June 22, 2020 By Leave a Comment

Q&A: How the COVID-19 pandemic is delaying inheritances

Dear Liz: My mother passed away in March due to old age. She lived in California. I live out of state and couldn’t travel because of the pandemic. My siblings took care of her burial. Her will named me executor. I’d like to know how long I have to settle her estate and whether I will need an attorney. Her house was her major asset and was assessed at $400,000. There’s no mortgage. The house goes to an older brother and me, and two grandsons each get $10,000. I want to make sure the grandsons get their inheritances as soon as possible.

Answer: Your grandsons will have to wait awhile. California probate is slow at the best of times, with a typical case taking eight to 12 months or more. Pandemic-related court closures are adding many months to the process. Courts are slowly reopening but dealing with a significant backlog of filings.

Your mother’s will should be filed with the appropriate county within 30 days of her death and the county tax assessor should be notified within 150 days because she was a property owner, said Jennifer Sawday, an estate planning attorney in Long Beach. Though most counties allow electronic filing for probate matters, it’s typically not the most user-friendly process and you may want to consult a probate attorney. The initial consultation is usually free. Hiring an attorney to handle the whole process probably won’t be cheap: By law, probate attorneys can charge 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9 million, and 0.5% of the next $15 million.

Your mom could have avoided probate entirely if she’d created a revocable living trust, or if she had taken other probate-avoidance measures. In California and many other states, real estate can be passed on with a “transfer on death” deed that avoids probate. She also could have set up bank accounts and designated your grandsons as beneficiaries to avoid probate.

It’s too late now, obviously. But whatever you do, don’t jump the gun by making distributions, Sawday warned.

“If there is a will, under no circumstances should he make the cash gifts to the grandsons until the court admits the will, appoints him as executor and probate actually commences,” Sawday said.

Filed Under: Inheritance, Q&A Tagged With: , , ,
June 15, 2020 By 2 Comments

Q&A: Why tax refunds are taking so long to arrive

Dear Liz: You mentioned that people who file electronically and use direct deposit generally get their refunds much more quickly than those who file paper returns. That has always been true for me, but this year I filed in February and got a message that there was a problem but not to contact the IRS for 60 days. Then COVID-19 happened and the IRS basically shut down. Can you tell me when they will release my money?

Answer: No one knows. The IRS is still in the process of calling employees back to work and some operations centers won’t reopen until later this month.

As employees return, they’re confronting an almost incomprehensible backlog of paperwork and requests for help. Millions of paper returns are sitting in trailers, waiting to be input into the IRS’ computers, and no one has been available to process electronically filed returns that were flagged because of problems.

People who have already been waiting months may still have to wait several weeks more before they see their money or can even access someone who knows what’s happened to their returns. As a reminder, the IRS extended the tax filing deadline to July 15.

Filed Under: Q&A, Taxes Tagged With: , , ,
June 15, 2020 By Leave a Comment

Q&A: Refinancing reverse mortgage

Dear Liz: I am a senior citizen who fell for the hype about reverse mortgages during a really hard time in my life. To this date I regret profoundly having sold my home to the devil! I never imagined that my debt would grow such as it has. My home is currently valued at $120,000 and my debt is $189,000. I was paid just $40,000 when I initiated the loan. Plus, the loan was sold to a company I don’t like. They charge fees for everything, which just adds to the debt, and I am totally unable to do anything about what they charge. Can I refinance this loan with another company?

Answer: A reverse mortgage technically can be refinanced, but you would need to have substantial equity in your home. Since that’s not the case, you’re stuck.

Many people don’t understand how a reverse mortgage balance can grow over time. Although reverse mortgages allow people 62 and older to convert home equity to cash, without requiring payments, any amount borrowed grows at the interest rate specified in the loan contract. People who tap their home equity early in retirement may find they don’t have any equity left later.

Although your debt exceeds your home’s value, neither you nor your heirs will be on the hook for the difference. The lender will have to accept the proceeds of the home’s sale when you die, sell or move out as payment in full.

