Lynn Brenner's Family Finance

Death Doen't Automatically Wipe Out Debts

Q: My late uncle was in a nursing home in New York State for about a year. They were applying for Medicaid, but he died before they finalized the Medicaid process. He left many bills, and a residence valued at about $40,000. He also left a bank account with about $30,000 in trust for me. Is that money mine, or will the nursing home or Medicaid come looking for it?

 

A: Medicaid isn’t one of your uncle’s creditors if the Medicaid application process was never completed. But everyone else he owed money to – including the nursing home -- definitely has a claim on his estate.

Your uncle's estate must pay his outstanding bills before any assets are distributed to his heirs. 

To be sure, New York law does make some assets off limits to most creditors: They can’t touch the proceeds of life insurance policies, or collect from annuities or retirement accounts that have designated beneficiaries. If your uncle had named you as his IRA beneficiary, you could be confident of inheriting that account. 

But a bank ‘in trust for’ account isn’t on the list of protected assets. Your uncle’s creditors have first dibs on it. Depending on how much he owed that nursing home, there may be nothing left for you.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

My Husband's Ex Is Still His Named Beneficiary!

Q: My husband of seven years told me that he added me as his beneficiary after we were married. But I've learned that his ex-wife is still listed as his beneficiary. Can this be changed, and if so, can it be back-dated from the date of our marriage license?

 

A: Beneficiary designations never have to be back-dated. The only beneficiary that matters is the one listed on the account when its owner dies.  And yes, of course he can change his beneficiary designation to name his current spouse!

You don’t say what kind of account this is. If it’s an Individual Retirement Account, he can name any beneficiary he wants unless you live in a community property state. (However,  if you live in a community property state, as his current wife you may already own half of his IRA.) 

If you’re talking about an account in an employer-sponsored retirement plan, such as a 401(k), as his current spouse you're entitled by federal law to be his beneficiary. He can't name anyone else unless you relinquish that entitlement in a written statement kept by the plan administrator. (More about that here.)

But it's up to your husband to update his 401(k) beneficiary designations. Given his track record on completing this task, you may want to drop a note to the 401(k) plan administrator asking them to make sure he changes his 401(k) paperwork to reflect the fact that you are the current Mrs. Jones.

For more information about the legal nightmare created for their heirs by people who divorce and remarry without updating their 401(k) beneficiary designations, see my earlier posts here and here.) 

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Social Security Disability and Spousal Benefits

Q: I have been on Social Security disability for 6 years. My ex-husband of 13 years will be retiring next year at age 66. Will I be able to collect on his retirement? If so, do I get my disability amount plus 50% of his benefit or do I receive the same amount he is entitled to?

 

A: No one ever gets their own Social Security benefit -- whether it's a disability benefit or a retirement benefit -- plus a spousal benefit. The most you can get is an amount equal to the larger of the two; in your case, that's probably your current disability benefit.

Here's why:

The amount you receive as a Social Security disability benefit is always equal to the retirement benefit you'd get at your full retirement age. (In fact, when you reach full retirement age, the Social Security Administration recategorizes your disability benefit as a retirement benefit.)

The biggest spousal benefit you can collect while your ex-husband is alive is 50% of the amount he receives. As an eligible divorced person, you can apply for that benefit as soon as you and your ex are both at least 62 years old - even if he hasn't yet applied for Social Security.  (If you were still married, you couldn't apply for a spousal benefit until your husband had actually filed for his own benefit.)

Whether or not you qualify for the maximum spousal benefit depends on your age when you file for it, not on his age.

But you can't collect your disability benefit and your spousal benefit. You'll only receive the larger of the two. If your current benefit is $1,200 a month and your spousal benefit is $1,000 a month, for example, you'll continue receiving $1,200.

When your ex-husband dies, your maximum survivor's benefit would be 100% of the amount he was getting (or eligible to get) at the time of his death -- which may indeed be more than your disability benefit. But again, you'll receive the larger of the two, not both.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved