Get smart with your money
Dear Liz: Is it possible to revoke an irrevocable trust?
Answer: Surprisingly, yes, in some cases it’s possible to revoke an irrevocable trust, depending on state law, the terms of the trust and the circumstances. For example, a trust could be dissolved or changed if all the beneficiaries agree and a court approves. In other cases, assets can be “decanted” from the old trust and put in a new, less restrictive trust. An experienced estate planning attorney can review the trust and offer advice.
Dear Liz: My mail with a check to the IRS was stolen from inside the post office (I dropped it into the internal wall slot). The envelope was pre-addressed to the IRS P.O. box. The payee on the check was altered. The memo section text was removed, and parts of the upper-left section of the check were removed or altered, including a misspelling.
I discovered the mail theft after the bank’s 90-day reporting period but within the UCC (Uniform Commercial Code) filing period. I opened a police report, filed a notarized Affidavit of Check/Account Fraud with my bank, closed that checking account, and filed a complaint with the Consumer Financial Protection Bureau.
The amount lost is in the mid-five figures. Is there anything more I can do to get my money back? If not, any way to deduct the loss? I am crying all the time and losing sleep. I am a senior, if that matters.
Answer: Francoise Cleveland, AARP’s government affairs director, says you’ve already taken many of the recommended steps to deal with check fraud, including filing a police report, closing the account and working with your bank.
In addition, Cleveland recommends reporting the theft to the Federal Trade Commission and the U.S. Postal Inspection Service, which investigates mail theft and related check fraud. (You can file a mail theft complaint online at the USPIS.) Cleveland also encourages you to contact the AARP Fraud Watch Network for information, support and further guidance.
Whether you ultimately get your money back depends on several factors, including the specific facts of your case and state and federal law. Banks work through these determinations behind the scenes, and it can take time, Cleveland says.
That said, you may want to hire an attorney familiar with banking or consumer law. Unfortunately, it can be easy for a bank to ignore a customer, but it’s a lot harder to ignore a law firm. At a minimum, make sure your bank has copies of the police report and your USPIS filing.
As far as deducting the loss, the news isn’t good. Personal theft losses generally are deductible only in limited circumstances, such as when the theft is attributable to a federally declared disaster, Cleveland says. Victims of investment fraud may deduct their theft losses, but victims of other types of fraud (such as romance scams and government impersonators — ”I’m from the IRS and you’re about to be arrested”) aren’t eligible.
It gets worse. People have had money stolen from a 401(k) or another account where withdrawals are taxable. So not only are the victims out the money and unable to deduct their losses, but they typically still owe taxes on the withdrawal. Cleveland says AARP supports a bipartisan bill called the Tax Relief for Victims of Crimes, Scams, and Disasters Act that would provide some help to victims of fraud and unexpected disasters even if they are unable to recover their stolen funds.
You should also be aware that scammers may target you again, promising they can help you recover your stolen money. The Federal Trade Commission warns you to be wary of anyone trying to charge you an upfront fee to get your money back.
And for everyone else who’s reading this: Please take heed. Mail theft and check fraud have soared. Switch to electronic payments now before you become yet another victim.
Dear Liz: Regarding the fees charged to use credit cards. Aren’t the fees charged by the credit card companies considered deductible expenses on the businesses’ taxes? It seems that if the customer pays the surcharge then the business claims a deduction on its taxes, the business is getting a big benefit. It’s nothing but a scam. If I’m paying the fee, then the business shouldn’t be able to deduct it.
Answer: You don’t have the accounting quite right. The surcharge you pay to use a credit card is generally considered income to the business. The deduction isn’t a windfall but prevents the business from being taxed on money it collected and then paid to the credit-card processor.
The surcharge allows the business to pass some or all of its processing costs onto the customers that cause it to incur the costs, rather than simply absorbing the expense. Of course, some customers will take their business elsewhere because of the surcharge, so the ultimate effect on profits is in question.
Dear Liz: My two grandchildren are in middle school and are expected to attend college. I’d like to contribute to 529 plans for them, possibly making five years’ worth of contributions at once. Should I contribute to the plans their parents have established, or open separate 529s so I can maintain control? I’m 86 and live in California; my grandchildren live in Oregon. What would you suggest?
Answer: As you know, 529 college savings plans allow you to contribute up to five times the annual gift tax exclusion limit in one year and treat the contribution as if it were made over five years. Since the annual limit in 2026 is $19,000, you could contribute up to $95,000 per child this year without reducing your lifetime gift-and-estate tax exemption. This “superfunding” is allowed whether you set up the accounts yourself or contribute directly to the already-established ones.
To be clear, the five-year rule doesn’t offer a direct tax break to you. But if you’re concerned about estate taxes, the five-year election can get a chunk of money out of your estate. Keep in mind that most people don’t have to worry about estate taxes, as the current lifetime limit is $15 million per person.