Filed Under: Q&A, Real Estate Tagged With: ,
June 15, 2020 By Leave a Comment

Q&A: Roth IRA penalties

Dear Liz: I read your column in which you talked about the Roth IRA and how withdrawals can be penalized if you’re younger than 59½ or the account is not 5 years old. But are there any exceptions? Can we withdraw from our Roth IRA and not pay any tax or penalty if we use the money to pay for our children’s college?

Answer: You can avoid the early withdrawal penalty, but you’ll owe taxes on any earnings you withdraw from a Roth IRA when you use the money for qualified higher education expenses.

To recap, you can always withdraw an amount equal to your total contributions to a Roth IRA without owing any taxes or penalties. You don’t even have to wait five years.

When you withdraw earnings, however, you can avoid taxes and penalties only if the account is at least 5 years old and you’re 59½ or older, or you’re taking the distribution because you’re totally and permanently disabled, you inherited the Roth IRA from the account owner or you’re using as much as $10,000 for a first-time home purchase.

If you don’t meet those qualifications, there are still ways to avoid the penalty if not the taxes.

Withdrawing money to pay qualified education expenses is one of those exceptions, as is paying medical expenses that exceed 7.5% of your adjusted gross income, withdrawing as much as $5,000 after the birth or adoption of a child, paying an IRS levy, taking a qualified reservist distribution if you’re a military reservist called to active duty or taking a series of substantially equal periodic payments.

Let’s say you’ve contributed $20,000 to a Roth that’s now worth $30,000. The first $20,000 you withdraw is tax- and penalty-free. The final $10,000 you withdraw would be taxable, but it would not face the 10% early withdrawal penalty if you used it for your children’s college tuition, fees, books, supplies or other qualified expenses.

Filed Under: Investing, Q&A, Retirement Tagged With: , , ,
June 9, 2020 By

“Where’s My Refund?”

If you’ve been waiting months for your tax refund, you’re not alone.

Many people who filed paper tax returns — and even some who filed electronically, but whose returns were flagged because of problems — have yet to see their money. Some are growing desperate, since they rely on refunds to pay bills or cover medical care.

Few can get through to anyone who can help. The IRS closed its processing centers, local offices and taxpayer help lines because of COVID-19 lockdowns, prioritizing the stimulus payments authorized by the CARES Act.

As I wrote in a previous post, taxpayers are reaping what their lawmakers have sowed:

“Over the last decade, Congress has cut the IRS’ budget by more than 20% after factoring in inflation, even as the population grew and tax law got ever more complicated. The agency was limping along with ancient technology and too few people to help the public even before the pandemic sent most of its workers home, without the ability to telecommute.

The agency has been trying to recall its workforce as quickly as it can, but there is a truly massive backlog of paper returns that has yet to be processed. Sending out stimulus relief checks has taken priority, and that Herculean effort is still in process.”

Processing centers in Kentucky, Texas and Utah opened this week. Re-openings are planned for June 15 in Georgia, Missouri, Michigan and Tennessee. Processing centers are scheduled to open June 29 in Indiana, Ohio, California, Puerto Rico and Oregon.

It’s unclear how long it will take employees to clear the massive backlog they’re facing. NerdWallet has some suggestions for workarounds, including contacting the Taxpayer Advocate Service, although that service is overwhelmed as well.

Please don’t re-file your tax return, as that won’t help and makes the backlog worse. If you’re still working, consider adjusting your withholding to increase your paycheck. (It’s far better to keep your own money than to make an interest-free loan to the government, which has no obligation to pay you back in a timely manner.) If you’re struggling, you may be able to find food banks,  and other resources to help you at 211.org.

Filed Under: Taxes
June 8, 2020 By

Q&A: Picking your estate’s executor

Dear Liz: One issue in a recent column was about a sibling who did not follow the will. As executor, the sibling took two thirds of the estate instead of the will’s specification of half.

This is why, when my wife and I had our estate plan created, we told the attorney that none of the beneficiaries should be the executor of our wills and none should be a trustee of our trusts. Indeed, our trusts — which own almost our entire estate — cannot have the spouse, child, parent or in-law of a beneficiary as a trustee.

Answer: Yours is certainly one solution, if you can find the appropriate people to serve. But naming an heir as executor or trustee doesn’t have to be a disaster, as long as you name the right person — someone who is honest, dependable and able to serve with integrity.

