Dear Liz: My husband’s brother had a stroke and is now incapacitated. My husband needs to take over his finances. The bank will not accept the durable power of attorney that they set up 14 years ago because it is “too old.” Another bank asked me if it was set up less than six months ago, because that would avoid problems. How can you do the right thing if there are so many obstacles?
Answer: Banks and other financial institutions have gotten so persnickety about accepting powers of attorney that some states have passed laws forcing them to do so — and yet people still report having problems, even in those states!
Many institutions want you to use their own forms, which may not be possible once someone is incapacitated. Even if the person is willing to fill out the form before the fact, using a financial institution’s power of attorney can create problems if the language in those forms contradicts the person’s other estate planning documents. Then there’s the sheer hassle factor, especially if the person has accounts at multiple banks and brokerages.
You may be able to break through this logjam by hiring an attorney to contact the bank. You can get referrals to lawyers experienced in this issue from the National Academy of Elder Law Attorneys.
When to merge 401(k) accounts
Dear Liz: I have $640,000 in a previous employer’s 401(k) and $100,000 in my new employer’s plan. Do you recommend I merge the two? Both funds offer similar investment options. My only motivation is based on simplifying paperwork during retirement, although there may be other advantages I am not aware of.
Answer: The choice of investment options matters less than what you pay for them. If your current plan offers cheaper choices, rolling your previous account into your current one makes sense if your employer allows that.
If the previous employer’s plan is cheaper, though, leaving the money where it is can make more sense. Once you actually reach retirement age you can decide whether to consolidate the plans or roll them into an IRA.
IRAs give you a wider array of investment options, but keeping the money in 401(k) accounts has other advantages. Larger 401(k)s often offer access to cheaper, institutional funds that aren’t available to retail investors in their IRAs. A 401(k) may offer more asset protection, depending on your state’s laws, plus you can begin withdrawals as early as age 55 without penalty if you no longer work for that employer.
Many factors go into rental choice
Dear Liz: You recently answered a reader who didn’t want to keep and rent out the home she inherited with her brother. You mentioned that if he refused to buy her out, she could go to court to force a sale.
Another option is to hire a property management company to provide a buffer between the siblings but also between them and the tenants. The house will provide a healthy income to both bro and sis.
Answer: Actually, we don’t know that. While Mom-and-Pop landlords can make a tidy profit with single-family homes in some areas, just breaking even is hard in others. In many high-cost areas of the country, rents aren’t enough to cover the considerable costs of ownership, especially if the property still has a mortgage.
Even if it’s paid off, the house could need extensive repairs or be damaged by future tenants. Vacancy rates could be high in that area, and the property management company would still need to get paid. The siblings also will need additional liability insurance to protect against being sued.
The sister could get a much better return from investments that require a lot less from her. Mutual funds don’t call to tell you the roof is leaking or the furnace needs replacement.
The home could turn out to be immensely profitable and still be a bad investment for a sister who’s an unwilling business partner and who resents the brother who refused to buy her out when he had the opportunity.