Ask Liz Weston

Get smart with your money

Estate planning

Q&A: Understanding the gift tax

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Dear Liz: I am 83 and have always been employed and a regular saver. I find myself in the unusual position of having amassed a considerable estate and, barring a financial or medical catastrophe, probably having more assets than I will use in my lifetime. Of course these assets will pass to my wife or other heirs on my death, but I would like to help them now. I am considering passing on monies to my sons and grandchildren. I find it hard to believe, but is it correct that I can give up to a total of $15,000 per year ($30,000 for a husband and wife) to my children and grandchildren in a given calendar year without federal or state tax implications for either party? Also, does the recipient need to be a close relative for this transaction to take place without creating a tax liability for either entity?

Answer: Right now you can give away millions of dollars without owing gift taxes. Gifts are tax-free to the recipient, and there’s no requirement that they be a relative.

The annual gift exemption limit of $15,000 is how much you can give away per recipient without having to file a gift tax return. You and your wife together could give $30,000 to as many people as you wanted without having to file such a return. If you have two married sons who have three children each, you and your wife could give each family of five $150,000 or a total of $300,000 without having to file a gift tax return.

Gift taxes aren’t due until the amount you give away over the annual limit exceeds the lifetime gift and estate exemption limit, which currently is $11.7 million per person.

Given your age and affluence, you should be working with an experienced estate planning attorney to make sure your assets go where you want after your death. The attorney can discuss smart gifting strategies for your individual circumstances.

Q&A: Where should you keep your estate planning documents?

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Dear Liz: What do you do with your will or living trust once it’s created? Do you put the document in your home safe or a safe deposit box at the bank? Leave it with a friend or relative? What’s to prevent someone who has access to your property from destroying that document? I heard of such a case where the will was never found and the wrong relative took everything.

I imagine you could leave it with your attorney with instructions to ensure it is abided by upon your death. But who will contact the attorney after your death to ensure your wishes are abided by? I know the coroner won’t do it, nor a funeral home.

Answer: Definitely don’t put the original document in a safe deposit box. Once notified of your death, your bank will typically seal the box until your executor can prove they have the legal right to retrieve it — and that will be complicated if the document naming them as executor is in the box.

Keeping the original in your own safe is better than leaving it at the bank, but still not ideal if you fear someone with bad intent could access it. For most people, the best option is to leave the original with their attorney. You can provide copies to your executor and other trusted people and give them your attorney’s contact information.

Q&A: Giving executors account access

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Dear Liz: We are trying to leave our affairs in order for our executors. (Pity them. We have accounts and substantial assets in England and Canada as well as the U.S.!) Thinking of some immediate expenses they will have, I’ve documented details of how to access our accounts online (passwords coded in a way that only a family member will understand). But am I inviting them to do something illegal?

Answer: If a site has a password, then it probably also has a “terms of service” agreement that prohibits you from sharing that password with someone else. You may be able to add someone else’s name to a financial account, but that’s often not desirable, either because you don’t want to give them access in advance of your death or incapacity, or because doing so could have gift tax implications.

The most practical solution is to create a list of the accounts with your login credentials and make sure your executor knows where to find it. (You probably should have only one executor, by the way, with a couple of backups. This is a big job that grows infinitely more complicated when two or more people have to agree on decisions and sign every document.) You’ll also need to keep the list updated, which can be a big task. A password manager could be a good solution, since your executor would only need to know the master password to access your accounts.

Also make sure your executor has the passwords to your email addresses as well as your computers, tablets and cellphones. Otherwise, the executor might not be able to receive identity-verifying codes and links that allow access to your accounts.

Q&A: Your accounts are likely to outlive you. How to safely store that information

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Dear Liz: I’m attempting to become as paperless as possible while also organizing all of our financial information into one place so if one of us dies, the other (or our child) will be able to access everything in one concise source. My current system is downloading all bank and investment accounts and medical payments onto memory sticks. One is kept in the safe deposit box, the other hidden. Is there a better, safer system out there that would not involve a third party?

Answer: If you’re unwilling to use a secure online storage site, then your system is a reasonable if somewhat laborious option. You should be sure, however, that your trusted person will have access to your computer for the most up-to-date information. The person also probably will need access to your phone, since identity authentication codes are often sent by text.

You’ll need to record passwords for your devices and consider creating a list of logins and passwords for all the sites you regularly use. If you use a password manager, you often can set up emergency access for trusted people.

