Article Title: Social Security Changes . . . as We Do

• Publication year: 2001
• Pages: 05-6
• Citation: Vol. 2001 No. 05 Pg. 05-6

Utah Bar Journal Volume 5.

05-6 (2001). Article Title: Social Security Changes . . . As We Do

May, 2001

Article Title: Social Security Changes . . . As We Do

Author: John Borsos

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General Background

Over 31 years ago, I generally ignored individual Social Security taxes because they comprised only 7.5% of the first $7,800 in earnings - a monetary impact that was near negligible and individually endurable. At that time high-income taxpayers were in a world of 70% income tax rates so the prime focus for social security planning was to help businesses avoid taxes - FICA, FUTA and workmen's compensation premiums.(fn1) During the following years, as the overall FICA rates jumped to 15.3% on $76,000(fn2) and Medicare premiums continued on all income the purposes of financial planning and taxation became to eliminate all FICA wages from taxation. Some business owners, using offsetting tax deductions, eliminated income taxes, but still found to their amazement that their income could still be subject to hefty self-employment taxes. Now in the twenty-first century we have additional and sometimes different Social Security planning problems. This article looks at the different programs and how the legal problems of our clients may be affected by the changing law which the Supreme Court has said is the most intricate law adopted by Congress.(fn3)

In the sixties, we had a war on poverty, that some say we lost. However, as part of the initiatives of that war, we began the Supplemental Security Income and Medicaid programs, under the premise that no resident of the richest country of the world should live in poverty or without medical care - just because they were disabled.(fn4) So the concept of a minimum income(fn5) and health insurance for the disabled was instituted. Both of these are federally funded welfare programs (that are administered by the states) and are based on income and resources of the participants.(fn6)

Social Security programs, modeled on the German social programs of over a 100 years ago, are to protect United States workers in retirement. To understand Social Security, one must think of our capitalistic system in terms of work cessation. As the Social Security system has grown, it grew from that fundamental Calvinistic soil of the work ethic that was frustrated by the depression when the banks and the stock market failed the former wage earners who had invested in their future. The Social Security system was to be a stabilizing force in economic uncertainty and insecurity. If one is retired - at a certain age or because of disability - or because of death, benefits may be paid to oneself or one's family.

So we start with the Social Security System (OASDI)(fn7) which provides cash payments to workers, their dependents and survivors. The amount of the benefits (PIA)(fn8) is determined by the wages credited to the workers account. Each year of earnings is indexed, and if enough wages are earned, then retirement benefits,(fn9) disability(fn10) benefits, or auxiliary benefits may be shared and paid to children(fn11) and spouse.(fn12) In addition, a divorced spouse and/or a surviving spouse may share in the retirement benefits, if their retirement benefits are too low.

Retirement Planning

Supposition #1: Nine years ago, Anne, a refugee from Sweden, met, married and moved to the United States with her husband, N. E. Countant, a US citizen. She worked for 9 years before retiring at 65 as a non-resident alien. Anne comes to you to do her estate plan and wonders what benefits she will get.

Discussion Ordinarily, the coverage requirement for insured status(fn13) for retirement is 40 quarters. Anne worked in the US for 9 years (36 quarters); however, under totalization treaties(fn14) with other countries, it is possible for her to receive Social Security This allows benefits when neither country would justify enough quarters of coverage. The amount of her benefit will be determined by her PIA (Primary Insured Amount)(fn15) but would be reduced for foreign Social Security benefits. The calculation of the PIA is extremely complicated(fn16) but will be done by SSA upon request.

Part A Medicare benefits are payable to her because she is insured for benefits and Part B Medicare benefits are available because she has lived in the US for over 5 years, is a current resident and is over 65. Estate planners should note that because Anne is not a US citizen she is limited in ability to get an estate tax marital deduction. Also, if Anne elects not to take Medicare coverage because she is covered under some other insurance, the attorney should carefully review the policy because some insurers will decline coverage if "other insurance" (such as Medicare) is in force or available.

Supposition #2: Jerry Mandering retired from his state job knowing that with his ten years of self employment Social Security benefits and his state retirement he would have the good life. Although his divorce decree specified that he would keep benefits in place for his ex-wife, Allie Kwat, instead of his current wife, Cher, Jerry named his brother the beneficiary of his retirement and survivor of his state pension and wrote to Social Security that he wanted the maximum benefit and did not...