Ask Liz Weston

Get smart with your money

Q&A

Q&A: Should retired teacher return to work?

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Dear Liz: I am a retired special education teacher who receives a government pension. The recent law change now permits me to also receive Social Security. I have 38 of the 40 credits required in order to qualify. Am I better off getting a job to earn those two credits? Another teacher explained to me that I can be paid 50% of my husband’s Social Security benefit instead. That would likely be greater than my own Social Security benefit. We would both wait until we are 70 to collect Social Security.

Answer: The Social Security Fairness Act did away with the windfall elimination provision and the government pension offset, two rules that reduced Social Security benefits for people receiving pensions from jobs that didn’t pay into Social Security.

As you’ve noted, to qualify for your own benefit you would need 40 quarterly credits or 10 years of work history at jobs that paid into Social Security. If your credits were earned decades ago at low-paying jobs, then your spousal benefit might well be larger than your own retirement benefit.

Your spousal benefit can be up to 50% of your husband’s benefit at his full retirement age. Spousal benefits are reduced if you start before your own full retirement age, which is presumably 67, but won’t be increased if you wait beyond that age. Your husband must be receiving his own benefit before you can get a spousal benefit.

The rules can be complex so you’ll want to educate yourself thoroughly and consider consulting a financial planner to figure out the best claiming strategy.

Q&A: Not everyone benefits from the Social Security Fairness Act

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Dear Liz: My husband passed away in January 2024. He retired from the U.S. Postal Service after 37 years. He drew off of my Social Security since he did not pay in. How will the change in the windfall elimination provision affect me?

Answer: It may not.

Social Security has promised to increase benefits and make retroactive payments to people affected by the windfall elimination provision and the government pension offset. The retroactive payments reflect the increase in their payment amount dating back to January 2024, when the two provisions stopped applying. Social Security is mailing notices to people who will be affected, and most will see the benefit increases starting this month.

Technically, you weren’t affected by either provision, since they applied to people receiving pensions that didn’t pay into Social Security, not their spouses. Your husband’s Social Security spousal benefit likely was reduced because of the government pension offset.

Since your husband died the month that the two provisions stopped applying, the amount Social Security may owe him retroactively is likely small, if anything. If you don’t get a notice or see a payment, you can call Social Security to inquire, but the agency says most affected beneficiaries will get their adjustments automatically.

You can learn more about the Social Security Fairness Act here: https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html.

Q&A: Losing a home in a fire, then being hit with a ‘casualty gain’

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Dear Liz: My house was burned down in the Palisades fire. I lived in the house for 25 years and lost everything. I thought there may be a silver lining with tax deductions. Much to my surprise, I am supposed to use the purchase price from 25 years ago as my adjusted cost basis. The insurance settlement is not going to be enough to rebuild but is more than my cost basis. I will end up with “casualty gain” instead. Is this possible?

Answer: After losing your home and finding out you were underinsured, the news that you might have a taxable gain must have been a gut punch.

The IRS calls it an “involuntary conversion” when your property is destroyed and you receive insurance proceeds. If the insurance payment exceeds your tax basis in the property, that’s known as a casualty gain.

You can defer tax on this gain if you use the insurance payout to rebuild or buy a replacement property, says Mark Luscombe, a principal analyst with Wolters Kluwer Tax & Accounting. Normally you’d have two years to use the insurance proceeds, but in a federally declared disaster such as the Los Angeles fires, the deadline is extended to four years.

The IRS may be willing to further extend the deadline under some circumstances, such as contractor delays, Luscombe says. But don’t count on an extension if you’re simply unable to find a replacement property.

If you do purchase a new home elsewhere, any gain from the sale of the lot where your previous home stood also would have to be reinvested in the new home to avoid a current tax on the gain, Luscombe says.

However, the home sale tax exclusion also applies to involuntary conversions. The exclusion allows you to shelter up to $250,000 of gains ($500,000 if married filing jointly) on a sale or involuntary conversion, as long as you’ve owned and lived in the property as your primary residence for two of the last five years. So you could exclude that amount of gain and defer the rest if you rebuild or find a replacement property, Luscombe says.

This is complicated territory, so please make sure you hire a tax pro to guide you.

Q&A: Successor trustee can use estate funds to hire help

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Dear Liz: I have named my daughter as executor of my revocable living trust. I am concerned that she may not have the ability to carry out all of the functions required of an executor. Are there entities she can hire using trust funds to fulfill her duties?

Answer: Technically, an executor is a person who settles an estate through probate court. Because you have a living trust, your estate should avoid probate court, and your daughter’s role is known as a “successor trustee.”

The jobs of executor and successor trustee are much the same after a death. They’re required to inventory assets, pay your final bills, file your last tax returns and distribute your assets according to your estate documents. Both executors and successor trustees are allowed to use estate funds to hire any help needed, including an attorney and a tax pro. If you’re already working with professionals you trust, make sure she has their contact information.

Q&A: Claiming Social Security when the higher earner is younger

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Dear Liz: I am three years younger than my spouse. I have been the primary breadwinner with significantly higher earnings over our 31 years of marriage as he was a stay-at-home dad for many years. Taking my spousal benefit will be much higher for him than his own, even if he waited until he was 70. Do I have to have filed myself in order for him to be able to claim a spousal benefit, or can he claim it when he turns 67 even if I do not file for another three years (when I turn 67)?

Answer: Your spouse won’t be eligible for a spousal benefit until you apply for your own. He could, however, get his own benefit for a few years and then switch to yours once you apply.

The ability to switch from one benefit to another is typically limited. If you were already receiving your benefit, for example, he wouldn’t be able to choose between his own and a spousal benefit when he applied. He would be “deemed” to be applying for both, and get the larger of the two.

One more thing to consider: Since you’re the higher wage earner, it’s important for you to maximize your own benefit because it’s the one that determines how much the survivor will get. Usually the best course is to wait until your benefit maxes out at age 70, but other factors, including health and potential spousal benefits, should also be factored in. Consider using a Social Security claiming calculator or talking with a financial planner to determine the best strategy for your individual situation.

Q&A: Changing your married name? Expect a mound of paperwork

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Dear Liz: I use my first name, maiden name and married last name as my legal name. Just before we got married 46 years ago, I told my husband-to-be that I didn’t want to take his last name. I lost that argument. If he passes before me, I want to drop his last name. I know I would need to change my Social Security card but would I need to change everything else like my house deed?

Answer: Yes. Whenever you change your name, you can expect a mound of paperwork. You’ll start by changing the name on your identification cards, including Social Security, your driver’s license and your passport. Be sure to notify Social Security before filing your tax return, since the IRS uses Social Security records to verify your identity.

After your IDs are updated, you’ll change the name on other paperwork, such as voter registrations, property deeds, the U.S. Postal Service, banks, insurance companies, utilities and so on.

When you married, your marriage certificate and your previous identification cards were likely all you needed to update IDs. Had you divorced, you could have included the name change as part of the paperwork to help change your identification cards. In other situations, you typically need to get a court order to legally change your name. Filing fees depend on where you live. In California, for example, you can expect to pay between $435 to $450 and the process typically takes two or three months.