Ask Liz Weston

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Liz Weston

Q&A: Home equity in community property states

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Dear Liz: I live in California and have been married for 20 years. My spouse bought our home before our marriage and my name is not on the title as a co-owner. However, I contribute to most of our monthly financial obligations which include paying the mortgage, property taxes, etc. In the event of death or separation, how much of the current home equity am I entitled to? This is our only and primary residence.

Answer: Normally, an asset that was purchased before marriage is considered separate property even in community property states such as California. But if the mortgage is paid down with “community funds” — money earned by either spouse during the marriage — then the spouse who isn’t on the title may be entitled to some of the appreciation that occurs after the wedding.

That may not prevent you from being evicted if your spouse dies, however, or having to fight an expensive battle in court if you divorce. Consulting an attorney now could help you better prepare for either possibility.

Q&A: What happens to your HSA money when you die?

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Dear Liz: What designation or instructions should I make for assets (if any) which remain in my health savings account at the time of my death? Do any remaining funds go directly to my estate or am I allowed to name a beneficiary for this money? If “yes” to the beneficiary question, is the beneficiary subject to the same 10-year payout requirement that applies to most other retirement account beneficiaries? I assume that if the funds go to my estate, the estate would pay tax on the funds given I’ve never paid tax on that money.

Answer: Yes, you can name beneficiaries for health savings accounts. But the tax advantages of these plans often disappear at death.

HSAs, which are paired with high deductible health insurance plans, are known for their rare triple tax benefit. Contributions are tax-deductible and balances can grow tax-deferred, while withdrawals for qualifying medical expenses can be tax free. HSAs don’t have the “use it or lose it” clause that applies to flexible spending accounts; balances can be rolled over from year to year and invested for growth.

What’s more, the withdrawals needn’t happen in the same year you incur the medical costs. As long as you keep good records of unreimbursed medical expenses, you can use them to justify tax-free withdrawals years or even decades in the future.

As a result, many people who can afford to pay medical expenses with other funds use their HSAs as a kind of supplemental retirement fund. There are no required minimum withdrawals, and it can be tempting to leave balances in an HSA as long as possible.

If you’re married and name your spouse as your beneficiary, that may not be a problem. Spouses who inherit HSAs can opt to treat the account as their own, which means they can make tax-free withdrawals to pay for qualified medical expenses.

Other beneficiaries, though, will be required to empty the accounts and pay income tax on the withdrawals. These withdrawals won’t be penalized, but they also can’t be delayed. By contrast, non-spouse beneficiaries typically have 10 years to empty most inherited retirement plan accounts.

If you don’t name a beneficiary, any remaining funds in the account will be paid to your estate and taxed on your final income tax return.

This week’s money news

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This week’s top story: New changes for Medicare in 2024. In other news: Fed hits pause on rate hikes, third times since March 2022, Black Friday shopping could look different this year, and the busiest days to fly during the winter holidays.

What’s New for Medicare in 2024?
Check next year’s premiums and deductibles, as well as program changes.

Fed Hits Pause on Rate Hikes, Third Time Since March 2022
The federal funds rate remains at 5.25% to 5.50%.

Black Friday Shopping Could Look Different This Year, Experts Say
Here’s what marketing, retail and supply chain experts expect for Black Friday 2023.

The Busiest Days to Fly During the Winter Holidays
The Sunday after Thanksgiving is one of the busiest travel days of the year.

5 strategies for navigating today’s digital tipping culture

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The nearly universal experience of finding yourself face-to-face with a checkout counter screen asking you to select an amount to tip for service can prompt a cascade of awkward questions: How much should you tip on a $5 coffee if anything? How can you decide before the cup has even been poured? Is it rude to select “no tip,” then slink away with your drink?

The answers to those questions vary depending on whom you ask, but tipping experts agree on one thing: We get prompted to tip much more frequently these days, largely because of the explosion of cashless payment methods with automated tipping options. Another thing they agree on: You don’t always have to say “yes.”

In Kimberly Palmer’s latest for the Seattle Times, learn 5 strategies for navigating today’s digital tipping culture.

Q&A: Watch out for probate triggers

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Dear Liz: My wife and I have a living trust that includes most of our assets. We have two bank accounts that are not in the trust totaling $130,000. Will these accounts be subject to probate? If it matters, she is in memory care and I handle all finances. Our executor son is a signer on one bank account to have ready access to cover final expenses in case I predecease my wife.

Answer: As you know, living trusts are designed to avoid probate, the court process that otherwise follows death to distribute someone’s estate. In some states, including California, probate can be expensive, prolonged and often worth avoiding. Assets typically must be titled in the name of the living trust or have a designated beneficiary to avoid probate. There are some exceptions, but you’d be smart to consult an estate planning attorney to make sure you don’t inadvertently trigger the probate you’re trying to avoid.

Q&A: Why those great deals banks are offering might be less lucrative than they appear

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Dear Liz: I’m receiving numerous email offers from big banks offering significant incentives and bonuses to open checking and savings accounts. I usually don’t pay much attention to them but the latest one is offering $900 to open these accounts. I’ve read all the fine print and understand all the requirements, but I can’t help but think there is a mischievous motive on their part. How do I decide if these offers are a good financial alternative for me?

Answer: Banks offer these incentives to lure in new customers, but you’re wise to consider all the potential costs because the bonuses may be less lucrative than they appear.

For starters, you’ll pay income taxes on any sign-up bonus, which could substantially reduce what you net from the deal. Plus, many banks that offer sign-up incentives pay a paltry interest rate or no interest at all. You could be better off putting your money in a high-yield savings account. (Some online banks are paying around 5%.)

You typically must maintain a certain balance to avoid monthly account fees, and you may need to set up a direct deposit or make a set number of transactions per month as well. The bonus often isn’t paid until after your account has been open 90 days or more. If you close the account, you may face an account closure fee.