Lynn Brenner's Family Finance

Does a Widow Lose Social Security If She Remarries?

Q:  If a widow and a widower who are both drawing Social Security survivors' benefits get married, are their respective benefits affected?-- RV, via email

 

A: It depends on how old they are.

If you remarry after age 60, you won't lose your widow or widower's benefit from a previous marriage -- a good reason to postpone the wedding bells if you're a year or two younger.

But remember, you can't collect more than one Social Security benefit at a time. If you become eligible for more than one benefit -- for example, in addition to a survivor's benefit based on a deceased spouse's record, you also now qualify for a spousal retirement benefit based on your new husband or wife's work record -- you'll receive the larger of the two amounts, 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

 

Mitt Romney's Video Remarks

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it -- that that's an entitlement. And the government should give it to them. And they will vote for this president no matter what. ... These are people who pay no income tax. ... [M]y job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

I don't know which government benefits Mr. Romney had in mind when he said 47 percent of Americans are dependent upon government.

As a personal finance columnist, I write about government benefits one or more of which 100 percent of  Americans depend on at some point in their lives (student loans, veterans' benefits, unemployment insurance, Medicare, Medicaid, and Social Security.)

As a business reporter, I know the assertion that 47 percent of Americans don't pay federal income tax and are therefore government dependents is grossly misleading: Two-thirds of the Americans who don't pay federal income taxes are people with jobs. They pay payroll taxes. They don't owe federal income tax because their earnings are reduced by tax credits and/or tax deductions that enjoy strong Republican support -- like credits for the working poor, for households with children, and for military families, and deductions for mortgage interest and student loan interest. Only 18 percent of Mr. Romney's 47 percent pay neither federal income taxes nor payroll taxes; 10.3 percent of them are senior citizens, and 6.9 percent are people who earn less than $20,000 a year.

As a someone who pays attention to demographic and political trends, I know that a great many of these hardworking lower-middle and middle-income people and senior citizens are Republican voters, not Obama supporters. (That's why William Kristol, the neo-conservative editor of The Weekly Standard, called Mr. Romney's comments 'arrogant and stupid." )

But as a voter, what I find most striking about these remarks isn't Mr. Romney's philosophy about the role of government or his ignorance about which groups typically favor Republican candidates.

What I find astounding is Mr. Romney's matter-of-fact statement that 47 percent of Americans are self-pitying freeloaders who can never be persuaded to take responsibility for themselves.

I never expected to hear anything like that from a would-be president of the United States.

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

 

 

What Tax Do We Owe on Inherited House?

Q: My mom had a house with a life estate. My three brothers and I are on the deed.

My mom passed away on May 4th 2012. Is it true that we inherit her house at its market value, and the sale proceeds when we sell it will be tax-free for us? And is it also correct that there will be no federal tax on my mom's estate unless it's worth more than $2 million, and no New York state tax unless it's worth more than $1 million? What about capital gains tax? -- BS via email

 

A: You're asking questions about two entirely different categories of tax. Estate taxes are those levied on inherited assets. Capital gains taxes are an income tax levied on your profit when you sell an asset for more than you paid for it.

Let's start with the simple stuff. In this case, it's estate taxes.

In 2012, federal estate taxes are levied only on estates worth more than $5 million, and New York State's estate tax applies only on estates worth more than $1 million. So if your mother's estate was worth $5.5 million, $500,000 of it would be subject to federal tax and $4.5 million of it would be subject to New York tax.

Clear so far? Then let's talk about capital gains.

The basic tax rule is that when you inherit a house, you receive it at its market value, which means when you sell it you're taxed only on the sale proceeds above that market value. But if you receive a house as a gift during its owner's lifetime, you receive it at its original cost -- i.e., what the original owner paid for it. That leaves you with a much higher tax bill when you sell the house.

Sometimes people assume that in a situation like yours, the second rule applies. That's not so!

Your mother gave the house to you and your siblings during her lifetime, but she retained a life estate -- i.e., the right to live there until she died.

If she had given you the house outright, you would be taxed when you sell it exactly as she would have been taxed: you'd owe a capital gains tax on the difference between the sale price and her original cost plus any capital improvements she made. If you sold the house for $1 million, for example, and her original cost plus improvements was $60,000, you would owe tax on $940,000.

But thanks to her retained life estate, you inherited the house at its market value at the time of her death. As a result, when you sell it you'll owe taxes only on the difference between the sale price and that market value. If the house was worth $1 million when she died and you sell it for $1.2 million, for example, you'll owe tax on $200,000.

Every time I write about this, I get at least one email challenging me, so here are the citations that explain why you inherited the house at its market value:

Section 2036 of the Internal Revenue Code says that when you retain a life estate in a house, the total value of the house is included in your estate when you die. Ergo, your mother's house was included in her taxable estate. (This is true whether or not the estate actually incurred estate taxes.)

Section 1014 of the Internal Revenue Code says that your heirs receive what is included in your estate -- with a few specific exceptions that don't include life estates -- at its 'stepped-up' market value.

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

 

Does Divorcee Lose Social Security If She Remarries?

Q: I am 70, divorced, and collecting $820 a month on my ex-spouse's Social Security record. I started collecting this benefit at age 63. Now I wish to remarry a man who is 86 years old. He currently gets about $1,400 a month in Social Security. How will remarrying affect my Social Security benefit? If he should die while I am married to him, would I be entitled to a widow's benefit on his record, even though I am currently collecting on my ex-spouse's record? I am very confused. Maybe I should not remarry. I certainly can’t afford to risk even lower benefits. – DK, via email

 

A: What happens to your Social Security benefit will depend on whether your ex-spouse is still alive.

If he is, the $820 benefit you're currently receiving is approximately half of his Social Security benefit. (The maximum spousal or ex-spousal benefit is 50% of your mate or former mate’s benefit amount. You’re actually getting a little less than that because you applied for it at 63. To get 50%, you'd haev had to apply at your full retirement age, which was 65 and 10 months.)

You’re eligible for a benefit based on your ex’s work record because you met four conditions: You’re 62 or older; your marriage lasted at least ten years; your benefit based on your own work record is smaller than your spousal benefit; and you haven’t remarried.

If you remarry, you’ll no longer meet all four conditions -- so you’ll no longer be eligible for the benefit.

But it’s a very different story if your ex-husband is dead:

Your Social Security benefit as his surviving ex-spouse would be twice the amount you can collect during his lifetime. As an eligible surviving ex-spouse, you’d receive 100% of the amount your ex was getting (or was eligible to receive) at the time of his death.

To be eligible for the survivor's benefit, you must meet three conditions: You’re 60 or older; your marriage lasted at least ten years; and your benefit based on your own work record is smaller than your survivor’s benefit.  If you remarry before you turn 60, you can’t claim a survivor’s benefit based on the work record of a former spouse. But if you remarry after age 60, your survivor’s benefit based on your previous marriage is not affected.

Since you’re 70 years old, assuming your ex husband is dead, even if you remarry you’ll continue receiving the Social Security benefit based on his record.

As to your last question, if your new husband dies during your marriage you’ll be entitled either to claim a survivor's benefit based on his work record as his widow or to claim a survivor’s benefit based on your late ex-husband’s work record. You would take the larger of the two amounts.

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