison that may not be true for any individual renter/prospective homebuyer: that they have a 20% down payment and good credit, for example.

I recently had the opportunity to add my two cents' worth to the discussion. You can read it in my Investopedia article, Renting vs. Owning: Which is Better for You? Learn why I think that despite the conventional wisdom, and despite my own status as a homeowner, renting often makes more financial sense.

Everything You Need to Know about Reverse Mortgages

Reverse mortgages aren't easy to understand. They work very differently than the types of mortgages you can get to buy a house. And the way you structure your reverse mortgage, along with life events and housing market conditions you can't predict or control, have a major impact on the amount of proceeds you'll receive and how well a reverse mortgage will help you solve your financial problems or create a more comfortable retirement. 

I've been researching these loans for months for a series of articles for Investopedia. I've read the mortgage lender handbooks, government regulations, government reports, and books by mortgage insiders that lay out the rules on how these loans work. Check out the articles below, where I've translated all that information into language the average consumer can understand to help you figure out if a reverse mortgage is a good idea in your situation and what to look out for. 

Yes, You Can Buy a Home with a Reverse Mortgage

How to Avoid Outliving Your Reverse Mortgage

How to Choose a Reverse Mortgage Payment Plan

Find the Right Reverse Mortgage Counseling Agency

How Regulations Protect Reverse Mortgage Borrowers

5 Signs a Reverse Mortgage Is a Bad Idea

5 Signs a Reverse Mortgage Is a Good Idea

Guidelines for FHA Reverse Mortgages

Reverse Mortgage: Could Your Widow(er) Lose the House?

Protect Yourself Against Reverse Mortgage Scams

Find a Reverse Mortgage Lender You Can Trust

Do You Qualify for a Reverse Mortgage?

Reverse Mortgages and Your Taxes

The FHA's 203(k) loan can help you buy a fixer-upper

Here’s a common scenario that homebuyers face when they want to buy fixer-uppers: The buyers need to finance the purchase with a mortgage, but the mortgage lender will only provide funds for homes in good condition.

In today's market, many foreclosed and short-sale homes need major repairs since their owners couldn’t afford basic maintenance. Buyers who would like to earn sweat equity through purchasing and rehabbing such properties are often shut out of the mortgage market.

But the Federal Housing Administration's 203(k) program makes it possible for these types of would-be owner-occupants to get loans for fixer-upper properties (the 203(k) program is not available to investors).

If you're interested, here are a few things you should know about 203(k) loans:

-A seller might be reluctant to accept a purchase offer that’s contingent on FHA 203(k) financing because of the extra time and uncertainty involved in closing these loans.

-The program allows homeowners to do their own rehab work, but it will hold you to professional standards.

-You’ll be allowed a maximum of 6 months to complete the work whether you hire professionals or do it yourself.

-While loan proceeds can only be used to pay for professional labor--not homeowner labor--doing the work yourself could mean a smaller mortgage.

The FHA 203(k) program isn’t for the faint hearted. It takes two of life’s most expensive and stressful transactions--buying a home and doing major renovations--and adds mortgage lenders and government, two of the most difficult institutions to work with, to the mix.

But this loan program can make an otherwise impossible home purchase a reality for determined homebuyers.

For more information about this type of loan, see my articles: 

The FHA 203(k) mortgage: Home renovation helper

An Introduction to the FHA 203(k) Loan

Applying for an FHA 203(k) Loan

How to Finance a Fixer-Upper

Will Opening a New Credit Card Hurt Your Credit Score?

My parents taught me to be careful with money and credit, and I've always had a good to excellent credit score as a result. I've also had the good fortune of not having my credit reports affected by any errors or fraud (knock on wood).

But I do have a habit that many people think is bad for your credit score: opening new credit card accounts. I typically open and close a few new accounts every year depending on what new credit card promotions are available and what types of rewards cards best fit my current spending patterns.

It's true that opening a new credit card account affects your credit.

For starters, it increases your total available credit, which has both good and bad effects.

The upside is that the smaller the percentage of your available credit that you actually use, the better it is for your score. Having more credit but keeping your monthly credit card purchases at the same level can thus raise your score slightly.

The downside is that if you're looking to make a major purchase, a recent increase in available credit can alarm lenders, who worry that you might overextend yourself and be unable to repay them.

