Why living trusts are a good option, most of the time
Answer: Please take the advice you paid for. The trust you have is probably a living trust, a flexible estate-planning device that avoids probate. Living trusts generally allow a smoother, more organized settlement of the estate than other probate-avoidance options.
The person who settles your estate is called your successor trustee and will perform much the same duties as an executor. But typically your successor trustee also can handle financial and other matters should you become incapacitated.
As covered in previous columns, payable-on-death and transfer-on-death accounts can be appropriate solutions for people with few assets who can't afford to pay for a living trust. For more complex estates like yours, however, a living trust is the more appropriate option.
Dear Liz: I am under full retirement age, collecting Social Security and working part-time. I just received a letter from Social Security telling me I earned over the $22,320 limit and now have to pay back some of my Social Security. I was aware of the limit, so the letter was not unexpected. What I'm curious about though is what is the rationale behind the earnings limit? Once you're eligible for Social Security, why do they care how much you earn? Are they trying to discourage applying before full retirement age? Also, and more importantly, I think I read that somewhere down the line, I will get back what I had to pay back. Can you clarify that for me?
Answer: Social Security was designed as insurance for those who could no longer work, and a retirement earnings test has been a part of the system from its creation in 1935. Back then, the test was all-or-nothing: Any earned income would preclude your getting a benefit.
Over time, the test was modified so that people could earn some income without losing all their benefits. The age at which the earnings test no longer applies has changed as well. In the 1950s, it was set at 75. In the 1960s, the age was lowered to 65. In the 1980s, it was adjusted so that the current 'full retirement age,' when the test no longer applies, is 67.
The current test withholds $1 for every $2 earned over a certain limit, which in 2025 is $23,400. Once you reach full retirement age, the withheld amounts will be added back into your benefit.
What you won't get back, however, is the larger benefit you could have earned by delaying your initial application. Most people are better off waiting at least until full retirement age to collect Social Security, if they possibly can.
Dear Liz: You recently wrote that it's easier to have one bank than many, but I worry about FDIC insurance limits because I have more than $250,000 in savings.
Answer: You may be able to get more coverage at one bank than you think. FDIC insurance is per depositor, per ownership category, per bank. Ownership categories include single accounts, joint accounts, certain retirement accounts such as IRAs and trust accounts, among others.
If you're married, for example, a joint account would be covered up to $500,000, or $250,000 for each owner. If each of you had single accounts, your total coverage for the three accounts would be $1 million ($500,000 for the joint account, plus $250,000 for each individual account). If you each had an IRA as well, you could have up to $1.5 million in coverage at a single institution.
Adding beneficiaries to your accounts turns either joint or single accounts into trust accounts, for FDIC insurance purposes. Each owner of a trust account is covered up to $250,000 per beneficiary, to a maximum of $1.25 million for five or more beneficiaries.
Liz Weston, Certified Financial Planner, is a personal finance columnist. 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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