Ask Liz Weston

Get smart with your money

Q&A

Q&A: Does insurance cover a home in a living trust?

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Dear Liz: All of our insurance policies list my name and that of my husband. After the recent devastating Los Angeles fires, I heard from friends that we should add the name of our living trust to our home insurance policy because our house is in the trust. Otherwise, they say, some insurance companies may not cover loss or damages to it due to the discrepancy in the names, even if the trust has both of our names as trustees. Would you please confirm this?

Answer: Yes. If your home is in a trust, your insurance policies should list your trust as an “additional insured.” Insurance companies vary in their contract language, but you don’t want to find out after the fact that you aren’t covered.

Q&A: Benefits of Medicare Advantage HMOs

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Dear Liz: You mentioned that Medicare Advantage Plans have networks that can change from year to year, as well as other disadvantages. This is not true for our Medicare Advantage HMO, according to my experience. The HMO has its own doctors and hospitals, but I have not noticed them pulling any surprises. And they do look after your health much better than the traditional Medicare that some of my friends are on. My friends’ care is entirely in their own hands, and some are getting very old and would benefit from the care that my HMO provides.

Answer: You’ve highlighted one of the key advantages of a Medicare Advantage HMO, which is coordinated care.

There are two main types of Medicare Advantage plans, the all-in-one private insurance alternative to original Medicare. With PPOs — preferred provider organizations — people are generally allowed to see medical providers outside their networks, although those visits will cost more. With HMOs — health maintenance organizations — you’re expected to stay in the network for most care, and you often need a referral to see a specialist. You could pay up to 100% of the cost if you use a doctor or hospital not in the HMO.

In exchange for those restrictions, people get a primary care provider who coordinates all of their care. That’s in contrast to PPOs or original Medicare, where a patient may have many providers who never talk to each other.

Q&A: A divorced couple considers retying the knot to maximize Social Security payments

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Dear Liz: I was married for 33 years and divorced 4 years ago. We have reconciled and are now back living together as a couple, but have not remarried. I’m 68, and my former spouse is 63. Neither of us is drawing Social Security, but we are now considering applying. Will she be able to draw more if we were to get remarried? It seems as if half of my payment will be more than what she’d get on her own. Also, when should I start drawing my benefit to maximize the payment?

Answer: Let’s start with the simpler of the two answers. Your benefit maxes out at age 70, so waiting until then to apply is usually the right strategy. Maximizing your check also maximizes the survivor benefit, or divorced survivor benefit, your partner might eventually receive.

The amount your partner would get as a spouse or a divorced spouse would be the same: up to 50% of your benefit at your full retirement age, assuming that amount is greater than her own benefit. To qualify for a divorced spousal benefit, the marriage must have lasted at least 10 years and two years must have passed since the divorce.

There’s one crucial difference between spousal and divorced spousal benefits, however. If you remarry one another, she will have to wait for you to apply for Social Security before she can qualify for a spousal benefit. If you don’t remarry, she doesn’t have to wait. A divorced spousal benefit can start as early as age 62, as long as the ex-spouse is also at least 62.

That doesn’t mean your partner should rush out to apply. Applying early — before her full retirement age of 67 — means settling for a smaller check.

Q&A: Roth conversions and holding periods

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Dear Liz: Eight years ago I converted a number of stocks from an IRA to a Roth IRA and paid the taxes. Now I am in a position to convert the last shares but want to do it incrementally over the next four years. Does each conversion then require its own five-year waiting period or will anything in the existing Roth now qualify to be withdrawn at any time?

Answer: The IRS requires five-year holding periods before earnings can be withdrawn tax-free from Roth accounts. The five-year rule applies separately to each Roth conversion, so the partial conversions you’re contemplating will each have their own five-year holding period, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

That’s different from regular Roth accounts, where the five-year rule starts the year the account was first opened and isn’t triggered again by subsequent contributions, Luscombe says.

Q&A: Credit cards and co-signers

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Dear Liz: My son is in his mid-20s. He has a credit card that we co-signed and that has a credit limit he would likely not qualify for on his own. He would like to remove us as co-signers as he starts to take more personal control of his finances. Would it make more sense to apply for a new card using only his income information, and then slowly stop using the old card? Or is it better just to take the hit on his credit rating now and request our removal from the old card?

Answer: It’s not clear whether you’ll be able to bow out of this arrangement without closing the card. Most major credit card issuers don’t allow co-signers. More typically, parents would add their children as authorized users. While the parents can remove their children from the account, the opposite isn’t true.

If this is a co-signed card, the issuer may have an option for removing you. Your son will need to call and ask.

In general, though, it would be better for his credit to apply for a card on his own and leave this account open.