Opening a new account also lowers the average age of all your accounts, which can have a slightly negative effect on your score. In general, the longer your credit history, the better.

Applying for a credit card results also in a lender checking your credit report. Whether you get approved or rejected for the new card, this "hard pull" has a slight lowering effect on your score.

Overall, opening new accounts is a relatively minor factor in your credit score--it only accounts for 10% of your score. Here's what you should be more concerned about:

-Payment history. Paying your creditors on time accounts for 35% of your credit score.

-Total debt. The less you owe compared to the amount of credit available to you (for credit cards) and compared to your original loan balance (for installment accounts), the better. Total debt accounts for 30% of your score.

-Credit history length. Longer is better, as long as you've been responsible. A short history is okay if you've made your payments on time. A nonexistent history can be a problem as creditors won't have anything to judge you on. Fifteen percent of your score is based on your credit history length.

-Credit scoring formulas also like to see that you have different types of credit, like a mortgage, auto loan, and credit card, but don't go out and open accounts you don't need to try to boost your score. Credit mixture only accounts for 10% of your score.

If you already have good to excellent credit and you aren't planning to take out any major loans, rent an apartment or apply for a job in the next six months, don't worry about the impact of opening a new credit card account on a credit score. Use your card carefully and enjoy the perks.

How to Get the Best Value on Grocery Store Meat

The best way to stretch your grocery budget when buying meat is to buy inexpensive cuts like bone-in, skin-on chicken thighs and tough cuts of beef and pork that you simmer in the slow cooker for hours.

At least, that's what I thought. I was wrong.

After months of blowing our grocery budget, I decided it was time to get back on track to my goal of spending just $285 a month. (If this sounds really low, it's because we go out to eat a few times a week.)

The best way to stretch the budget for two people who like to eat meat at almost every meal turns out to be purchasing boneless, skinless chicken breasts on sale.

You'd never think that a cut of meat that requires more labor--someone, or some machine, has to butcher the bird, remove the bones, remove the skin, and trim off lots of fat and gristle--would be the most economical. But I've found this to be true.

A local, low-budget grocery store puts this cut on sale for $1.59 a pound every few weeks, and we stock up then. We cut all the unsavory parts that remain off the breasts, which takes about 40 minutes for 12 pounds of similar sized cuts of meat that will cook in roughly equal amounts of time. We then freeze them in bags containing 1.5 pounds each, since that's how much we like to cook at one time. Cooking weeknight dinners becomes really convenient, because we now have premium, perfectly trimmed pieces of meat at a fraction of the cost.

But the trimming process leaves about 1-2 pounds of fat with pieces of meat mixed in. We used to toss this out, figuring that we were still coming out ahead overall, and that the time it would take to cut the meat more precisely wasn't worth it (the 80/20 principle). But I've discovered that I can toss all of the scraps into a crock pot on low for a few hours, melt the fat away, and be left with mostly usable scraps of chicken breast that are great for mixing with a sauce or putting in omelets, quesadillas, enchiladas, or any other dish that's good with small pieces of meat. I still lose whatever I paid per pound for the chicken fat, but I lose less than 10% of what I purchased, or about 16 cents per pound.

Bone-in, skin-on chicken legs, on the other hand, cost me 69 cents a pound on sale, and I lose a whopping two-thirds of that in bones, fat, gristle and skin that gets thrown out (maybe you like to use some of these things for stock, but I don't). I have a kitchen scale, so I actually did the math--I'm not just eyeballing it. That means I'm effectively paying $2.10 to get one pound of useable meat, still doing plenty of labor to separate out the edible meat, and getting a less healthy product (though dark meat simmered in its own fat in a slow cooker certainly is tasty!). The same goes for pork shoulder, which might cost $1.69 a pound and similarly loses 2/3 of its weight after subtracting skin, bones and fat.

Would it be cheaper to eat rice and beans, or quinoa, or other vegetable sources of protein? Maybe. But we like meat, so we find ways to make it as affordable as possible.

Making Sense of Private Mortgage Insurance

Private mortgage insurance, or PMI, is often bad-mouthed as a terrible deal for consumers.

But without PMI, you might not be able to get a conventional home loan at all.

PMI is required on almost any conventional mortgage when the borrower doesn't make a 20% down payment.

