Ask Liz Weston

Get smart with your money

Q&A

Q&A: Reverse mortgages can be a boon, but come with potential risks

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Dear Liz: Please write about the issues people can face when they have a reverse mortgage and need to move out to get long-term care. My mother, who is now 94 and lives on a small teacher’s pension, got a reverse mortgage in her late 60s to donate to charity because she was sure she would not live past her 80s. Now she needs long-term care and does not have the funds for it. If she moves out, she is required to sell the home. The capital gains taxes will eat up any remaining equity after that reverse loan is paid.

Answer: A reverse mortgage can be a helpful tool for people 62 or older who are house rich and cash poor. These mortgages allow people to tap some of their equity without requiring that the balances be paid back until the borrower dies, sells the home or permanently moves out.

The problem is that the debt can grow over time and leave too little equity for late-in-life expenses, such as long-term care.

Of course, many people make the mistake your mother made by underestimating their longevity risk — the chance they’ll live longer than expected and run short of money. They focus on maximizing current income by saving too little, taking out reverse mortgages too soon or applying early for Social Security without fully considering what these decisions could mean for their future selves.

Please get your mother in touch with an elder law attorney who can assess her situation and suggest alternatives. He can advise her about qualifying for Medicaid, the government health program for the poor. Medicaid will pay for long-term care expenses but rules vary by state, and a mistake could delay her eligibility.

Q&A: Three marriages, but only one Social Security benefit

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Dear Liz: I was married for 10 years before divorcing. My second marriage also ended in divorce. I married for the third time and was widowed. I am collecting a survivor benefit. Am I also entitled to receive a benefit from my first marriage of 10 years? My first husband is still living.

Answer: Social Security is basically “either/or,” not “and.” If you qualify for two benefits, you typically get the larger check — not both.

Since you are currently unmarried, your ex is still living and your first marriage lasted 10 years, you may be eligible for a divorced spousal benefit. That can be up to 50% of your first husband’s benefit at his full retirement age.

You would only receive that benefit, however, if it were larger than the survivor benefit you’re currently receiving. Survivor benefits are up to 100% of the late worker’s check, so your first divorced spousal benefit would have to be substantially larger than what your late husband received to make a switch. You can call Social Security at (800) 772-1213 to inquire.

Q&A: Getting an HMO to cover an outside specialist

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Dear Liz: You’ve written about health maintenance organizations and how they may not cover care outside their networks. Be aware that HMOs will sometimes cover specialists outside of their network, especially in cases where they don’t have that type of specialist, or for an unusual condition needing a second opinion. It doesn’t hurt to ask! I did that when I knew that I should see an orthopedic oncologist to evaluate my scans recently, and my HMO did not have that specialist. I found that type of doctor, and then requested a referral and obtained it, and so it was totally covered. I also did that in 2007 when I had a similar condition needing surgery, and I even had surgery in a hospital different from the one that my HMO normally used, all totally covered.

Answer: Thanks for sharing your experience! HMOs typically don’t cover out-of-network care except in emergencies, but there may be exceptions. HMO members should educate themselves about their plan’s coverage and learn how to advocate for their care. It can also help to have a primary care physician who understands the system and is willing to ask for exceptions to HMO rules when appropriate.

Q&A: Can stepmother prevent siblings from sharing their inheritance?

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Dear Liz: My father passed away in May of last year. In his trust, he intentionally left out one of my four children. The remaining three, who were to inherit a substantial sum, decided to pool their money and share it with their excluded sibling.

My stepmother, who is in charge of his trust, has told other recipients of his largess that she will not be distributing any money to my children. She claims that their decision to give money to their sibling is a violation of my father’s wishes. Can she do this legally and would there be any consequences to her for doing this?

Answer: That depends on the trust’s language. Your father may have granted your stepmother the power to make discretionary distributions, or may have explicitly stated that distributions could be withheld from your children if they planned to share with the disinherited grandchild.

That’s not the norm, however. If the trust requires her to distribute the money and she fails to do so, your children could sue her for breaching her fiduciary duties and ask a court to replace her as trustee, says Jennifer Sawday, an estate planning attorney in Long Beach. If your stepmother’s attorney hasn’t explained this to her already, your kids may need to hire one who will.

The unanswered question: Why did your kids make their plan known, rather than simply waiting close-mouthed until the money was distributed? Perhaps they wanted to make a show of solidarity with their sibling, but the smarter course would have been to keep their intentions under wraps until the money landed in their accounts and was theirs to spend however they saw fit.

Q&A: Be careful when commingling old and new funds in a Roth IRA

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Dear Liz: I am a stay-at-home mom of 15 years who has a Roth IRA account from working before marriage. I will start working again soon and would like to know how to best protect my separate property from my future community property earnings. Should I start a new Roth IRA instead of adding to my existing one so as to not commingle the funds?

Answer: That could be a smart idea.

In general, assets acquired before marriage are considered separate property. But that status can change if post-marriage funds are added into pre-marriage accounts. The rules vary by state, but making retirement contributions to a new account can help keep the lines between separate and marital property from getting blurred.