Listen to Mom: Credit Card at 16 May Not Be Good Idea

Question: I’m 16 and want to build my credit rating so I can buy a car next year. My mom won’t let me get a credit card, even though I told her it will help me qualify later for a car loan. My aunt said she might help. How do I talk her into it?

Answer: You don’t. Mom gets to rule on this one.

Your ability to build a credit rating of your own right now is pretty limited because you’re still a minor. Minors can’t legally be held to a contract, so lenders aren’t going to extend you credit unless someone else is also on the hook to repay the loan.

That doesn’t change simply because you get a credit card. You’re still going to need a co-signer to get a car loan next year, since you won’t yet be 18.

If you tick off your mom by going around her to get the card, you can pretty much count out her help in co-signing for a car loan. And Auntie Mame might not be so willing to help you after she endures Mom’s wrath.

What you can do now, with your mom’s permission, is open checking and savings accounts. Having such accounts is important in starting a credit history.

Once you’ve had the accounts for several months, apply for a debit card. Debit cards are now accepted most places that credit cards are and can help you learn how to handle plastic. The difference is that charges made to debit cards are deducted directly from your checking account, so it’s pretty hard to charge more than you can repay.

Once you’re 18 and in college, you’ll have no shortage of opportunities to get a card. Learning to handle a checking account and debit card in the meantime is a good way to get ready.

You also might reconsider the idea of getting a car loan in the first place. You’re usually much better off paying cash for cars and other items that lose value.

Include Life Insurance

in Estate Planning

Q: You recently mentioned that people whose net worth was approaching $1 million should see an estate-planning attorney. You probably also should mention that people should include the face value of any life insurance policies. These amounts don’t show up in net worth because they aren’t technically assets or liabilities, but they can be a large part of the taxable estate of the surviving spouse. Because this easily can be addressed through proper estate planning (by using trusts, for example), these folks definitely should see an estate attorney too.

A: Good point. Hefty life insurance policies can be a godsend for your survivors, but can wreak havoc with estate planning if not properly handled.

Weigh Tax Implications

Before Selling Home

Q: My mother-in-law transferred her home to my husband in 1992. In 2000, she went into a nursing home and we sold the house, paying capital gains on the difference between the sale price and what she paid for the house. Since then, we have heard that we didn’t need to pay those taxes. Is that true, and if so, how do we get a refund?

A: It’s true that had you done things differently, you easily could have avoided those taxes. Because of the way you handled this, however, you pretty much locked in a big tax bill.

If your mother-in-law had kept the house and it was sold after she went into the nursing home, she could have avoided taxes on at least $250,000 of profit. Every homeowner is entitled to exclude that much profit on the sale of a home, provided she has lived in the house for at least two of the last five years.

Taxes on the home sale also could have been avoided if your husband’s mother had kept the house and bequeathed it to her son. The house then would have been revalued for tax purposes, receiving what’s known as a “step up” in its tax basis. Translated, that means your husband could have sold the house shortly after her death without owing any taxes.

You can’t turn back the clock, but this is a valuable lesson. Don’t make decisions about major assets without consulting a tax pro who can walk you through the financial implications of your choices.

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Liz Pulliam Weston is a contributor to The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at [email protected] 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.