How Can Social Security Help with Estate Planning?

Estate planning involves preparing for the future and ensuring your assets are managed and distributed according to your wishes. Social Security benefits are a valuable part of this process, as they provide financial support for you and your loved ones in retirement and beyond. In this guide, we’ll answer some common questions about how Social Security can play a role in estate planning.

What Is Social Security and Why Is It Important?

Social Security is a government program that provides income to eligible people in retirement, those with disabilities, and surviving family members of deceased workers. For many, Social Security is a steady source of income during retirement, helping cover basic needs like housing, healthcare, and daily expenses. Since Social Security benefits continue for life, they are essential for creating a reliable income stream. In addition to regular Social Security benefits, the U.S. government has occasionally provided stimulus checks to help boost the economy during times of crisis, such as during the COVID-19 pandemic

How Can Social Security Support Your Estate?

Social Security can be a valuable part of your strategy when planning your estate. Here are some ways it can support your estate:

1. Supplementing Retirement Income: Social Security helps ensure a steady income stream in retirement. This can reduce the need to rely on your other assets, like savings, investments, or property, which can be preserved as part of your estate. By covering living expenses with Social Security, you can leave more assets to your heirs.
2. Providing for Your Spouse and Dependents: Social Security includes survivor benefits, which can provide income to your spouse, minor children, or other dependents if you pass away. These benefits help ensure your family has financial support, reducing the need to draw on other parts of your estate. This can be particularly helpful for families with young children or spouses who depend on your income.
3. Reducing Healthcare Costs in Retirement: Medicare, available to Social Security beneficiaries over 65, helps cover many healthcare costs. Since healthcare can be a significant expense in retirement, having Medicare support can help preserve your savings and other assets for your estate. Medicare reduces the burden of medical expenses, allowing you to focus your estate plan on other goals.

Can You Include Social Security Benefits in Your Estate?

Social Security benefits are not directly included in your estate or passed down to heirs. However, the income they provide during your lifetime can indirectly help grow and protect your estate. Here’s how:

• Reduced Withdrawals from Savings: With Social Security covering some expenses, you might withdraw less from your savings or investment accounts, allowing those funds to continue growing.
• Asset Preservation: Relying on Social Security as a primary income source can help you avoid selling off assets, such as real estate or stock investments, to cover living costs, preserving them for your heirs.

What Are Survivor Benefits, and How Do They Work?

Survivor benefits are payments made to eligible family members after a worker’s death. Here’s how they work:

• Spouse Benefits: Your spouse may be eligible for survivor benefits if they are at least 60 (or 50 if disabled). They may also receive benefits at any age if they care for your child under 16 or a disabled child.
• Children’s Benefits: Your minor or disabled children may also receive survivor benefits. These benefits can be a significant financial resource for young families, helping provide for children until adulthood.
• Eligibility and Amounts: Survivor benefits depend on your earnings and the age at which your family members begin receiving them. Generally, the longer you work and contribute to Social Security, the higher the survivor benefits.

Knowing about survivor benefits can help you plan to ensure your loved ones receive support in the event of your passing.

Can Social Security Help with Estate Taxes?

Social Security benefits do not affect estate taxes, but their income may indirectly impact your estate’s overall value. Here’s how it works:

1. Limiting Withdrawals from Taxable Accounts: By using Social Security income to cover expenses, you may reduce the need to withdraw from retirement accounts like 401(k)s or IRAs. These accounts can have tax implications, and withdrawing less can help control tax obligations.
2. Estate Size Management: Reducing withdrawals and preserving certain assets may help keep the size of your estate within limits, possibly avoiding estate taxes. Though estate tax only affects estates over a specific size, efficient planning can help manage taxes and leave more for your heirs.

What Is the Role of Social Security in Charitable Giving?

If charitable giving is part of your estate plan, Social Security income can support that goal. Since Social Security provides a reliable income source, it can help you allocate other assets for charitable donations. Here’s how Social Security can fit into a charitable giving strategy:

• Supporting Donations with Retirement Savings: By using Social Security to meet personal needs, you may be able to reserve retirement funds for donations.
• Leaving a Legacy: Some people use their estate to support causes they care about, creating a lasting legacy. Social Security can make it easier to save assets that can be directed to charitable organizations.

How Can You Maximize Social Security for Estate Planning?

To make the most of Social Security in your estate planning, consider these strategies:

• Delay Benefits for Higher Payments: Waiting to start Social Security until you reach age 70 can increase your monthly payments, benefitting you and your spouse.
• Coordinate Benefits with Your Spouse: If you’re married, coordinating when you and your spouse start benefits can maximize your combined Social Security income, providing more financial support.
• Consider Financial Planning Assistance: Financial professionals can help develop a strategy aligning Social Security with your estate planning goals, ensuring you maximize your resources.

Should You Include Social Security in Your Estate Plan?

Yes, Social Security is an essential part of a comprehensive estate plan. While it may not directly transfer to heirs, it provides financial stability, allowing you to preserve other assets for your loved ones. Estate planning can feel complex, but understanding how Social Security fits into the bigger picture helps create a strong plan for your family’s future.

For guidance on including Social Security in your estate plan, contact Jostock & Jostock today!