Ask Liz Weston

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Liz Weston

This week’s money news

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This week’s top story: 7 surprising facts about credit cards. In other news: Weekly mortgage rates rise again, look to last-minute scholarships when you can’t control FAFSA delays, and best cities for freelancers and self-employed workers 2024.

7 Surprising Facts About Credit Cards
Card issuers have a lot of leeway in terms of when and how they can make changes to your account. Some changes may be unwelcome, but others can work in your favor.

Weekly Mortgage Rates Rise Again, While Home Sales Increase, Too
Mortgage rates have climbed five weeks in a row and are now at their highest levels since the week before Thanksgiving.

No Financial Aid Package Yet? Look to Last-Minute Scholarships
You can’t control FAFSA delays, but you can control whether you research and apply for scholarship awards to lower your college costs.

Best Cities for Freelancers and Self-Employed Workers 2024
These 10 metro areas have a relatively large percentage of self-employed workers, relatively low state income tax rates and more.

Q&A: Is my wife’s pension at risk?

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Dear Liz: My wife worked in the private sector for 30 years and paid into Social Security before starting her current job in the public sector. She will get a small pension from this job when she decides to retire. It’s our understanding that the windfall elimination provision won’t apply to her since she contributed to Social Security for 30 years. Is that correct? Will she also be able to receive her small pension?

Answer: Yes and yes. The windfall elimination provision normally applies to people who receive pensions from jobs that didn’t pay into Social Security. This provision can reduce, but not eliminate, the benefits they get from Social Security. However, the provision doesn’t apply to people who have 30 or more years of “substantial earnings” from jobs that did pay into Social Security. The amount considered “substantial” varies by year; in 2024, it’s $31,275.

Q&A: A sticky inheritance scenario

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Dear Liz: I have an adult daughter by a previous marriage who has no savings or retirement funds. I want to change my living trust to ensure that my daughter only receives a monthly amount similar to my required minimum distribution from my IRA, plus half of our paid-off house after my wife and I pass away. Do I need a trust attorney?

Answer: Restricting access to an inheritance might be necessary, but few adults would be happy about being put on an allowance. Unhappy heirs may be more likely to challenge an estate plan, so you should get expert advice if you want your wishes to prevail.

Even if your daughter is amenable, you still need an estate planning attorney’s help to craft the trust that doles out the money. Understand that inherited IRAs typically must be drained within 10 years. (The exceptions are for surviving spouses, minor children, the disabled or chronically ill or survivors who are not more than 10 years younger than the account owner.) If the beneficiary is a trust, the distributions don’t have to be paid out to your daughter, but any amount retained by the trust will typically be taxed at a higher rate. Plus, you’ll have to find someone to manage the trust, notes Burton Mitchell, a Los Angeles estate planning attorney. Who you select to be the trustee is critically important, as they will have to deal with your daughter for the rest of her life, Mitchell says.

Also, you may need to reconsider how you own your house if you want to ensure half goes to your daughter. Typically couples own property jointly, so that the survivor inherits automatically. If you want to bequeath your half of the property to someone other than your spouse, you may need to change the ownership structure to tenants in common. You’ll need to think this through carefully, since such a change would have legal, tax and practical implications that you’ll want an attorney to thoroughly explain. For example, if your spouse dies before you, she could leave her house to someone other than you, Mitchell notes. The house could be sold and you might need to find somewhere else to live. Conversely, if you die first, your wife could be forced to move if your daughter insisted on selling the house.

In other words, achieving what you want may be a lot more complicated and have more repercussions than you currently imagine. Talking with an experienced estate planning attorney can help you better understand your options.

Q&A: Credit for time spent on a DIY home project?

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Dear Liz: My husband remodeled all of the bathrooms in our home. We have receipts for the materials we purchased so that we can reduce our capital gains when we sell our home. Can we claim my husband’s time as labor costs for the home improvements?

Answer: No.

You can add the cost of improvements to your tax basis, which will be deducted from the sale amount to determine your potentially taxable capital gains. But you can’t add to your tax basis the value of your own labor, or any labor for which you didn’t pay.

This week’s money news

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This week’s top story: These states plan to phase out gas car sales. In other news: How to help your loved one navigate the costs of dementia care, weekly mortgage rates are up, but prices are the real villain, and new airline requirements.

These States Plan to Phase Out Gas Car Sales
California, New Jersey and Virginia are among at least a dozen states that plan to wind down gas vehicle sales over the next decade.

How to Help Your Loved One Navigate the Costs of Dementia Care
Care costs can be overwhelming for those living with dementia — here’s how you can support them.

Weekly Mortgage Rates Are Up, but Prices Are the Real Villain
Mortgage rates continued to rise for the week ending April 25.

New Airline Requirements: Cash Refunds and Transparent Fees
The Biden administration is regulating airline junk fees and refunds — here’s what it means for travelers.

Q&A: How late-in-life divorce could affect Social Security benefits

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Dear Liz: I’m a CPA and getting conflicting answers from the Social Security office about a case I’m working on. Both clients are 70 and they’re considering legal separation or divorce. She took Social Security at 62 and receives about $1,500 a month before deductions. He started Social Security at 70 and receives about $4,600. How would her Social Security change at his death or their divorce, if she doesn’t remarry?

Answer: Based on the amounts involved, both parties are receiving their own retirement benefits and those aren’t affected by divorce, said William Reichenstein, a principal at Social Security Solutions, a claiming strategy site. (If the wife were receiving spousal benefits, those would continue after divorce as long as the marriage lasted at least 10 years and she did not remarry.)

If the husband dies and they haven’t divorced, the wife would be entitled to survivor benefits equal to his full monthly benefit amount ($4,600, plus any future cost of living increases). If they divorce and the marriage lasted at least 10 years, she also would be entitled to his full amount. Remarriage wouldn’t affect her divorced survivor benefit since she’s over 60, Reichenstein said.