Broker Check

How a Fiduciary might help avoid a financial catastrophe

| June 29, 2017

A Fiduciary might not work for free -- so what might make it worthwhile? "A stitch in time . . ."

Many of us "middle class folks" might think that a Fiduciary is only for the 1%.  If your wife / husband / sibling / parent has a $500,000 IRA ... or a $500,000 home with no mortgage, you might not consider that "wealth" by today's standards.  But you probably don't want to lose it ... or lose access to it, either.

Nor do you want to pay unnecessary / excess taxes and / or penalties if tax rules are not followed properly.  Or as a widow, lose your spouse's IRA because Beneficiary Designation forms were not updated to current wishes.

These things and many more might be more important to middle class folks simply because a larger chunk of your retirement resources are at stake.

Please take a look at the post above.  Not everyone "needs" a Fiduciary.  But some people might ... but might not realize it. 

Financial services firms might not honor your "legal" Power of Attorney (POA) - what then?

Awhile back I Googled "Power of Attorney Problems" and got more than 13 million hits.  Now its up to 28 million ... yikes! Beyond cliche is the realistic Golden Rule ... "The One With the Gold Makes the Rules!"  In this case, the "ones with the gold" are financial services firms of various "flavors" who actually hold the assets ... write the checks if / when you request / require funds.  Banks certainly, but not just banks. Custodians.  Brokerages. Insurance carriers. Direct Mutual Fund Companies.  Etc.

Are they choosing not to honor "perfectly good" POAs simply to hold onto the funds longer? I won't claim to understand their motivations.  Or is it a legitimate fear of being sued ... or worse ... scammed?  All of the above?

These days I think of many things as a dial or a ruler as opposed to black or white.  If you will have to exercise power / authority / control over someone else's assets in the event of their incapacity, how important will this process be to you?  If your aging mother left you a $1,000 CD ... maybe not a big deal.  But if we're talking hundreds of thousands of dollars or more, you might want to take a much closer look.

Even if your mom's POA is letter-perfect, when was it signed?  If it was more than two years ago and large resources are at stake, you might want to do a new / updated one with a new dated signature.  

You can drive yourself crazy if she has assets in 5, 6 or more different places.  But for the largest amounts, you might also check with the firm(s) holding the assets and find out if they require their own POA documents ... instead of and / or in addition to her own POA done by her attorney.

Particularly, for example, if you might have to make a mortgage payment and need funds from the potentially "frozen" account to do it ... better get that tied down.


Widower lost $1,000,000 because Beneficiary Designation Form was not up-to-date

This isn't a new story any more, but it is still important. Many people mistakenly have the idea that if their will -- even a trust, too -- is up-to-date and the document accurately distributes your estate exactly according to your wishes ... you are good.  Maybe not. 

The following types of assets:

  1. IRAs
  2. Other Qualified Plans (e.g. 401(k) ... 403(b)
  3. Annuities
  4. Life Insurance

Will, under the great majority of "normal" circumstances, go to those shown on the Beneficiary Designation Form. In the "Pension Pickle" case, Anne was a public school employee and had completed a "normal" Beneficiary Designation Form naming her sister.  At the time, Anne was not married.  Anne later married but never updated her paperwork.  At Anne's death, Anne's sister received the assets, not Anne's husband.

Update and safeguard your documents. I have become a big fan of digital back up.  (Get a pdf of an important document ... email it to yourself and / or a loved one.  Save that email.) But whether you like paper, digital, or both, for many people that Beneficiary Designation form is worth way more to a surviving spouse than a will.  If your home is JTWROS (Joint Tenants with Right of Survivorship) and your Social Security is OK  ... along with your IRA, your spouse / widow / etc. might be fine.  Tie this down!

Could your future "ex" son-in-law inherit? ... And potentially disinherit your grandchildren?

This is the tip of a very complex iceberg ...not affected by warmer temperatures. Some people believe that all trusts are alike ... "boilerplate."  While there might be common language in many trusts, very broadly you might be able to have a trust follow your wishes ... which could be unique.  The above question simply does not bother some people  If it doesn't bother you, move on!  But if it does, you might be able to help avoid or diminish this particular "financial catastrophe."

Avoid unnecessary taxes & penalties and loss of future tax-deferred growth potential on your IRAs ... Don't use your IRA as a piggy bank!

At one time I took a series of classes from Ed Slott, who I (and others) sometimes nicknamed "Dr. IRA." In our current environment, many of us depend on our IRAs to fund our retirement.  So IRAs might have critical importance.  We know this.  So do the "powers that be."  And the "powers that be" changed the rules.  Ed preached always do a Direct Transfer.  Good plan.  More important than ever.  That is, the check goes from the old provider to the new provider without passing Go or collecting $200.  Do not (ever!) have the check made out to yourself!  Is that the rule? No.  Technically, you may do one "60 day rollover" per year.  (i.e., check made out to yourself.)  But ...

"Unlike some other tax mistakes, running afoul of the once-per-year IRA is a fatal error.  It cannot be fixed. IRS does not have the authority to provide any relief on this error."

So if you did it wrong ... or worse ... very wrong (multiple wrong rollover's in Ed's example) " ... an ineligible rollover ( ... will be ... ) taxable to the extent of pre-tax funds withdrawn and subject to the 10% early distribution penalty ... " ... if under the age of 59-1/2 ... and ... "could also be subject to a 6% excess IRA contribution penalty ..." etc ... etc.

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