Friday, December 1, 2023

What California community property law means for wills

Dear Liz: Does one spouse automatically inherit everything if the other dies without a will?

Anything with a named beneficiary, such as retirement accounts and life insurance, usually passes to the person named as the beneficiary even if that person is not the surviving spouse. Bank and investment accounts can also have “transfer on death” or “pay on death” beneficiaries. In many states, cars and even houses can be passed down with beneficiary names. In addition, the jointly owned assets will be transferred to the other owner.

Some assets pass to the deceased spouse’s survivors according to state law in the absence of a will or living trust. You can search for those laws by searching for the state name and the words “intestate succession.” If there are no children, the surviving spouse may inherit everything or may share with the deceased’s parents or siblings. If there are children, the surviving spouse will inherit a portion of the land with the children getting the rest.

For example, in California – a community property state – the spouse inherits all of the community property and one-half of the separate property if there is a child, and the child inherits the remainder. With two or more children, the spouse gets all the community property and one-third of the other’s property, with the children dividing the rest.

Retirement benefits and taxes

Dear Liz: We are about to reach the age where mandatory distributions from our retirement accounts must begin. We don’t need more money because we have a lot of pensions. If we convert to Roth IRAs, will the Roth amount be subject to minimum deductions in the future? Will our heirs have to pay any tax on the money in the Roth account if inherited? Can we count the amount converted to the Roth account against required distributions? I understand that all money is taxed as income when it comes out of retirement accounts.

Answer: Required minimum distributions and Roth conversions should be separate transactions. Conversions do not count against your RMDs, and you are not allowed to roll an RMD into a Roth.

Any money you convert to a Roth, however, will reduce future RMDs, because Roths are not subject to mandatory distributions. Your heirs will not pay taxes on inherited Roth accounts, however, even though they must empty the accounts within 10 years.

In addition, you increase your pool of tax-free money. This can be especially helpful if one of you survived the other, because after the year of death, the survivor may no longer be able to file as “mined filing jointly” and may be under the less favorable single taxpayer status.

Consult a tax pro, however. Roth conversions can push you into a higher tax bracket and increase your Medicare premiums. A “laddered” approach, or a series of partial Roth conversions over several years, may work well.

Social Security inflation adjustments

Dear Liz: When the Social Security Administration makes cost-of-living adjustments, will these increases be included in the benefit amount for people who have not yet collected their Social Security?

Answer: Social Security inflation adjustments are included in your retirement benefits starting at age 62, whether or not you collect checks. So there is no reason to rush an application just to lock in a cost of living adjustment.

To scrape or not to scrape

Dear Liz: In a recent column, an attorney suggested that a veteran’s information could be destroyed three years after death. However, surviving spouses of veterans may be eligible for benefits to cover the costs of assisted living and must provide that information.

Answer: That is an excellent point. Many people are unaware of the “aid and attendance” benefit that helps veterans and their spouses pay for assistance with activities of daily living, including bathing, dressing and using the bathroom. These custodial care costs are usually not covered by Medicare.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Inquiries can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form on

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