Student loans, same-sex couple benefits

Today I have answers to reader questions on student loans, municipal bonds in an IRA, Social Security for same-sex couples and paid sick leave. Q: Susie B. had a question about my column on money and marriage. “My fiance and I are getting married in three months — a later marriage in our 60s. You mentioned that debt incurred before the marriage basically ‘dies’ with that person and the spouse isn’t responsible for it. Do you know if that includes college loans? My fiance went back to school in later life and has college debt — it’s a federal loan.” A: Federally insured loans are discharged at death. “Nobody needs to pay them, even if there is money there. If they were private student loans, they may not be discharged at death and they could go after his estate, but not her property,” said Steve Hartnett, associate director of education with the American Academy of Estate Planning Attorneys.

Mark Kantrowitz, publisher of Edvisors.com, said four lenders of private student loans offer death discharges similar to those that come with federal student loans. They are Sallie Mae, Discover,

Wells Fargo and New York Higher Education Services Corp. “Other lenders will charge the borrower’s private student loans against the borrower’s estate, and any unpaid balances will remain an obligation of the co-signer.” Q: Tony L. asks, “If you use funds already in a Simple IRA to buy tax-free municipal bonds, leaving the bonds within the IRA but taking the interest paid on the bonds out of the IRA, is that interest taxable?” A: Yes. The interest “would be taxable just like any other earnings within a traditional IRA would be. The IRA tax rules trump the municipal bond rules,” said Jeff Levine, an IRA expert with Ed Slott & Co. Q: Barbara A. says she and her wife “have been together as a same-sex couple for 25 years, domestic partners as soon as it was legal in California and married in Canada in 2004. My wife collects Social Security on her former husband. Is it still legal for her to collect her ex-husband's Social Security benefit since she is married to me? I am now 70 and I believe she could collect on mine. She was married to her ex for 17 years. When she applied for his Social Security five years ago, our marriage was not legal and she was told to collect on his. Now our marriage is legal and we want to do the right thing.” A: It is no longer legal for Barbara’s wife to collect under her exhusband’s Social Security record. It hasn’t been since at least June 2013, when the U.S. Supreme Court struck down portions of the federal Defense of Marriage Act as unconstitutional, said San Francisco attorney Deb Kinney. At that point, because her marriage was recognized in California, she and her spouse would have had most of the same rights and responsibilities under federal law as heterosexual couples.

At issue is the spousal benefit. If you are 62 or older, you can collect up to half of your spouse’s Social Security benefit if it is greater than the benefit you would get based on your own work record (certain caveats apply). If you are divorced, you can collect up to half of your former spouse’s benefit if your marriage lasted at least 10 years and you are currently single, and your ex-spouse is at least 62.

If you remarry, you generally lose your exspouse’s benefit, but after one year of marriage you could collect up to half of your new spouse’s benefit, if it is greater than your own.

Barbara’s wife should apply for Social Security based on Barbara’s work record. Once she is approved, “the divorced-spouse benefit will cease,” said Robin Brewton of Social Security Solutions. “Since Barbara and her wife have technically been married for more than one year, she won’t have a waiting period between ending the divorced-spouse benefit and starting the new spousal benefit, as many couples do.”

The big question is whether the Social Security Administration could try to recoup the spousal benefit Barbara’s wife has been collecting since 2013. If it did, “she has a strong equitable argument that she fulfilled her duty five years ago when she told them she was married to Barbara. So how could they ask for repayments?” said Santa Clara University law Professor Pat Cain.

In an e-mail, Social Security did not answer Barbara’s question but said, “We encourage the public to apply right away for benefits, even if they aren't sure they are eligible. If individuals have questions about how a same-sex marriage may affect their claim, they can call our toll free number at (800) 772-1213 (TTY (800) 3250778), or contact their local Social Security office.” Q: Kate M. has a question about California’s new paid sick leave law. “What happens where employees get paid for the number of hours worked but have no fixed schedule? Unless they have a really extended illness — weeks, not days — they would not miss any work due to illness. How would this work?” A: The law, which took effect July 1, covers virtually all employees who work at least 30 days within a year in California, including part-time, per-diem and temporary employees. (There are a few specific exceptions). All covered employees earn one hour of paid sick leave for every 30 hours worked, unless the employer has a policy that meets the requirements of the law or frontloads three days at the beginning of the year. An employer can limit the of paid sick leave to three days per year.

The law does not address employees who have erratic schedules or work on call, but experts say they are still entitled to take sick leave they have accrued.

“Even employees working a schedule that is not ‘fixed’ are earning paid sick leave,” said Peter Melton, spokesman for the Department of Industrial Relations. Although he could not answer Kate’s question without knowing the facts, “Generally speaking, an employee who is earning paid sick leave and who qualifies to take paid sick leave can decide when to use it and in what amounts if they are using it for a purpose that the statute contemplates.”

For example, if the boss called on Wednesday and asked you to come in Thursday but you can’t because you are sick, “you would be entitled to be paid that sick time,” said Jackie Breslin, director of human capital services with TriNet.

If the boss said no, you can’t take a paid sick day, and you should come in on Friday instead, “that could be interpreted as retaliation and not allowing someone to take a benefit they have under law,” said Rachael Langston, a staff attorney with the Legal Aid Society-Employment Law Center. Q: Regarding the same law, L.R. asks, “My company is taking (paid sick leave) from our earned vacation days. If we had 10 vacation days, three of those are now sick pay days. Is that allowed?” A: Yes. Employers in California are not required to provide paid vacation but must provide paid sick leave. Nothing prevents them from reducing paid vacation to accommodate paid sick leave, although “the most appropriate way to do it is on a goforward basis,” Breslin said.

That’s because employers must pay departing employees for unused vacation but not unused sick leave. If they converted three vacation days an employee had already earned into three days of sick leave and the employee left before using those sick days, they would have to be paid out.

For more on the law, see www.dir.ca.gov/dlse/Paid_Sick_Leave.htm.