Dear Liz: A close friend recently lost his partner of decades. The partner left no will or trust or anything written. The partner owned several properties and had a huge IRA and lots of money in the bank, but all in the partner’s name. My friend asked an estate lawyer and the lawyer said she has no legal rights to anything, even the house she has lived in for years. Can anything be done?
Answer: The lawyer is probably right. Jennifer Sode, an estate planning attorney in Long Beach, says unmarried partners generally can’t inherit without an estate document, beneficiary designation or some kind of written agreement.
But your friend should talk to a family law attorney to see if she has any options, Sawdey said.
In California, for example, he may be able to assert a “Marvin” claim against the estate (Marvin cites a 1976 California Supreme Court case between Michelle and Lee Marvin, which established that unmarried partners can sue each other for property division after a relationship ends.)
Tax consequences of annual conversions
Dear Liz: Several years ago my wife inherited an IRA when her mother passed away. His banker suggested rolling the IRA into an annuity with an insurance company. That company is hard to deal with and not forthcoming about how the annuity is invested. He wants to convert the IRA to a certificate of deposit so that it is insured by the FDIC. What are the tax consequences of doing that?
Answer: There are several types of annuals. If your wife buys an immediate annuity, which offers a stream of payments in exchange for a lump sum, she probably won’t be able to change her mind because those transactions are effectively irreversible.
Although he buys a deferred annuity, he has more options. Deferred annuities allow people to defer a stream of payments until later — often years or even decades into the future. Meanwhile, annuities can pay a fixed rate, a variable rate based on the performance of the underlying investment, or an indexed rate based on market benchmarks.
Your spouse won’t face taxes if he switches from a deferred annuity to a CD, since switching investments within an IRA isn’t considered a taxable event. Annuities may have surrender charges though. Because annuities often pay substantial commissions to advisers, surrender charges help discourage investors from withdrawing money before insurers recoup those fees.
These charges and generally high costs make deferred annuities a disadvantage for many investors, and many financial planners especially dislike looking at them in IRAs. The primary benefit of a deferred annuity is tax deferral, which an IRA already offers.
If your wife feels she has been misled about this investment, she can file a complaint with her state insurance regulator.
Social Security Survivor Benefits
Dear Liz: I am 70 years old, collecting social security since age 62 and still working. My ex-wife died a few years ago at age 67. We were married for 25 years. I read that I can collect her social security benefits as a survivor, but social security said no. Do not understand this?
Answer: Many people misunderstand how survivor benefits work. You will not receive a deceased person’s check in addition to your current benefit. If the survivor benefit is more than what you currently receive, you will receive that payment instead. When Social Security said no, the agency was making sure your benefits were higher than what you could get based on your ex-spouse’s earnings history.
Understanding how survivor benefits work is also crucial for currently married couples. Many are not prepared for the drastic drop in income when the first spouse dies and the survivor is left with only one check. Deferring Social Security for high earners as long as possible can help ensure that survivors have more to live on.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at askliweston.com.