Ask Liz Weston

Get smart with your money

Q&A

Q&A: How Social Security survivor benefits work

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Dear Liz: Will my wife, after I’m gone, be able to claim one half of my Social Security benefits because she is the surviving spouse? I am concerned and confused, because her monthly Social Security benefit is much larger than mine. Does that affect this aspect of the available benefit?

Answer: If by “gone” you mean “dead,” then no, that’s not how survivor benefits work.

When one member of a married couple dies, the surviving spouse does not continue to get two benefit checks. The survivor is given the larger of the couple’s two benefits. If she’s already receiving much more than you, then she will continue taking her own benefit and your checks will end.

The “one half” benefit is the spousal benefit, which is paid out while the primary earner is still alive. Typically when married people apply for Social Security, the retirement benefit they earned is compared with their spousal benefit, which is up to one half of what the other spouse has earned. (The amounts are reduced if the person applies for benefits before his or her own full retirement age.) The applicants get the larger of the two checks.

Spousal benefits also are available to divorced spouses, if the marriage lasted at least 10 years.

Q&A: Procrastination can mean estate-planning disaster

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Dear Liz: My husband and I own all our assets as joint tenants. Because we have no children, we did not want to rush into making a will. But for the past few years, my husband’s older sister has been pressuring him to write a will benefiting her 60-year-old daughter.

His sister has gone so far as to ask my husband to send her a notarized list of all our assets, including bank accounts. He’s declined but she does not take “no” for an answer. He no longer communicates with her. It is our wish to benefit only the organizations and institutions that we already support. Although family members and relatives will not be named in the will, I wonder if his sister or anyone else can still try to claim an inheritance.

Answer: If you don’t stop procrastinating, everything you own may be inherited by that pushy sister-in-law. So get a move on.

Your jointly owned assets should pass to the other spouse when one of you dies, but when the survivor dies the property would be distributed according to your state’s laws if you don’t have a will or other estate plan. The laws of intestate succession typically put any children first in line, followed by parents. If you don’t have kids and your parents are dead, then siblings usually inherit.

People who would have inherited in the absence of a will typically have the “standing” or legal ability to challenge a will. Given your sister-in-law’s extreme sense of entitlement, you should count on her doing so. You should enlist an experienced attorney to help set up a will that can survive such a challenge.

Q&A: You need a planner for personalized advice

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Dear Liz: I have five questions. I have enclosed five sheets of paper with each question printed at the top. Please feel free to simply write your advice on each page, and then insert them into the addressed and stamped envelope I have enclosed. This is my attempt to make it easy for you to respond.

Answer: Thank you, but it’s not the lack of paper or a stamp that prevents columnists from replying to private inquiries. Questions of general interest may be answered here, but you’ll need to seek out a financial advisor for personalized advice.

You have many options for finding fiduciary, fee-only advisors. Fee-only advisors accept fees only from clients rather than accepting commissions or other compensation based on products the advisors recommend. Fiduciaries are advisors who promise to put clients’ best interests first. The following organizations can connect you to fee-only advisors who are fiduciaries:

—The National Assn. of Personal Financial Advisors. NAPFA advisors must be certified financial planners (CFPs). Many NAPFA planners charge a percentage of the assets they manage (called an “assets under management” or AUM fee) and have minimum asset requirements, although some charge hourly or retainer fees. A typical fee is around 1% of assets under management.

—XY Planning Network. Advisors must be CFPs and offer the option of flat monthly fees, although they may offer other arrangements including hourly or AUM fees. Monthly fees are typically $100 to $200, with some planners charging an initial fee of $1,000 to $2,000.

—The Garrett Planning Network. Planners must be CFPs or on track to get the designation, or CPAs who have the personal financial specialist (PFS) credential. Hourly fees usually range from $150 to $300.

