Ask Liz Weston

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Liz Weston

Q&A: Plan for taxes after mortgage payoff

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Dear Liz: In a recent column, you answered a question from a couple who just paid off their mortgage. You suggested increasing retirement or emergency savings or possibly charitable contributions. All good, but you should have pointed out that the mortgage lender will not be responsible for paying the property tax and fire insurance going forward. I would suggest the couple open a separate account and build up a fund to pay those expenses or they could be facing financial hardship when the tax and insurance bills come.

Answer: Good point. Many homeowners are accustomed to paying their homeowners insurance and property taxes through escrow accounts set up by their mortgage lenders. Once the loan is paid off, these bills become the homeowners’ responsibility to pay.

Q&A: Social Security is insurance

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Dear Liz: My wife died in March 2020. I receive nothing from her Social Security (other than $255) and will receive only a portion of mine due to the windfall elimination provision. Is there anything I can do since I am receiving none of what she paid into Social Security and only a fraction of mine?

Answer: In a word, no. If you’re receiving a pension from a job that didn’t pay into Social Security, the government pension offset reduces any Social Security survivor or spousal benefit by two-thirds of the amount of your pension. If two-thirds of the amount of your pension is greater than your survivor benefit, you don’t get a survivor benefit.

Is that an outrage? Perhaps, if you think that Social Security should act like a retirement account. In reality, it’s insurance. (The formal name for Social Security is Old Age, Survivors and Disability Insurance.)

With a retirement account, what you take out usually bears some relationship to what you put in. With insurance, that’s not necessarily the case. You may take out more than you put in, less or nothing at all.

Many people pay Social Security taxes for decades but ultimately get more from a spousal or survivor benefit than from their own work record. Then there are those, like you, who have their retirement benefit reduced, or a survivor benefit eliminated, because they have a generous pension from a government job that didn’t pay into the Social Security system. In these cases, it can feel like the Social Security taxes paid — the “premiums,” if you will — have been wasted even if financially you’ve come out ahead.

Q&A: Trusts and wills aren’t the same thing. Here’s how they work

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Dear Liz: I understand what happens with a living trust when both spouses die at once. But what happens when just one dies? Is the trust tossed out, since the surviving spouse is usually the trustee? What about the stuff that the deceased wanted to go to his or her kids? And what about the wills? When does that get disbursed? Please explain how trusts and wills work, especially for blended families. I’m sure I’m not the only one with questions.

Answer: A complete answer would take many, many more words than this column allows, which is why you should consult a knowledgeable estate planning attorney who can give you personalized advice.

But in a nutshell, wills and living trusts are both documents that allow people to name who they want to get their property. The main difference is that living trusts avoid probate, the court process that otherwise follows death.

Living trusts are considered revocable, which means the creators can make changes during their lifetimes. At some point, though, the trust usually becomes irrevocable, which means changes no longer can be made.

If a single person makes a living trust, then the trust would become irrevocable when that person dies. With a married couple, part of the trust often becomes irrevocable when the first spouse dies, with the rest becoming irrevocable at the second spouse’s death.

Such a setup allows you to bequeath money and property to your kids if you’re the first to die, rather than hoping your surviving spouse — and potentially your surviving spouse’s future spouse — will do so later.

Friday’s need-to-know money news

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Today’s top story: How to get what you want at your next job. Also in the news: Medicare to offer free at home COVID-19 tests in early spring, how your parents’ debt could outlive them, and what you need to know before you claim your child tax credit this season.

How to Get What You Want at Your Next Job
Before you start polishing your resume, here are tips from career coaches on being strategic with your job search, preparing for negotiations and asking for what you want.

Medicare to Offer Free At-Home COVID-19 Tests in Early Spring
Members will be eligible for eight free over-the-counter tests per month through local pharmacies.

How Your Parents’ Debt Could Outlive Them
Should you fear ‘filial responsibility’ laws?

What You Need to Know Before You Claim Your Child Tax Credit This Filing Season
The child tax credit was expanded up to $3,600 for the 2021 tax year. Here’s how to claim yours.

Thursday’s need-to-know money news

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Today’s top story: How your parents’ debt could outlive them. Also in the news: 7 Black financial influencers to follow in 2022, what rising interest rates mean for personal loans, and just how passive js passive income?

How Your Parents’ Debt Could Outlive Them
When you can and can’t be held personally responsible.

7 Black Financial Influencers to Follow in 2022
Black financial pros shared their advice about the Great Resignation, buying a house in a competitive housing market and investing in crypto.

What Do Rising Interest Rates Mean for Personal Loans?
Hikes in overall interest rates can impact personal loans, but factors under your control can also influence the cost.

Just How Passive Is Passive Income?
If you want to earn passive income, be ready to work for it.

Wednesday’s need-to-know money news

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Today’s top story: 5 common objections to buying an electric car, debunked. Also in the news: How to Avoid Long Lines at Rental Car Counters, Financial Therapists Say to Disrupt Debt Cycle, Look at Your Money Beliefs, and 10 Easy Tricks for Saving Money on Travel.

5 Common Objections to Buying an Electric Car, Debunked
Many consumers are still hesitant to buy EVs, despite rapid improvements to charging ranges, selection and price.

How to Avoid Long Lines at Rental Car Counters
With so many ways to jump the line, there’s no need to get stuck waiting at the rental car counter.

Financial Therapists Say to Disrupt Debt Cycle, Look at Your Money Beliefs
If you find yourself in a cycle of debt, you may need to address the root cause. These tips from financial therapists can help.

10 Easy Tricks for Saving Money on Travel
Travel is expensive, but there are plenty of ways to cut costs.