CPA Association - National Conference of CPA Practitioners

January 2005

MEMBERS’ CORNER
BY STANLEY TEPPER, CPA, MBA

SOCIAL SECURITY AND SPOUSES

The Sun-Sentinel of Florida recently carried an article for its readers concerning Social Security and spouses. A number of readers asked whether an ex-husband must be deceased before a former wife can file for Social security benefits based on the man’s earnings history. The answer is an emphatic “no.” An ex-husband can be very much alive at the point an ex-wife seeks benefits.

Of course, other criteria come into play: The two must have been married for at least 10 years, and the ex-wife must be unmarried and age 62 or older. (If the ex-husband is deceased, his former wife can file for benefits at age 60.) But again, the fact that an ex-husband is still breathing doesn’t preclude a former wife from filing for benefits.

Several readers- who said their former husbands had gone on to become prosperous- asked: What is the maximum monthly benefit an ex-wife can receive based on an ex-husband’s earnings history? As with married spouses, the maximum is 50% of the ex-husband’s benefit. (A wife or ex-wife, of course is always eligible to collect Social Security based on her own earnings history, if her income results in a higher benefit.)

As far as specific numbers: In 2005, the maximum Social Security benefit will be about $1,940 a month. That figure is for a person who files benefits at his or her full retirement age and who always earned the maximum taxable earnings. A wife or ex-wife- again, assuming her income doesn’t result in a higher benefit- would be eligible for half or $1,940, or about $970 a month.

One reader asked: “If married for over 10 years and eligible to draw on [my] ex-husband’s Social Security, could I collect benefits based on his earnings history at age 62- and then collect benefits based on my own earnings history at age 66?”

The answer: You get one shot at this. If an ex-wife files for benefits at age 62, Social Security will look at her earnings history and the earnings history of her ex-husband and award her whichever payout is higher. Period. Put another way, you can’t pick the earnings history you prefer.

An ex-wife “can’t elect to take her own [benefit] at a reduced rate and later her spouse’s [benefit] at her full retirement age, or vice versa.”

One wrinkle (and there’s always a wrinkle): If an ex-husband dies, his ex-wife can begin collecting Social Security benefits based on his earnings history when she reaches 60, as mentioned above- and be eligible, at age 62 or higher, for increased benefits based on her own income.

Multiple Husbands
The issue of multiple ex-husbands came up in several letters. “Say you had two of three ex-husbands that you were married to for 10 years each,” a reader wrote. “Could you collect benefits based on all of their earnings- or just one?” Sorry, but Uncle Sam is going to limit you to one of those former spouses, “generally, the ex-husband that yields the highest benefit amount.”

Finally, we heard from several ex-husbands who asked if all these rules cut both ways. If an ex-wife, for example, has the higher earnings history, is the ex-husband eligible for Social Security benefits based on her income? The answer is yes, both in specific and the general: All the rules apply equally to women and men.

NEW YORKSTATE ESTATE TAX CHANGES FOR 2004
Included in TSB-M-04 (4) M Estate Tax. Issued November 15, 2004.

Modification of calculation for estates with property outside New YorkState
Section 952(b) of the Tax Law was amended to modify the calculation of the New York State estate tax for estates of residents and nonresidents when the estate includes property located outside New York State. Before amendment, the New York State estate tax imposed a tax on the transfer of the New York estate equal to the maximum amount allowable against the federal estate tax as a credit for state death taxes, using the federal credit that was in effect in 2001. When the estate of a resident included real or tangible personal property located in a sister state, the tax was reduced by the lesser of (1) the amount of the tax paid to the sister state, or (2) the proportional share of the federal credit for state death taxes that was in effect in 2001, based on the value of the out-of-state property. A similar calculation was used to compute the tax of a nonresident estate.

Now, the New York State estate tax for estates having property located outside New York State will be the maximum federal state death tax credit, using the credit in effect in 2001, reduced by the proportional share of the federal state death tax credit in effect in 2001, based on the value of the out-of-state property. The amendment is applicable to estates of individuals who died on or after January 1, 2002.

The amendments cure the unintended disparity in the New York calculation resulting from the federal Economic Growth and Tax Relief Reconciliation Act of 2001. The 2001 Act reduced the credit allowable for state death taxes, while the New York State estate tax continues to use the federal credit for state death taxes that was in effect in 2001 to calculate the tax. The reduction in the federal credit created a problem in the New York calculation when other states conformed to the reduced federal credit. In effect, the decrease in the amount of tax paid to a conforming state resulted in an increase in the amount due New York.

Change in calculation of interest for late payments of estate tax when the estate is granted an extension of time to pay tax
Under Section 976(b) of the Tax Law, before it was amended, when an estate was granted an extension of time to pay the estate tax but failed to pay the tax within the period of extension, interest on that portion of the tax which was subject to the extension and remained unpaid was calculated from the date of death. However, if the same estate had not obtained an extension of time to pay the tax, and had failed to pay the tax by the date that is nine months after the date of death, interest on the tax that remained unpaid would have been calculated from such nine-month date to the date of payment.

With this amendment, interest on all unpaid estate tax, applicable to estates of decedents who died on or after February 1, 2000, will be calculated from the same date; that is, the date that is nine months after the date of death.

TRADITIONAL DEFINED BENEFITS PLAN VS. CASH-BALANCE BENEFITS PLAN
IBM recently switched its pension to a Cash-Balance pension plan. Other companies may follow. The AARP Bulletin for November, 2004 describes the differences.

A. Traditional Defined Benefits Plan-

- Company calculates benefits based on highest salary and years of service.

- Employee benefits are earned slowly, spiking at the end of a career.

Benefit is only available at retirement age.

B.Cash Balance Benefits Plan-

Company Sets aside a percentage of worker’s annual salary and pays interest on it.

Employees earn benefits at a steady pace throughout a career.

Benefit is available before retirement age.

STAR EXEMPTION ON PROPERTY TAXES
A Newsday column quoted an Attorney of FRANKLIN, GRINGER & COHEN (a firm which as on occasion lectured to our chapter). In response to the query, “Will my spouse and I lose our veteran’s or STAR exemption on property taxes if we transfer our house to our son but retain a life estate?” Steven Cohen, ESQ. stated that:

The rules:
Property-tax exemptions, such as the STAR, reduce property taxes to varying degrees based upon the homeowner’s qualifications. STAR is the New York State Tax Relief program. It provides a break on school property taxes for owner-occupied, primary residences. Veteran’s exemptions are available on property taxes for individuals who served during wartime and various military conflicts.

How it works:
The veteran’s and/or STAR exemption is available to a qualified person who has a present ownership interest in the property, such as the deed holder. The key in your situation: You are considered an owner for property-tax exemption purposes because you retained a life estate and did not transfer your entire property ownership interest to your son. The person who holds a deed subject to someone else’s life estate does not become the owner until the life estate holder dies.

Property tax exemptions also would continue for a person who transfers her property to a trust, provided she retains a life estate. If the entire interest in the property is transferred to the trust, the owner’s exemptions would be forfeited.

The result: The exemption would not be forfeited if your property is transferred to your son and a life estate is retained. And, by the way, your veteran’s exemption will continue for a surviving spouse even after the veteran dies.

The strategy:
If you decide to make the transfer and retain a life estate, notify your tax assessor’s office of the situation at the time (or soon after) the deed is filed. Highlight the fact that your transfer included a retained life estate, and your exemptions should continue.