Take Positive Measures to Erase Negative Score From Credit Report

Question: Now that consumers are able to view their own credit scores, I requested mine, confident that it would be at the higher end of the scale. I was shocked to learn that at 671 mine was considered “below average.” The greatest negative, 40 points, was due to a collection matter that took place a number of years ago against my husband. It was a business debt, not a personal debt, but that’s not how it was reported. After learning my score, I sent a letter to the creditor’s collection attorney trying to enlist his help in removing this from our credit report, but I never heard from him.

Answer: You expected rather a lot from an attorney hired by your husband’s creditor. This professional has no obligation to try to help you, and doing so might be a conflict of interest for him.

You have a few options. You and your husband can ask your nearest credit bureau (Experian, if you’re on the West Coast) to investigate the issue. If you’re not jointly responsible for the debt, you also might ask Experian to separate your credit history from your husband’s. Spouses are entitled to separate credit histories, although any debts you incur together will continue to be reported on both histories.

If those options don’t work, you can try just waiting it out, especially if you don’t have a pressing need for new credit. Negative items typically are reported for only seven years, so the collection soon might drop off your record if it happened “a number of years ago.”

You always have the option of hiring your own attorney. Whether that makes sense depends on the details of your case, and the attorney might be the best judge of whether it’s worth pressing forward. This time, though, consider asking your local bar association for some referrals, rather than relying on your husband’s creditors to recommend one.

Don’t Worry About Gift Tax Return

Question: I am giving my daughter $75,000 toward the down payment on a house that she and her husband are buying. Does she incur any tax liability on this money? Can I deduct $20,000 as a gift from my wife and me?

Answer: You can’t deduct the gift, and you’re the one with the potential tax liability, not your daughter. But that shouldn’t necessarily stop you from being generous.

Tax rules allow you to give $10,000 per recipient a year without having to file a gift tax return. As a married couple, you and your wife can give $20,000 each year to any one person. So the most you and your wife could give to your daughter and her husband without having to file a gift tax return is $40,000.

But even though you must file a gift return, you probably won’t owe any gift taxes immediately--if ever. The gifted amount over $40,000 would be deducted from your lifetime gift tax allowance--currently $675,000--and you only would owe taxes once you exhausted that allowance.

If that figure looks familiar, it’s because $675,000 also is the exemption limit for estate taxes. Any taxable gifts you make also are deducted from the sum you otherwise would be able to pass tax-free to your heirs. If you and your wife gave the couple $75,000 this year, your lifetime exemptions theoretically would be reduced to $657,500 each. (That’s the current $675,000 estate tax exemption limit minus one half of the amount over $40,000, in case you want to do the math.)

The rules change somewhat next year as estate tax repeal begins to phase in. The exemption limit for both gift and estate taxes will rise to $1 million in 2002. Over the next few years, the estate tax exemption limit will continue to rise until the estate tax is repealed in 2010.

The gift exemption, however, will remain at $1 million per person even after the repeal takes effect. (In 2011, the repeal is scheduled to expire and the estate exemption is scheduled to return to the $1-million limit.)

Any taxable gifts you make will be deducted from both your estate tax exemption limit and the gift tax limit. You would owe gift taxes once your total giving exceeded the $1-million gift tax exemption limit.

Unless you’re quite wealthy or extraordinarily generous, however, you probably don’t need to worry about exhausting your exemption.

For now, consult an estate planning attorney if you’re worried about the ramifications of your gift on your future estate tax bill. Otherwise, just file the gift tax return and enjoy your daughter’s gratitude.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at moneytalk@latimes.com 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 https://www.latimes.com/moneytalk.