—Assn. for Financial Counseling and Planning Education. This group offers two credentials for advisors: accredited financial counselor (AFC) and financial fitness coach (FFC). Both focus on helping middle- and lower-income people get a handle on the basics, including budgeting, debt management and retirement planning. Counselors work with clients in financial crisis or who need help with spending plans, eliminating debt, building savings and improving financial stability, said Rebecca Wiggins, the association’s executive director. Coaches focus more on helping clients understand how effective money management can help them achieve life goals, with a focus on changing financial behavior using goal setting, accountability and monitoring, Wiggins says. Many counselors and coaches work for the military, credit unions or other organizations and offer their services free or at reduced cost. Coaches and counselors who have private practices typically charge $100 to $150, but many work on a sliding scale.

Q&A: A large foreign bequest could trigger U.S. taxes

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Dear Liz: I have received an inheritance of $445,000 from a relative who died out of the country. Do I have to pay income tax on this money?

Answer: If you inherited from someone who was a U.S. citizen who lived abroad, then that person’s estate may be subject to U.S. estate taxes. The estate would have to be quite large, though. In 2017, estates worth less than $5.49 million per person were exempt from the tax. In 2018, the amount was raised to $11.18 million.

If you had paid any taxes on your inheritance to a foreign government, you could take a tax credit on your U.S. tax return for that amount.

Otherwise, you probably won’t owe any taxes. The federal government and most states don’t levy inheritance taxes on people who receive bequests. The exceptions are Iowa, Kentucky, Nebraska, Maryland, Pennsylvania and New Jersey, which do levy taxes on inheritances. All exempt spouses, and some exempt other immediate relatives.

Q&A: The dark side of reverse mortgages

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Dear Liz: I have had a reverse mortgage on my condo since 2009, due to financial necessity. The interest rate on my mortgage keeps going up. Could the interest rate be reduced by changing lenders or would there be exorbitant fees involved in the process? My financial standing is not good, and I am in credit card debt. However, I do pay the minimum payment each month on each card. Being retired, I need some guidance on relieving the financial pressure I am currently experiencing.

Answer: Please consult a bankruptcy attorney.

Changing reverse mortgage lenders would indeed involve considerable expense and wouldn’t relieve any financial pressure because you don’t have to make payments on this kind of loan. (For those who don’t know, reverse mortgages allow people ages 62 and older to tap their equity in a lump sum, through a stream of monthly checks or via a line of credit. The debt grows over time, typically at a variable interest rate, but the borrower doesn’t have to make payments. The loan is repaid when the borrower moves out, sells the home or dies.)

If you can pay only the minimums on your credit cards, you probably have more debt than you’ll be able to repay. Some people manage to dig themselves out of such debt, often by working two jobs and dramatically cutting their expenses. They may use a debt management plan offered by a credit counselor to reduce their interest rates. Sometimes they sell their homes and use the equity to pay off the debt.

You can explore these options, of course, but chances are they won’t be a solution for you.

You may not be able to find a job, or have the stamina to work. Selling your home to pay off the debt would leave you without a house in your old age and may leave you without income, if you’re getting monthly checks from your reverse mortgage. If you borrowed a lump sum instead, your debt may have grown to the point where you don’t have much equity left anyway.

Your situation is one of the reasons many financial planners are leery about reverse mortgages. They can be an extremely helpful tool in retirement, but sometimes people use them as a way out of a financial jam without addressing the spending or other issues that got them into the jam in the first place.

Q&A: Credit scores come in many forms

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Dear Liz: I am now getting my credit score from three different places: my bank, one of my credit cards and a free online site. Why are all three of the scores always different?

Answer: You don’t have one credit score, you have many and they change all the time. Furthermore, you’re probably looking at scores created with different formulas that may be using information from different credit bureaus.

The FICO 8 is the most commonly used score, but the number you see may vary depending on whether the data is drawn from Equifax, Experian or TransUnion credit bureau and when the score was created. Your scores will change as lenders update the information in your credit report. FICO scores may also be tweaked for different industries, such as credit cards or auto loans, and be on a 250-to-900 scale rather than the 300-to-850 scale of other FICO scores. FICO scores also come in different generations, so your FICO Bankcard Score 2 may be different from your FICO Bankcard Score 5.

Free sites typically offer VantageScores, created by the three bureaus to be a rival to FICO. These scores are also used by lenders, but not to the same extent as FICO scores.