Advanced Underwriting Consultants

Ask the Experts – July 20, 2015

Question:  If my client receives Social Security survivor benefits from her deceased spouse and then gets re-married, is she still eligible for the survivor benefits?

Answer:  It depends.

If your client re-marries before age 60, she cannot receive survivor benefits as a surviving spouse while married. If, however, remarriage occurs after age 60, the client will continue to qualify for benefits on her deceased spouse’s Social Security record.

If the client re-marries after 60 and stays married long enough to become eligible for spousal benefits, she may be eligible for three types of benefits: one based on the deceased spouse’s record, another based on the new spouse’s record and the third based on her own record. While she may be eligible for three different types of benefits, the Social Security Administration will generally pay ONLY whichever benefit is the highest.

Your client may be able to collect a certain type of benefit now and then switch to a higher benefit later.

Ask the Experts – June 6, 2014

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.

Question: I have a client who will turn 62 this year, and her husband is currently receiving Social Security disability benefits. Can she file for spousal benefits off his disability when she turns 62, and if so, can she switch to her own retirement benefits at age 66?

Answer: She may file for spousal benefits based on her husband’s disability amount starting at age 62, but in doing so, she is deemed to have filed for her own retirement benefits early as well, which will permanently reduce both her own benefits and her spousal benefits.

This is because spousal disability benefits work exactly like normal spousal benefits. That is, the Social Security Administration pays the spouse based on her own record first; but if the spousal benefit is larger than her retirement benefit based on her own record, she will be entitled to a combination of benefits that equals the higher amount.

For example, suppose your client’s husband is receiving $2,000 per month in Social Security disability, and your client herself has earned a $900 monthly benefit at full retirement age based on her own work record.

If she files for spousal benefits now, she will receive a $1,000 monthly benefit, reduced by 25% for filing early, resulting in a $750 benefit. This amount includes $675 from her own retirement benefits ($900 reduced by 25%), and the remaining $75 from spousal benefits ($1,000 less $900, reduced by 25%).

It might be advisable for her to wait until she has reached full retirement age, file for spousal benefits, and defer taking her own benefits until she’s age 70, at which point her own benefits will be $1,188 ($900 increased by 32% for delayed retirement credits).

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Ask the Experts – June 5

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.

Question: I’ve heard about a Social Security strategy that enables both spouses to draw half of the other spouse’s benefit now, and then each could later collect their own respective higher benefit in the future. How is this possible?

Answer: No, it’s not possible.

Here’s the proposed scenario. Husband and wife have both reached full retirement age (FRA) and both have primary insurance amounts (PIAs) equal to $2,000 per month. Husband files and suspends his own retirement benefit to allow his wife to collect spousal benefits equal to $1,000, half his PIA. Wife also files and suspends, allowing her husband to also collect spousal benefits based on her work record, equal to $1,000 per month. This way, they have a total $2,000 monthly benefit while also accruing delayed retirement credits at 8% per year. At age 70, they each switch to their own retirement benefits, now at $2,640 per month.

This doesn’t work because the SSA has said that only one spouse is permitted to file and suspend his or her retirement benefits. Therefore, in the above example, if the husband files and suspends, the wife cannot. However, she may still access spousal benefits while still accruing DRCs. The only difference is that instead of $2,000 per month from ages 66 to 70, they will receive only $1,000 per month. Both spouses will still have $2,640 benefits by the time they’re both age 70.

This strategy is only available for spouses who have reached FRA, because, as we discussed here, if an individual files for spousal benefits prior to reaching FRA, she is deemed to have filed for her own retirement benefits as well. Both the spousal and her own benefits will be permanently reduced for filing early.

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Ask the Experts – June 3

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.

Question: Can an individual collect spousal benefits now, and switch to her own retirement benefits at a later date?

Answer: Yes, but only if her spouse has filed for his own retirement benefits, and only if she, herself, has reached full retirement age (FRA).

First, spousal benefits are only available if the other spouse has filed for his or her own retirement benefits. This includes individuals who have elected to file and suspend their benefits—a strategy we discussed here.

Second, according to the SSA, if a spouse has reached FRA, she may choose to receive only her spousal benefit and delay receiving her own benefits. This strategy allows her to earn delayed retirement credits (DRCs) on her own account while still accessing some Social Security spousal benefits. If the spouse hasn’t yet reached FRA and files for spousal benefits, she is deemed to have filed for her own retirement benefits as well.

For example, assume wife’s own benefit at FRA is $880 per month, while her husband’s is $2,000 per month. If she files for spousal benefits at age 62, her benefits will be reduced by 25% to $750 (i.e. half of his $2,000 PIA, reduced by 25%). Of that $750, $660 is from her own retirement benefits (i.e. $880 reduced by 25%) while $90 is based on the husband’s retirement benefits (i.e. $750 less $660). Her own retirement benefits are permanently reduced and will not earn DRCs because she has begun receiving her own retirement benefits.

However, if she waits until FRA and is still eligible for benefits based on the husband’s record, she has the option to receive only the husband’s benefits and delay receiving her own benefits until a later date, allowing her own benefits to build up to age 70. Using the same numbers from above, this means she could receive $1,000 per month while still allowing her own retirement benefits to earn DRCs. If she delays filing for her own benefits until age 70, her benefits will increase by 32%, to $1,161.60 per month.

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Ask the Experts – May 12

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: Is a same-sex spouse entitled to Social Security spousal benefits?

Answer: Yes if the non-working spouse (1) was legally married in a state that permits same-sex marriage, and (2) is domiciled at the time of application, or while the claim is pending a final determination, in a state that recognizes same-sex marriage. The working spouse can be domiciled in a state that doesn’t allow same-sex marriage without affecting the non-working spouse’s claim for spousal benefits.

