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Liz Weston

Q&A: Social Security death benefits

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Dear Liz: My wife was 69 at the time of her passing. She was still working and was not collecting Social Security. I am 72, retired and collecting Social Security. When I spoke with Social Security, I was told that I cannot collect on my wife’s work history. All I qualify for is a $255 death benefit. I asked what happened to her money collected all these years. I was told it goes into a general fund. Is there anything I can get from my wife’s Social Security?

Answer: If your current benefit was larger than the one your spouse had earned before her untimely death, then you were given the correct answer: a $255 death benefit.

People sometimes mistakenly believe that surviving spouse benefits are something they can get in addition to their own benefit. But when one member of a couple dies, the survivor gets only the larger of the two checks the couple was previously receiving.

The taxes we pay into Social Security don’t go into retirement accounts with our names on them — the money goes instead to pay benefits to current retirees. There’s no guarantee that what you get out will be proportionate to what you contributed. Most people will get more from the system than they paid in, but some will get less and some, unfortunately, get nothing.

This week’s money news

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This week’s top story: Smart Money podcast on longevity literacy, and how debt impacts credit scores. In other news: What happens if UPS goes on strike, federal student loan interest rates now highest in a decade, and why Americans can’t buy Chinese cheap electric cars.

Smart Money Podcast: Longevity Literacy, and How Debt Impacts Credit Scores
Sean Pyles and Liz Weston delve into the significant yet often overlooked concept of longevity literacy.

What Happens if UPS Goes on Strike?
A strike by the shipping giant could put a crimp in America’s e-commerce habit.

Federal Student Loan Interest Rates Now Highest in a Decade
For undergraduates, interest rates on federal student loans are 5.50% for the 2023-24 academic year — up from 4.99%. But there are ways to keep your costs down.

China Makes Cheap Electric Cars; Why Can’t Americans Buy Them?
China has better access to battery materials and other advantages. But don’t look for those cars in the U.S. anytime soon.

Q&A: IRS and selling a home

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Dear Liz: How does the IRS know you sold your house? If you sell and buy another home, must you report it? Most folks I know sell, then buy a more expensive house. Seems like lots of moving parts for the parties, including the IRS, to have to track.

Answer: Not really. The title company or attorney handling the closing on a property sale typically generates a Form 1099 with the sales price of the home. The seller gets a copy and so does the IRS. Sellers who “forget” to account for the proceeds on their tax returns will soon get a reminder from the IRS, which typically just tacks the sale amount onto the sellers’ income and demands its cut, along with penalties and interest.

Saving for retirement just got more complicated

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The Secure Act 2.0 legislation that passed late last year added new retirement savings options but also has a few potential catches for unsuspecting savers. Understanding these possible pitfalls may help you make better decisions, or at least be prepared for what’s to come.

In my latest for the Washington Post, learn what you need to know about Secure 2.0’s changes to catch-up contributions and company matches for workplace plans.

Q&A: The Ins and Outs of Trusts

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Dear Liz: I liked your answer to the person who wanted to ensure a son from a prior marriage got an inheritance. You mentioned creating a trust so the surviving spouse can get income from the assets but then the son would inherit when that spouse dies. However, what’s to prevent the surviving spouse from using up all the funds so that the son is left with nothing after all?

Answer: These trusts typically put restrictions on how much the surviving spouse would be able to access and in what circumstances. If the surviving spouse is the sole trustee, of course, the temptation to ignore the rules could be great. Alternatively, the ultimate inheritor or a third party can be named as trustee or co-trustee.

But there’s no getting around the fact that the trusts create a conflict between the survivor and the ultimate inheritor. The survivor typically wants as much income as possible from the trust while the inheritor wants the trust to be left alone to grow.

Another issue is taxes. Assets in the trust will get a step-up in tax basis when the first spouse dies, but not when the surviving spouse dies.

Often, the best way to make sure someone gets an inheritance is to make an outright bequest rather than putting the money in a trust. If a surviving spouse needs income from the assets to make ends meet, though, a trust with a responsible trustee can help ensure the ultimate inheritor gets the inheritance that was intended.

An experienced estate planning attorney can help you sort through the available options and make the best plan for your loved ones.

Q&A: How to get out from under a crushing reverse-mortgage debt

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Dear Liz: Our elderly father took out a reverse mortgage in 2010 with the goal of getting a $1,000 monthly income stream. Fast forward to today: Dad has passed away, and our mom is still alive at 97. The payback amount of the mortgage has ballooned to $360,000. Because it’s an adjustable rate mortgage, the rate is increasing with the inflation rate. We’re being told that this is all legal, but it seems like usury to me. None of us children have enough cash to pay off the reverse mortgage, so it will continue to go up stratospherically each and every month. The entire balance will become due if she leaves her home or passes away. Do you have any suggestions?

Answer: Reverse mortgages allow borrowers to tap their equity without having to make payments while they remain in the home. But the amounts they borrow accrue interest and, as you’ve seen, the debt can grow substantially over time.

If your mother dies or moves out, the lender will demand payment within 30 days. It may be possible to extend the deadline for up to six months, according to the Consumer Financial Protection Bureau. If you don’t have the cash to pay off the loan, you could try to get a mortgage or to sell the home to pay the debt. If you sell it, you would need to clear enough to pay off the debt or at least get 95% of the home’s appraised value. Another option — especially if there’s little or no equity left — is to simply turn the house over to the lender. You won’t be on the hook if the mortgage balance exceeds what the home is worth.