Get smart with your money
By Liz Weston
Dear Liz: I take $5,000 per month out of my brokerage account (and the $1,400 in taxes when I withdraw the money) for my husband’s Alzheimer care facility where he now lives 24/7. Can I only claim that on my taxes under medical expenses if I itemize my deductions on my taxes? I don’t have any other deductions.
Answer: Your husband’s expenses may be enough to justify itemizing even if you don’t have other deductions.
The standard deduction for married couples in 2024 is $29,200. To itemize, your deductions would need to be higher than that amount. Furthermore, medical expenses must exceed 7.5% of your adjusted gross income to be deductible, notes Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
If your husband meets certain criteria, however, the deduction can include the expenses related to meals and lodging at the facility as well as the medical care portion, Luscombe says.
A licensed healthcare professional must certify annually that your husband is chronically ill and living in the care facility due to medical necessity, he says. A tax pro or the facility itself can provide further details.
By Liz Weston
Dear Liz: You recently wrote about payable-on-death accounts. You wrote that one of the disadvantages to these accounts is that an estate’s executor might have to try to get money back from beneficiaries or pay expenses out of their own pocket if there wasn’t enough money left in the estate to pay the bills. I thought your bills would have to be paid before any money was distributed. Is that not the case?
Answer: No. Payable-on-death accounts typically go directly to the named beneficiaries. Such accounts avoid probate, the court process that otherwise follows death, so there’s no mechanism to withhold money that might be needed to pay final expenses or other bills.
Furthermore, beneficiary designations usually override the terms of a will or living trust. If you were counting on an account to pay final expenses but forgot you named a beneficiary, your executor probably couldn’t access those funds.
Payable-on-death accounts might be a solution for people with simple situations and too few resources to justify a living trust. For example, you might use a pay-on-death designation if you’re leaving a bank account to an only child and you trust them to use the money to pay your final bills.
Otherwise, you’ll want to discuss your situation with an estate planning attorney and get personalized advice about how best to settle your affairs.
By Liz Weston
This week’s top story: What Trump and Harris have in store for your taxes. In other news: Credit card-bonus-friendly season is here, October mortgage outlook, and drawbacks to consider before getting metal credit card.
What Trump and Harris Have in Store for Your Taxes
Most, if not all, of the candidates’ tax proposals would need approval by Congress.
If You’re Considering a Credit Card, Bonus-Friendly Season Is Here
The October-through-December holiday window is an especially ideal time for snagging a rich welcome offer.
October Mortgage Outlook: No Rate Jumps or Scares
Mortgage rates may idle above 6% until markets and the Fed catch up.
Is Your Metal Credit Card Losing Its Edge?
Once a rare luxury enhancement, metal credit cards are more attainable for the average consumer today. And there are drawbacks to consider before getting one.
By Liz Weston
Dear Liz: I have a high-deductible insurance plan from my employer and I contribute to a Health Savings Account. I understand people on Medicare can’t contribute to an HSA. If I’m still working at full retirement age, can I start my Social Security benefit but avoid enrolling in Medicare?
Answer: No. Once you start Social Security, you’re automatically enrolled in Medicare if you’re 65 or older.
If you delay Social Security and don’t plan to enroll in Medicare at 65, you’ll want to make sure your employer-provided health insurance will allow you to avoid penalties for late enrollment. These penalties, which are permanent, result in higher premiums for Part B (which covers doctor visits) and Part D (which covers prescriptions). You can avoid those penalties if your employer has 20 or more employees and your health insurance provides at least as much coverage as Medicare. Check with your company’s human resources department.
By Liz Weston
Dear Liz: Twenty years ago, after 14 years of marriage, a friend divorced her husband. She says that as part of her divorce settlement, she signed a document agreeing not to collect divorced spousal benefits from Social Security. Is that even legal? She’s in her 60s and fears she can never retire because her own Social Security won’t be enough to live on.
Answer: Your friend may well have signed such an agreement, but it doesn’t matter. Federal law — specifically Section 407(a) of the Social Security Act — forbids including Social Security benefits as part of a divorce settlement. In a fact sheet titled “5 Things Every Woman Should Know About Social Security,” the agency notes that some women have signed divorce decrees giving up their rights to divorced spousal benefits, but says such clauses “are worthless and never enforced.”
So if she’s entitled to a bigger benefit from her ex’s record than from her own, she can claim it.
A divorced spousal benefit doesn’t decrease the ex’s benefit, or the benefit of any of the ex’s subsequent spouses. Trying to prevent someone from claiming a divorced spousal benefit is mean-spirited as well as pointless.
By Liz Weston
Dear Liz: Is naming a beneficiary for a nonretirement, “payable on death” account as effective as putting the account in a living trust? It seems easier than doing all the paperwork each time I open an account, but is it a good idea?
Answer: Both living trusts and payable on death accounts avoid probate, the court process that otherwise typically follows death. But living trusts offer more flexibility and control.
Let’s say you want to benefit two relatives equally, and are leaving a savings account to one and a brokerage account to the other. The balances of the two accounts may be roughly equal today, but could be dramatically different by the time you die. A trust allows you to divvy up your assets regardless of where the money is kept.
Trusts also allow you to put restrictions on how money is spent, which can be important if your heir is a minor child, a spendthrift or someone reliant on public benefits. Payable on death accounts don’t allow restrictions.
Should you become incapacitated, the successor trustee of your living trust could access trust assets to pay for your care. Beneficiaries of payable-on-death accounts can’t get to the funds until you die, so a court procedure may be necessary to provide for you.
After you die, the person settling your estate probably will need money to cover your burial and funeral expenses, pay your bills and final taxes and perhaps get your house ready for sale. If the needed funds have already been distributed to beneficiaries of payable on death accounts, this person might be faced with asking for funds to be returned or paying out of their own pocket, says Jennifer Sawday, an estate planning attorney in Long Beach.
There’s also the piecemeal nature of payable on death accounts. Keeping track of and updating beneficiaries can be a chore. If a beneficiary dies before you, that can create administrative problems as well.
Payable on death accounts can be a low-cost solution for people who don’t have much money and who can’t afford to pay for a trust. If you already have a trust, though, it makes sense to use it.
You typically don’t have to update your living trust every time you open a new account, by the way. Discuss the issue with your estate planning attorney, but typically all that’s needed is to add the account to the schedule of assets that’s usually at the end of your trust document.