And if you need to pay PMI, you’re in good company. About 25% of loans that closed at the end of last year required it. The younger you are, the more likely you'll need to pay PMI since you haven't had as much time to save.

Thanks to new lending guidelines enacted last December, you can put down as little as 3% these days, not 5%, and still get a conventional mortgage.

Other low-down-payment borrowers probably have just one other option: an FHA loan. The FHA lowered its mortgage insurance premiums in January from 1.35% of the monthly loan balance to 0.85% of the monthly loan balance, but you’ll still be stuck with FHA insurance for the life of the loan, whereas PMI eventually goes away.

Most borrowers will pay less with conventional PMI, but it depends on your down payment, credit score, loan term. Ask your lender to show you all your options. For higher-risk borrowers, the comparisons might look like those in the chart below.

Will you pay less with conventional or FHA?
3% down, $200,000 loan and 680 credit score
	Conventional Loan with Private Mortgage Insurance*	FHA Loan with FHA Mortgage Insurance
Upfront mortgage insurance %	0.00%	1.75%
Upfront mortgage insurance amount	$0.00	$3,500.00
Total loan amount**	$200,000.00	$203,500.00
Monthly PMI %	1.31%	0.85%
Monthly PMI amount	$218.33	$144.15
5% down, $200,000 loan and 680 credit score
	Conventional Loan with Private Mortgage Insurance*	FHA Loan with FHA Mortgage Insurance
Upfront mortgage insurance %	0.00%	1.75%
Upfront mortgage insurance amount	$0.00	$3,500.00
Total loan amount	$200,000.00	$203,500.00
Monthly PMI %	0.89%	0.85%
Monthly PMI amount	$148.33	$144.15

* Based on PMI rates from Radian, Genworth and MGIC.

Most borrowers roll the FHA’s up-front mortgage insurance into the loan balance.

Lenders look at your down payment, credit score and loan to get a number that they multiply against the amount you’re borrowing. The result is the annual cost of PMI. Divide that amount by 12 to get your monthly PMI payment. 

The higher the loan amount and the lower your credit score, the higher the monthly PMI you pay; the closer you get to 20% down and excellent credit, the lower the monthly PMI. 

There are several different companies that sell PMI, but their rates are similar, and you won't be able to choose, anyway. If your lender requires PMI, expect to pay monthly premiums for at least two years. At that point, you can cancel PMI if your home has appreciated enough or you've somehow prepaid enough principal to get to 25% equity.

Otherwise, you’ll have to pay PMI for at least five years and get to 20% equity, or 80% loan to value.

Canceling PMI costs money, too, because requires an appraisal to prove that your home is worth what you say it is. An appraisal might cost you $400 to $500. But don't order the appraisal yourself; your lender must order it directly or you won't be able to use it.

Market appreciation, improvements you’ve made or both could increase your equity quickly. Making extra principal payments is another way to reach the required 80% LTV.

How long will it take you to reach 80% loan-to-value just by making your scheduled monthly payments? Say you're borrowing $100,000 for 30 years at 4%, and your home’s purchase price was $110,000. When your loan closes, you’ll have 9% equity ($10,000 down payment divided by $110,000 purchase price). You’ll have 80% LTV when your loan balance is $88,000 (80% of $110,000).

Here's how to do the math. After plugging the loan amount, interest rate and term into a mortgage calculator, click on the amortization table tab and select the monthly option.

Scroll down until the number in the right column is $87,930 (the first point at which the balance drops below $88,000). Then look at the date in the far left column. In this example, it’s about six years into your mortgage. That's when you can contact your lender about canceling PMI.

(Also, when you sign your mortgage papers at closing, you should have received a disclosure notice providing the date when your loan is scheduled to reach 80% LTV.)

The good news is that federal law requires your lender to cancel PMI once you've paid your loan down to 78% of your home's purchase price, even if your home has lost value. No appraisal is required.

Waiting until you reach 78% means paying an extra year’s worth of PMI in this above example, however. Why not save your money by getting PMI canceled as soon as possible? The interest you'll save is probably more than the appraisal will cost. (You won't come out ahead, though, if your home appraises too low for you to cancel PMI.)

Contact your lender before you reach the 80% mark to ask what the official process is for canceling PMI so you’ll be prepared to ditch it. When you reach 80% LTV, submit your cancellation request in writing, making sure to carefully follow the lender’s requirements.