Going paperless is usually the most convenient, safe and ecologically friendly option, but your trusted person won’t be able to rummage through your desk to find clues about where your assets are, what bills need to be paid and what services should be shut down. Otherwise, as one friend put it, your frequent flier miles could disappear while your Netflix subscription continues indefinitely.

If you want a system that doesn’t involve frequent trips to your safe deposit box, consider sites such as Everplans that allow you to store important information and to name people who can be given access if you’re incapacitated or dead. Your accountant or attorney may be able to recommend other sites that perform similar functions.

Q&A: When your spouse dies, there are immediate financial steps to take. Here’s a checklist

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Dear Liz: What financial steps need to be taken right after your spouse dies?

Answer: Your attorney or accountant may have detailed checklists to guide you through the many tasks involved. In general, though, you’ll be settling the estate, notifying appropriate parties, signing up for any benefits and shutting down potential identity theft.

To start:

Get 10 to 12 certified copies of the death certificate (ask the funeral home for these).
Find any estate planning documents, such as a will or a living trust, to start the process of settling the estate. That may require opening a probate case at the county courthouse.
If you don’t already have an estate planning or probate attorney, consider hiring one for help.
Contact your spouse’s employer about any life insurance or retirement benefits, such as a 401(k) or pension.
File a claim if your spouse had life insurance.
Call Social Security at (800) 772-1213 to ask about survivor benefits. If you and your spouse were already receiving Social Security benefits, one payment ends at your spouse’s death, and you’ll get the larger of the two checks from now on.
If your spouse served in the military, contact the Veterans Administration to inquire about additional benefits.
Cancel your spouse’s health insurance.
Contact banks, brokerages, lenders and credit card companies to inform them of the death and close accounts or transfer them to your name alone.
Notify the three credit bureaus: Experian, Equifax and TransUnion.
Delete or memorialize social media accounts.
There are a few things to avoid as well. A big one: Don’t give away money or assets prematurely. These may be needed to settle the estate or you may want more time to make good decisions. If you’re getting pressure from family members or anyone else, refer them to your attorney.

Be careful about making big changes, such as moving or selling a home, in the next year or so because grief can impair your decision-making abilities.

Don’t try to do all this yourself. Let the attorney assist with estate-settling tasks and hire a tax pro to file your spouse’s final tax return. Also, consider talking to a fee-only financial planner. You may have options for payouts from retirement accounts, life insurance and Social Security, for example, and your choices could dramatically affect your future standard of living.

Q&A: The perils of procrastination can be huge where finances are concerned

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Dear Liz: My husband was killed in 2016 and was self-employed for the last three years of his life. I hadn’t gotten around to filing his taxes until earlier this year in June. At first the Social Security rep told me we were approved for survivor benefits but within the hour changed her decision. She said that since it’s been more than three years, the IRS won’t report his credits to Social Security and that is what ultimately disqualifies my children and me. I’m so confused and feel like my stomach just dropped to the floor.

Answer: Understandably. This appears to be one of those awful cases where putting something off has profound, irreversible consequences.

Survivor benefits are monthly checks paid to a worker’s minor children, typically until they turn 18. Surviving spouses normally can start benefits at age 60, but they can start at any age if they’re caring for the worker’s minor children. In that case, the caretaking spouse qualifies for benefits until the youngest child turns 16.

Limits vary, but what a family can receive is generally equal to between 150% and 180% of the worker’s basic benefit. The average survivor benefit for children is more than $800 a month, and the average for a caretaking mother or father is over $900 a month.

No worker needs more than 40 credits, which requires 10 years of work, to qualify a family for survivor benefits. The number of credits varies by age, so younger people need fewer credits.

Even if your husband didn’t have the required number of credits for his age, survivor benefits could have been paid if he had worked for at least 18 months in the previous three years.

But there is a deadline for self-employed taxpayers to have their incomes counted toward Social Security credits, which they do by filing their federal tax returns. The deadline is three years, three months and 15 days after the end of the calendar year in which the income is earned, said economist and Social Security expert Laurence Kotlikoff of MaximizeMySocialSecurity.com.

The deadline for reporting your husband’s 2016 income passed in March, while the deadlines for his 2014 and 2015 income passed in March 2018 and March 2019, respectively.

Appeal the decision because it’s possible that your husband earned enough other credits to qualify your family for benefits even without his last few years of work. But steel yourself for the likelihood that you’ve lost thousands and perhaps tens of thousands of dollars of potential benefits.