Both Spouses Need Other’s Power of Attorney
Q: Would it be a good idea for spouses, especially as they get older, to give each other a power of attorney? I am thinking that in the event one spouse is incapacitated, the other would have the authority to manage the first’s affairs. --S.D.
A: Yes, it is an excellent idea for spouses to exchange power of attorney documents, especially as they get older. But let’s not leave it at this. There is more to be said.
The possibility that one spouse may become incapacitated is not the most important reason to execute these documents. Many attorneys believe that in community property states such as California, one spouse would automatically have the right to assume control over the couple’s community property assets should the other become incapable of handling his affairs. The real issue, say our advisers, is what happens if both spouses become incapacitated.
Our advisers recommend that all couples exchange power of attorney documents that name a back-up manager of their affairs--someone who could act in their best interests until they become able to resume control over their lives. This substitute could be an adult child, a relative, an attorney or other trusted adviser.
But the issue doesn’t just stop here. Have you ever heard of a “durable power of attorney for health-care decisions”? It is likely that you haven’t. The document allows you to give another person the right to make health-care decisions for you in the event you are unable to give “informed consent” about your care. If you do become incapacitated, your designate would have the authority to consent to your doctor withholding treatment to keep you alive and to donate your organs upon death. These documents are good for up to seven years at a time.
These documents can be obtained from your attorney or the California Medical Assn. To obtain them from the CMA, send $2 to Sutter Publications, P.O. Box 7690, San Francisco, Calif. 94120-7690. The CMA will send you the power of attorney form plus a pamphlet outlining its contents and an identification card for you to carry in your wallet in the event of an accident.
When to Start Tapping IRA Varies by Person
Q: I know that taxpayers have until April 1 of the year following the one in which they turn 70 1/2 to take their first mandatory distribution from their individual retirement account. However, the tax law says you still must take your second distribution by Dec. 31 of the same year. The result is a doubling of distribution in a single year and a possible increase in your tax bracket. I think it is wiser to take the initial distribution in the year in which you turn age 70 1/2 to avoid this situation. What do your experts think? --J.C.N.
A: This is a question that can trigger one of those long debates that ultimately must be settled by what’s best for the individual taxpayer.
You’re correct in saying that in many cases, taxpayers are probably better off taking the distribution in the year in which they turn 70 1/2, then take distributions each year thereafter. But there could be circumstances, such as maturity dates on investments or other tax considerations, that might prompt a taxpayer to delay his withdrawal. Furthermore, waiting for the following April 1 delays for a year paying tax on the distribution. Taxpayers should figure out for themselves what is best. There is no hard and fast rule that fits everyone.
Fixing Tax Problem From Overvalued IRA
Q: I have a heap of trouble with my individual retirement account. I put my money into an established limited partnership, but it is in bankruptcy and is essentially worthless. Meanwhile, the IRA trustee is charging me a high annual fee to hold this investment. I requested a distribution to avoid the fees. The trustee made the distribution, but reported to the Internal Revenue Service that the distribution was the full face value of my original investment. How can I unscramble this mess? --N.B.
A: The trustee has made a mistake. According to our advisers the trustee should have valued your distribution at its fair market value at the time of the distribution. It is up to you to get the trustee to change his report to the IRS because the IRS, in all likelihood, will follow what the trustee says.
Your first step should be to contact the trustee and offer him proof of the “essentially worthless” value of your investment in this limited partnership. Demand that he correct his 1099 filing with the IRS. If he won’t change his position, try to switch trustees. This tactic may prove difficult. Another option would be to sell your investment to a friend for its “essentially worthless” value, a move that would allow you to prove beyond any doubt that the partnership is not worth what the trustee has claimed.
Of course, unless your investment is as “essentially worthless as” as you claim, finding a friend willing to go through with this may prove difficult, as well.