Money Management

Preserving your spouse's Social Security benefits

Q I'll be 65 shortly, but I intend to delay collecting Social Security in order to boost my annual benefit when I retire. Can my wife still claim half of my benefit after she reaches 65 next year?

A Yes. Assuming your wife's spousal yearly benefit will be higher than the amount she's entitled to on her own work record, she can begin collecting it at 65. For her to be eligible for the spousal benefit, you must first sign up for your own benefits and ask to have them deferred. Then she can file her claim.

How to delay a gift and still avoid tax

QI know I can give $11,000 a year to anyone I choose, without paying gift tax. If I put the money into an irrevocable trust for my children but don't let them have access to it until they turn 30, will my gifts still be tax-free?

A Not unless the children have the right to withdraw their share of the amount you contribute. You must give them the opportunity annually, although you can put a time limit of, say, 30 days, on a child's ability to exercise this right.

Without the withdrawal provision, your annual gifts will count against your lifetime gift-tax exclusion. That's because the annual exclusion ($11,000 in 2002 but scheduled to rise with inflation) doesn't apply to delayed gifts. However, the lifetime exclusion is now $1 million, so you may escape tax, anyway.

If a cruise line suffers a financial shipwreck

QI have tickets for a cruise early next year and worry that I might lose my money if the shipping line goes broke. Does it have to be bonded?

A The Federal Maritime Commission requires passenger lines to have sufficient financial coverage to indemnify ticket holders if the voyage is canceled. But this doesn't apply to cruises that originate outside the US (including air/sea packages where a passenger boards a vessel at a foreign port), or to vessels with accommodations for fewer than 50 passengers.

Also, the current rules allow cruise lines to self-insure in some cases, although the FMC proposes to eliminate this loophole. Payment by credit card may help protect you, the FMC points out, and so can travel insurance, provided the policy covers financial failure.

These TIPS help you fight inflation

QI've heard that the Treasury sells 10-year notes indexed for inflation. What are the details?

A The notes are called Treasury Inflation-Indexed Securities, (or TIPS—Treasury Inflation-Protected Securities) and you can buy them online, commission-free, by setting up a TreasuryDirect account. The interest rate is fixed at issue (in January, July, and October), but the principal amount is increased every six months to reflect inflation, so the yield rises accordingly.

The interest is exempt from state and local taxes, but subject to federal income tax. If you buy TIPS yourself, so is the increase in principal, even though you won't receive the gain until maturity. However, if you own a mutual fund that invests in TIPS, it will pay you the inflation adjustment annually.

Title insurance on a mortgaged property

QI'm about to sell a house I've owned a short time, and I've agreed to take back a first mortgage from the buyer. Do I need to maintain title insurance on the property?

A Yes, since the mortgage will be worthless if it turns out that your title was defective. However, the title policy that covers you as owner may continue to do so while you hold the mortgage. If not, the insurance company may be willing to provide a new policy at a discount.

Edited by Lawrence Farber,
Contributing Writer

Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to memoney@medec.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.

 

Lawrence Farber. Money Management. Medical Economics 2002;24:69.