PMI cancellation, whether you’re at 80% or 78% LTV, is contingent upon your being current on the mortgage and having a timely repayment history. If you’re behind, you’ll have to catch up before your lender will cancel PMI.

To learn more about how much PMI costs, who it really protects and more, see my Interest.com article, "What you need to know about private mortgage insurance." I've also written 

BankAmericard Better Balance Rewards Credit Card Review

The BankAmericard Better Balance Rewards card offers cardholders up to $100 in cash per year for their "responsible payment habits."

What does BofA consider responsible?  Paying more than the monthly minimum on or before the due date.

Each time you meet these requirements for all three months in the quarter, you'll get $25 in cash back automatically credited to your account.

Carrying this card will, in fact, pay off for cardholders who already have responsible credit habits--by which we mean paying your balance in full and on time every month.

But consumers who use credit responsibly can find much easier ways to earn $100--or more--from a new credit card.

If you've fallen into the habit of only paying the monthly minimum in the past, this card won't help you get ahead. It will probably do the opposite.

It doesn't matter how much more you pay than the monthly minimum--if you pay $50.01 when you owe $50, you'll qualify for the cash back.

Since the card has a 0% introductory APR for the first 12 months, you won't experience any consequences from paying just a penny over the monthly minimum for 12 months.

BofA will reward you while you rack up debt.

Balance transfers have a 0% APR for 12 months, too, if you don't mind paying the 3% balance transfer fee.

Once you hit month 13, however, the $100 in rewards you've accumulated for your "responsible payment habits" will vanish almost instantly as your interest rate shoots up to 11.99% to 21.99% variable, based on the prime rate and your creditworthiness when you open your account.

If you get stuck with the penalty APR because you make a late payment, you'll be paying 29.99% APR on new purchases--indefinitely.

The card's next trick?

If you have another qualifying BofA account, you can earn an extra $5 per quarter, for a total of $120 in cash back per year.

You're likely to pay more in fees just to have that account. BofA's checking accounts have monthly maintenance fees of $12 or $25, depending on your account type, if you don't meet the monthly direct deposit or minimum balance requirements.

Finally, when you do get a cash back reward, don't think it will offset your monthly minimum payment amount--it won't.

You also won't outsmart the credit card company's rewards program by getting approved for the card then stashing it in a drawer.

If your minimum monthly payment is $0 because you didn't make any purchases, you'll forfeit the bonus for the whole quarter.

You have to actually use the card--and incur the risk of missing a payment deadline--to get the rewards.

Late payments mean not only sacrificing your rewards, but paying $25 for the first late payment and $35 for any subsequent late payments within the next 6 billing cycles.

To its credit, the card doesn't have an annual fee.

And if you make a late payment when your balance is $100 or less, BofA won't charge you a late payment fee.

Otherwise, the most likely person to see a better balance from this card is the Bank of America genius who dreamed up this credit concept.

HGTV's "House Hunters" Finally Explains How Young Homebuyers Finance Fixer-Uppers

When you're just starting out and buying your first home, where do you get the cash to fix it up if it's not already in great condition?

Lots of first-time homebuyers find themselves in this situation: They're ready to own and they have enough income and savings to qualify for a mortgage, but they can barely afford the type of home and/or neighborhood they want to live in, and the home might need lots of improvements and renovations to fix deferred maintenance and outdated finishes.

If you watch House Hunters on HGTV, you've probably seen lots of homebuyers in this scenario. Something that's always bugged me is that the show doesn't explain how a cash-strapped young buyer can afford to renovate a fixer upper.

Finally, last night, I saw an episode called "22-Year-Old Seeks Victorian Fixer-Upper in Pittsburgh" that addressed this issue. The young woman said she had secured an FHA 203(k) loan so she could buy a fixer-upper. She had qualified to borrow $150,000, a sum that would have to both cover the purchase price and the renovations. She ended up buying a $70,000 home, which gave her plenty of funds to improve an old Victorian in an up-and-coming neighborhood.

The episode still didn't get into the details of how the 203(k) program works, so if you'd like to learn about a loan that can help you buy and renovate a fixer-upper, check out my recent Interest.com article, "How to Finance a Fixer-Upper."