The SSA rule is slightly different than the IRS rule for recognizing same-sex marriages. In Revenue Ruling 2013-17, the IRS only requires that the same-sex couple be legally married in a state permitting same-sex marriages—it does not require either spouse to be domiciled in a state that recognizes same-sex marriage.

The Social Security Administration requires certain instructions to be followed for evidence of marriage, so visit https://secure.ssa.gov/poms.nsf/lnx/0200210100 for more information. There you can also find which states permit, and which states recognize, same-sex marriages.

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Ask the Experts – May 6

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client is a widow who is about to turn 60 years old. Her deceased husband died prior to filing for his own benefits. When can she file for widow benefits, and will they be reduced if she files before she reaches her full retirement age?

Answer: A widow (or widower) can begin receiving survivors benefits as early as age 60, but she will receive reduced benefits if she files before her full retirement age (FRA).

If the widow files for survivors benefits at age 60, those benefits will be reduced by 28.5%. The benefit reduces linearly with each month she files early, so assuming her full retirement age is 66 years, for each month she files for widow’s benefits early, her benefits are reduced by about 0.396% (28.5% divided by 72 months).

Let’s say her husband had neither filed for his own retirement benefits nor reached FRA at the time of his death. The maximum widow benefit she can receive at her own FRA is equal to her deceased husband’s primary insurance amount (PIA). If his PIA was $2,400, and if she filed for benefits at age 60, she would receive a reduced monthly benefit of $1,716 ($2,400, his PIA, reduced by 28.5%). Alternatively, if she waited until age 64, her monthly benefit would be reduced to $2,172 ($2,400 reduced by 9.5%).

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Ask the Experts – April 28

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client is age 66 and has a $2,400 monthly Social Security benefit. His wife, age 62, has been a resident alien for the past 30 years, but has no work record to collect Social Security. Can his wife collect Social Security spousal benefits on behalf of her husband’s work record?

Answer: Yes, a resident alien can collect spousal benefits under the normal spousal benefit rules as long as the alien is lawfully present in the United States. However, benefits are generally suspended if the alien is outside of the United States for six consecutive months, but certain exceptions might apply.

Therefore, your client’s wife would be entitled to $1,200 in spousal benefits at her own full retirement age, 66. If she decided to file for benefits now, at age 62, she would receive a 25% reduction (assuming she’s exactly 62 years old), resulting in a $300 decrease, or a $900 total spousal benefit.

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Ask the Experts – February 27

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: A client’s husband died in 2011 leaving his entire estate to her. His estate was small enough that no estate tax return was filed. Does the deceased husband’s unused estate tax exclusion amount automatically transfer to his surviving spouse? If not, is it too late to elect to have it transfer?

Answer: The deceased spouse’s unused exclusion amount (or “DSUE amount”) doesn’t transfer to his surviving spouse automatically—she must file an estate tax return (Form 706) on behalf of the deceased spouse’s estate. However, she should still have until the end of 2014 to make the portability election.

Portability is an estate planning option that allows a deceased spouse to transfer his unused estate tax applicable exclusion amount ($5.34 million in 2014, indexed for inflation) to his surviving spouse.

For example, if your client’s husband died in 2011 without having used any of his $5 million exclusion amount, his wife can add her husband’s full $5 million unused exclusion amount to her own current $5.34 million exclusion amount. Therefore, when the wife dies, she can pass up to $10.34 million.

Generally, to make the portability election, an estate tax return must be filed within 9 months from the deceased spouse’s date of death. Since no estate tax return was filed on behalf of her deceased spouse’s estate, she missed the 9-month window.

Ordinarily, your client would be out of luck, but the IRS recently issued Revenue Procedure 2014-18, extending the 9-month deadline for spouses who died in 2011, 2012 or 2013 and who were not required to file a federal estate tax return—qualifications your client probably meets.

Therefore, for taxpayer in the same position as your client, instead of the 9-month deadline, the deceased spouse’s estate has until the end of 2014 to file Form 706. For a spouse who died this year (or who dies thereafter), the ordinary 9-month rule still applies.

For those filing Form 706 late pursuant to Revenue Procedure 2014-18, the following language must be included at the top of the form in capital letters:

FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).

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Ask the Experts – February 19

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The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: I have a client, age 62, with a Social Security primary insurance amount (PIA) of $500. Her husband’s PIA is $3,000. Can the wife take her own reduced benefit now, and then file for her spousal benefits at full retirement age? Would she be entitled to a $1,500 spousal benefit?

Answer: If her husband has already filed for his own Social Security retirement benefits, then she may not delay receiving spousal benefits. Therefore, she would receive a reduced retirement benefit of $375 ($500 reduced by 25%) plus a reduced spousal benefit of $750 ($1,500 less $500—i.e. $1,000—reduced by 25%). Her overall benefit in this scenario is $1,125.

If her husband has yet to file, she can begin receiving her own benefits now and delay receiving spousal benefits until she reaches full retirement age. This will allow her to avoid reduced spousal benefits.

However, even if she delays receiving spousal benefits until age 66, she will not be entitled to a $1,500 benefit. She will still receive her own reduced retirement benefit of $375. Her spousal benefit will not be reduced, remaining at $1,000 (half of her husband’s $3,000 PIA less her $500 PIA). Overall, her combined Social Security benefit in this scenario is $1,375.

If the wife files for her own benefits before her husband, she can—but is not required to—file for spousal benefits as soon as her husband files. However, she may want to postpone filing for spousal benefits if she hasn’t yet reached full retirement age since the spousal benefit would be reduced.

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