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| The Basics | Should I reduce my credit card limits?
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Readers ask personal finance expert Liz Pulliam Weston questions on managing credit cards and estate planning.
By Liz Pulliam Weston
Dear Liz: Until a few years ago, my late husband and I traveled a good deal and maintained a high limit on our credit cards. He has now passed away. I travel far less and no longer have a need for so much credit. I would like to have my limits reduced, but fear doing so would have a negative effect on my credit rating. Is this correct?
Answer: Lowering your credit limits may indeed hurt your credit score, the three-digit number lenders use to help gauge your creditworthiness. The scoring formula measures the gap between the credit you have and the amount you actually use. The wider that gap, the better.
Unfortunately, there is no way to determine in advance if the lowered credit limit will affect your score, according to Fair Isaac, creator of the FICO credit score.
But the damage of lowering limits on a card or two may not be that severe if you don't use the cards that much and already have a high credit score -- which is likely if you have a long credit history, are never late on your payments and don't max out your cards.
If you have reason to think your credit score may be on thin ice, on the other hand, it may be best to live with the higher limits as long as you are confident you can resist the temptation to charge away.
Parents' plans may be a secret
Dear Liz: I'm an insurance professional responding to the reader who despaired because her husband's parents refused to do any estate planning for their business, which her husband runs for them. If the parents have any kind of a competent life insurance agent, the agent has probably been talking to them about these estate-planning and business-succession problems for a long time.
It's entirely possible the parents have already completed the estate planning but chose not to tell their son and daughter-in-law. This is very common, especially if they don't like the daughter-in-law or if there is marital discord. The parents also may not care whether the business continues or may plan to sell the business when they retire and let the son fend for himself.
Answer: If the parents are secretly planning to sell the business -- either when they retire or at their deaths -- they're contemplating the one course of action that may be even more unfair than having no plan at all.
Assuming the sale wouldn't generate enough cash for the son to retire, he would face the daunting task of starting his work life over again at middle age. If he's devoted all of his energies to running the business, he may not have the contacts or the skills to make an easy transition.
If the parents were honest about their plans, he might have time to adequately prepare. Those preparations could, of course, involve leaving the family business -- which is the outcome such secretive parents may be trying to avoid.
All this only underscores how right the daughter-in-law is to worry when no clear succession or estate plans have been announced.
Other perspectives on estate planning
Dear Liz: As a certified public accountant, I have seen so many miserable scenarios of unnecessary expense and chaos that result from people's reluctance to plan for their deaths. Business owners can sometimes put off talking to the lawyer, but they usually have to talk to the accountant, since taxes need to be filed. The son could enlist the accountant to help put the facts to the elderly parents. The accountant will be able to show a pretty grim picture of what could be in store for the heirs and possibly the surviving spouse of the current owner. The son needs to act, since this situation can only get worse.
Answer: That's an excellent suggestion. Many times, a trusted third party can jump-start estate-planning discussions that have been stalled by family tensions, control issues, denial or simple procrastination.
And here's one more thought:
Dear Liz: You recently had a query about how to deal with estate planning when a small-business owner is not yet ready to even consider succession. In our area, two universities have family business programs that can help with such issues, along with other topics specific to family-owned businesses. Other universities around the country have similar resources. In addition, the son could hire a consultant who specializes in family businesses so that estate and succession planning are handled to benefit the owners as well as the successors.
Answer: Indeed, there are more than 100 such centers in the United States alone and dozens of others worldwide, according to the Family Firm Institute, a nonprofit membership association of family business programs, educators and advisors. Family business owners and members can find programs and consultants by visiting the institute at www.ffi.org or by calling (617) 482-3045.
Liz Pulliam Weston is the author of "Your Credit Score: How to Fix, Improve and Protect the 3-Digit Number that Shapes Your Financial Future." Questions for Money Talk can be submitted to her at 3940 Laurel Canyon Blvd. #238, Studio City, CA 91604, or via her Web site. She regrets that she cannot respond personally to queries.
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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