Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Giving your money away? The IRS wants to know about it.

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Dear Liz: You recently wrote that “the only givers who have to pay taxes are those who have given away millions in their lifetimes.” I tend to be generous with my offspring who are the beneficiaries of my trust. For example, I gave a down payment on a house to my son last year. Because of long-held rental property investments, my estate is probably close to the $13-million lifetime limit. Since lifetimes don’t expire until we die, and I plan to live to 120, does this mean that until I give away over $13 million in cash, I don’t have to report or pay taxes in any given year on gifts?

Answer: Not quite.

You have to file a gift tax return to report any gift over the annual limit, which in 2024 is $18,000 per recipient. Gifts don’t have to be in cash to be reportable. If you’d given your son a house instead of a down payment, you’d still need to file a gift tax return.

Reportable gifts are deducted from your lifetime gift and estate exemption, which is $13,610,000. Once you deplete that exemption, you would have to pay gift taxes on any gifts above the annual limits. Even if you don’t deplete the exemption, reportable gifts will reduce the amount of your estate that can avoid estate taxes. You’d be wise to get advice from an estate planning attorney about how to handle gifts.

Q&A: When giving cash gifts, does anyone need to pay taxes?

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Dear Liz: I am a widow age 95. I would like to give my three kids, who are in their 60s, $5,000 each this year. What are the taxes, and who pays them?

Answer: Gifts aren’t taxable to the recipients, and the only givers who have to pay taxes are those who have given away millions of dollars during their lifetimes.

Let’s start with the basics. You only have to file a gift tax return, which notifies the IRS of your generosity, when you give someone more than the annual exemption limit, which is $18,000 in 2024. So you could give your kids $54,000 before the end of the year and not have to tell the IRS.

You wouldn’t actually owe taxes on your gifts until the amounts you give away above that annual limit exceed your lifetime gift and estate limit, which is currently $13.61 million.

A taxable gift is typically deducted from the amount that avoids estate taxes at your death. But if you have enough money to worry about that, you should have an estate planning attorney who can advise you about how to proceed.

Q&A: Is it only the bread winners who get Social Security?

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Dear Liz: How is it that elderly people who have never contributed to Social Security can collect a check? My wife’s grandmother was getting more than $1,000 a month.

Answer: Spousal and survivor benefits are nearly as old as the Social Security program itself.

Social Security was signed into law in 1935. Initially, benefits were only for retired workers. In 1939, benefits were added for wives, widows and dependent children. Later changes added spousal and survivor benefits for men as well as disability benefits.

Social Security isn’t a retirement fund where workers deposit funds into individual accounts. Instead, it’s a social insurance program designed to provide income to retirees, workers who become disabled and the families of workers who die. Benefits are paid using taxes collected from current workers. Like other insurance, the system is designed to protect people against significant economic risks, such as outliving your savings, losing your ability to earn income or losing a breadwinner.

In other words, your wife’s grandmother may not have paid into the system, but her spouse or ex-spouse did, and that provided her with a small source of income.

Q&A: Why Shopping for the Right Medicare Plan Matters

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Dear Liz: In the past, you’ve discussed the pros and cons of Medicare Advantage plans versus original Medicare. There is one more point I think you need to tell readers, and that is the high cost of Part D prescription drug coverage for people who choose original Medicare. For example, if you need just a few expensive drugs that are Tier 3 or higher, coupled with the monthly premium, you can easily pay $3,000 a year or more. I am not saying original Medicare is bad. On the contrary, it gives you great freedom of health choice. However, Part D is expensive.

Answer: Let’s start with the news that in 2025, Medicare Part D will have a $2,000 out-of-pocket maximum. The cap applies to Part D plans purchased by people on original Medicare as well as to Medicare Advantage plans that have prescription drug coverage. Once you hit the limit, you won’t have to pay more for covered drugs for the rest of the year.

Note the phrase “covered drugs.” Prescription drug coverage is provided by private insurers, and their lists of covered prescriptions can change every year. An insurance plan that covers a drug this year may not cover it next year, so every year during Medicare’s open enrollment — which ends Dec. 7 — you should be shopping to make sure your plan provides the coverage you need. If you don’t comparison-shop during the annual open enrollment period, you can wind up paying substantially more than you expected.

As background, Medicare Advantage plans are provided by private insurers as an alternative to original Medicare. Whereas original Medicare allows you to choose any doctor who accepts Medicare — and the vast majority do — Medicare Advantage has provider networks and may not cover care outside those networks, or may charge more. Also, Medicare Advantage networks and benefits can change from year to year.

Fortunately, Medicare offers a comparison tool to help you sort through your options. Entering the drugs you take and your preferred pharmacy can help you select the best plan for your circumstances. Now’s the time to compare and switch plans if necessary.

Q&A: Navigating the maze of government assistance for an adult child

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Dear Liz: I have a daughter who is 21 and a single mother with a 1-year-old. She has been diagnosed with borderline personality disorder and major depressive disorder. She hasn’t worked since high school and can’t hold a job. She is no longer a dependent as of this year. My question is what assistance is she eligible to apply for? She already is with WIC and getting benefits for the baby. She’s a mess and I’m having difficulty understanding what she can apply for, and what is realistic in terms of Supplemental Security Income, disability, housing assistance and so on.

Answer: Government benefits can be a nightmarish maze to navigate, but you and your daughter may be able to find your first guide in the WIC program. WIC — which is formally the Special Supplemental Nutrition Program for Women, Infants, and Children — provides low-income women and children with supplemental food and nutrition counseling. WIC also provides screening and referral to other benefit programs that could help your daughter and grandchild.

Another resource is the benefits finder tool at USAGov, the official site of the federal government. Start at https://www.usa.gov/benefit-finder.

You didn’t mention health insurance, but making sure your daughter and her child have coverage is crucial. With medication and counseling, your daughter could stabilize enough to become employable and start to build her young life. Under the Affordable Care Act, she can continue on your health insurance until age 26 even if she’s not a dependent for tax purposes. Otherwise, check the health exchanges at https://www.healthcare.gov/. Please act quickly, as open enrollment ends Dec. 15.