Dear Liz: A close friend recently lost her partner of many decades. The partner left no will or trust or anything in writing. The partner owned many properties and had a huge IRA and lots of money in the bank, but all in the partner’s name alone. My friend asked an estate lawyer and the lawyer said she had no legal right to anything, even the home she has lived in for many years. Can anything be done?
Answer: The lawyer is probably correct. Without estate documents, beneficiary designations or some kind of written agreement, unmarried partners typically can’t inherit, said Jennifer Sawday, an estate planning attorney in Long Beach.
But your friend should consider talking to a family law attorney to see if she has any recourse, Sawday said.
In California, for example, she may be able to make a “Marvin” claim against the estate. (Marvin claims stem from a 1976 California Supreme Court case between Michelle and Lee Marvin, which established that unwed partners could sue each other over property divisions after a relationship ended.)
Tax consequences of annuity conversion
Dear Liz: Several years ago my wife inherited an IRA when her mother died. Her banker suggested rolling the IRA into an annuity with an insurance company. That company is difficult to deal with and not forthcoming about how the annuity is invested. She wants to convert the IRA into a certificate of deposit so it is insured by the FDIC. What are the tax consequences of doing that?
Answer: There are many different types of annuities. If your wife purchased an immediate annuity, which offers a stream of payments in return for a lump sum, then she probably can’t change her mind since those transactions are effectively irreversible.
If she purchased a deferred annuity, though, she has more options. Deferred annuities allow people to defer the stream of payments until later — often years or even decades in the future. In the meantime, the annuity may pay a fixed rate, a variable rate based on the performance of underlying investments, or an indexed rate based on a market benchmark.
Your wife won’t face taxes if she switches from a deferred annuity to a CD, since changing investments within an IRA isn’t considered a taxable event. The annuity itself may have surrender charges, however. Because annuities often pay advisors substantial commissions, surrender charges help discourage investors from withdrawing the money before insurers can recoup those fees.
These charges and high expenses in general make deferred annuities a poor fit for many investors, and many financial planners especially dislike seeing them in IRAs. A deferred annuity’s primary advantage is tax deferral, which an IRA already offers.
If your wife feels she was misled about this investment, she can make a complaint with her state insurance regulator.
Social Security survivor benefits
Dear Liz: I’m 70, collecting Social Security since age 62 and still working. My ex-wife passed away a few years ago at 67. We were married for 25 years. I read that I could collect on her Social Security benefits as the survivor, but Social Security said no. What did I not understand about this?
Answer: Many people misunderstand how survivor benefits work. You don’t get the deceased person’s check in addition to your current benefit. If the survivor benefit is larger than what you currently receive, you get that payment instead. When Social Security said no, the agency was confirming that your benefit is larger than what you could receive based on your ex-wife’s earnings history.
Understanding how survivor benefits work is hugely important for currently married couples as well. Many are not prepared for the sharp drop in income that happens when the first spouse dies and the survivor is left with only a single check. Having the higher earner delay Social Security as long as possible can help ensure the survivor has more to live on.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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