Filed Under: Estate planning, Q&A Tagged With: , ,
June 8, 2020 By

Q&A: Social Security spousal benefits count as yours

Dear Liz: My husband is 69 and taking his Social Security benefit. I will be 62 in November and would like to ask if I can take half of his amount when I turn 62 and let mine grow until my full retirement age of 66 and 8 months? Or am I only able to collect mine at 62?

Answer: You can’t take a spousal benefit and let your own retirement benefit grow. When you apply for Social Security, you will be “deemed” to be applying for both benefits and you’ll get the larger of the two. You won’t be able to switch later. Applying at 62 means accepting a permanently reduced benefit. Some people don’t have much choice, but if you can continue working or tap other retirement funds, waiting is usually the better option.

Filed Under: Q&A, Social Security Tagged With: , ,
June 8, 2020 By

How filing taxes could generate your coronavirus stimulus check

Dear Liz: My adjusted gross income in 2019 was too high for me to get a stimulus relief payment. However, my income this year will be much lower and I would qualify. Will I automatically get the stimulus payment when I file my 2020 return or is there something I must do to get the money?

Answer: Just file your 2020 taxes and you’ll get the money.

The recent relief checks of up to $1,200 per adult were created using a refundable credit that will apply to 2020 taxes. (Refundable credits reduce your tax bill dollar for dollar, with any excess refunded to the taxpayer.)

The structure of this refundable credit has created some confusion. Many people thought the payments would reduce the refund they would normally get, but that’s not the case. Rather, the relief checks are an advance on a credit that has been added to their 2020 taxes. When people file their 2020 tax returns, they’ll deduct their relief payments from that new credit. (And although the credits are refundable, the money doesn’t have to be paid back if you got a payment but your 2020 income turns out to be too high.)

If you didn’t get a payment but you qualify based on your 2020 income, you’ll get the credit when you file.

Filed Under: Coronavirus, Q&A, Taxes Tagged With: , ,
June 8, 2020 By

Q&A: Pitfalls of unequal will distributions

Dear Liz: You’ve written that when writing their wills, parents should be careful about leaving unequal distributions to their children. What wasn’t mentioned was that a person could have a “good” child and a “bad” one. The “bad one” has never done a thing for the parent, such as inviting her to the child’s home at Thanksgiving or Christmas, and only visits the parent in the summer when the parent just happens to live at the beach. The “good” one is very attentive and visits the parent even in winter, and so on. What is your thinking in inheritance in this case?

Answer: It’s your money, and there’s no one right way to divide an estate. However, it’s disturbing that your assessment of your children seems to be based solely on how much attention you get.

It’s possible one child acts more selfishly or thoughtlessly than the other. It’s also possible that you are difficult to please, and one child understandably limits the time she spends trying to do so.

Filed Under: Estate planning, Follow Up, Q&A Tagged With: , ,
June 1, 2020 By

Q&A: Getting sister’s house without a will

Dear Liz: When I retired in 2018, I rolled over my 403(b) teachers retirement account into a traditional IRA and made my sister sole beneficiary. I sent her a copy of that beneficiary statement showing her name, her percentage (100%), and my account number. My sister later told me in a phone call that she wished to bequeath me her house should she predecease me. She explained she didn’t have a will but she made her feelings known to our older brother. Even if I were on speaking terms with our older brother, I would find this arrangement naive. Knowing my sister, she actually believes this method is the right way to proceed with her wishes. I’m asking you to be Dear Abby, perhaps, but what do I do?

Answer: You can explain to her that if she doesn’t have a will, the laws of her state will determine who gets her house regardless of what she intended. If your sister does not have a spouse or children, and your parents are dead, you and your brother would probably inherit the home as well as the rest of her estate. You would have to negotiate what to do with the house, which could be difficult if you two still aren’t speaking.

If you can’t get her to write a will, there may be another option. Many states allow “transfer on death” deeds, which are forms that allow people to name a beneficiary for their home. This would ensure that the house is left to you and that it avoids probate, the court process that otherwise follows death.

Filed Under: Estate planning, Insurance, Q&A Tagged With: , , ,