Dad didn’t trust banks. How to handle the hoard he left behind

Dear Liz: My father was eccentric and given to conspiracy theories. He didn’t trust banks or the stock market and invested the bulk of his money in gold coins and bars. We are talking millions of dollars at current gold prices. My parents set up a living trust, so when my mother dies, I am confident the gold will be distributed equitably to myself and my siblings, without a lot of hassle in probate. But I have no idea how to convert all that gold into a more liquid investment like an IRA or money market fund. How do I do it and not be overwhelmed with fees and taxes?

Answer: Let’s hope the gold is safely stored and properly insured. It would be a shame if burglars walked away with your inheritance.

If your mother’s estate is large enough to owe estate taxes, the estate will pay those — not the heirs. (The current exemption is more than $11 million per person, so very few estates owe this tax.)

Under current law, the gold will receive a new, “stepped-up” value for tax purposes on the day your mother dies, said Jennifer Sawday, an estate planning attorney in Long Beach. You should note the price of gold on that day, using a reliable gold pricing site, and print out the information for future tax purposes, Sawday said.

Once you receive the gold, you can take it to a precious metals exchange and cash it in. If the price you get is higher than the price of gold on the day your mother died, you would have a taxable capital gain. If the price is lower, you would have a capital loss. You wouldn’t owe any taxes and could use the loss to offset capital gains elsewhere or, if you don’t have gains, as much as $3,000 of income per year until the loss is exhausted.

You can deposit the cash in a bank account, or open a brokerage account and choose your investments from there. Those investments might include a money market fund as well as stocks, bonds, mutual funds and so on.

An IRA is a type of retirement account, not an investment, and requires you to have earned income to contribute. The contribution limit is $6,000 this year, or $7,000 if you’re 50 or older, so you wouldn’t be able to put much of your inheritance into an IRA in any case.

An excellent use of some of this cash would be to hire a fee-only, fiduciary financial planner who can help guide you on how to invest the money wisely and with an eye to minimizing taxes.

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Account closure and credit scores

Dear Liz: My mother is very focused on her credit score, which is consistently excellent. I found out that she recently called her bank and asked it to lower her credit limit on one of her long-held credit cards from $32,000 to $5,000. She uses the card only to charge infrequent, small amounts and always pays it off. She believes having a large credit limit counts as “potential debt” and hurts her credit profile, whereas I believe having a high credit limit on a lightly used card is very good for your credit. I guess we’ll find out who’s right next month when my mom diligently checks her credit score. In the meantime, could you weigh in?

Answer: You are correct. Credit scoring formulas like to see a big gap between the amount of credit you’re using and the credit you have available. Lowering your credit limit on a card can have a negative effect on your scores.

Before the advent of credit scoring, lenders did worry that someone with a lot of available credit would suddenly run up big balances and default. Data scientists discovered, however, that people who had been responsible enough to be granted high limits tended to remain responsible with their credit.

If your mother has several other credit cards and uses this one lightly, the effect may not be significant. If she wants to keep her scores high, however, she probably shouldn’t repeat the experiment with any other cards.

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.