You’ll need to file IRS Form 709 to make this election. If you make other financial gifts to the grandkids during the five-year period, you must file gift tax returns to report those amounts to the IRS. And if you die before the end of the five-year period, the portion of the 529 contributions attributable to the years after your death will be added back to your estate. Your estate planning attorney can offer further advice.
If you’re not worried about estate taxes but you’re certain you won’t need the money yourself, you might still make a large contribution now to get the money growing tax-free for your grandchildren’s educations. Or you can simply make annual contributions and either keep them under the annual gift tax exclusion limit or be ready to file gift tax returns if you go over the limit. You won’t owe any gift taxes until your gifts over the annual exclusion exceed that massive lifetime limit.
Now, on to the question of whether to open your own accounts or contribute to the existing ones. Opening your own accounts for the grandkids means you’ll get to maintain control over the funds until they’re needed, plus the money isn’t considered in federal financial aid calculations. Only 529s owned by parents or students have to be reported in the Free Application for Federal Student Aid (FAFSA), although some colleges may use other formulas when awarding their own aid.
Contributing the money directly to the plans already established means the parents will control the funds. On the plus side, that relieves you of the burden of administering the accounts.
Oregon does offer an income-based tax credit for contributions that maxes out at $190 for single filers and $380 for married people filing jointly. Only Oregon taxpayers making the contribution to Oregon educational plans can get the credit, however. If you give the money to the parents rather than directly to the 529 plan, you’ll need to keep gift tax rules in mind since any gift over $19,000 per recipient would need to be reported.
Dear Liz: I will be 62 in January. My husband turns 70 in July. If I take my Social Security benefits at a reduced rate at 62, can I switch to half of his benefits once he turns 70 and applies? Let’s say my reduced benefit at 62 is $1,000 per month and my husband’s maximized benefit at 70 is $4,000 per month. Can I switch to a spousal benefit for a payment of $2,000?
Answer: You may be able to switch, but you’ll get a lot less than $2,000.
The spousal benefit is based not on what the husband receives, but on his benefit at his full retirement age, which for illustration purposes we’ll say is $3,200. The spousal benefit can be up to half that amount, or $1,600. If you apply at 62, though, you’ll be accepting a permanent reduction in both your own retirement benefit and any future spousal benefit, as I explained in an earlier column. The reduction is steep enough that you probably wouldn’t notice much of a change once your husband applies and you qualify for the spousal addition.
Those are the rules for spousal benefits. Survivor benefits are a different matter. Survivor benefits are based on what your husband actually receives (or what he’s earned, if he dies before starting benefits). Also, the early start of your own benefit wouldn’t reduce the future survivor benefit you receive should he die first.
In many cases, the smart approach to maximizing Social Security benefits means waiting at least until your own full retirement age and often until age 70 to apply. Your mileage may vary, of course, so it can be helpful to use a good Social Security claiming strategies calculator and to carefully read the reports they generate. T. Rowe Price has a free Social Security Optimizer at https://www.troweprice.com/
Got a question about money? You can submit it here.
Dear Liz: I have taught for 22 years and recently accepted a position in a neighboring school district. I have a 403(b) retirement plan invested in a low-cost target date fund. The neighboring district’s vendor list does not include this option. Would it be more advantageous to leave my money in the current account or to roll it into a brokerage with a target date fund? If so, how do I choose what’s right for me?
Answer: As a teacher, you need to be aware that many districts’ 403(b) plans are scandalously bad. Instead of offering sensible, low-cost options, these subpar retirement plans are filled with high-fee annuities.
Your current plan is one of the better ones, since you have access to low-cost mutual funds. You can investigate the neighboring district’s plan at 403bwise.org, a nonprofit site dedicated to educating teachers about the issue. The site has reviews of many districts’ plans. If your new district isn’t included, the site has tips on how to get more information, evaluate your options and press for change.
If the new plan is a stinker, you can leave your money in the old plan, although you won’t be able to make new contributions. You also could consider rolling the account into an IRA at a brokerage. (Don’t move it to a regular brokerage account, as that would be considered a withdrawal that can be taxed and penalized.) An IRA would give you vastly more investment options, but if your 403(b) allows loans you’d lose the ability to borrow against your account. Also, workplace retirement plans such as 403(b)s and 401(k)s typically allow penalty-free withdrawals starting at age 55 if you leave your job, while with IRAs you generally must wait until age 59½.
The question remains if you should consider investing in the new district’s plan. The answer is yes if it includes any of 403bwise’s “green” rated options of low-cost funds. The answer is probably no otherwise. Teachers without good investment options should consider lobbying their district to adopt another type of retirement account, the 457(b) plan. For more information, check out 403bwise’s sister site, 457bwiser, at https://457bwiser.org/.