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Money Management


Why you might prefer a trust to a power of attorney, How to make sure that a 401(k) plan qualifies, Perils of trading in metals futures


Money Management

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Choose article section...Why you might prefer a trust to a power of attorney Perils of trading in metals futures How to make sure that a 401(k) plan qualifies

Why you might prefer a trust to a power of attorney

Q I've read that putting your assets into a revocable living trust makes it possible to avoid a court proceeding if you become unable to manage your financial affairs. Wouldn't a power of attorney accomplish the same objective with less trouble and expense?

A You could draw up a general power of attorney naming someone reliable to act as your agent if you're ever incapacitated. (This is called a "springing" power of attorney, because it takes effect only under that condition.) However, some financial institutions may reject your agent's instructions if the document conveying the power is outdated or its wording doesn't conform to their requirements.

By contrast, if a trust holds title to a bank account or other asset, the trustee's control over it isn't subject to question. If you like, you can appoint yourself as trustee and specify the circumstances in which a person you designate can substitute for you. Be sure that title to every asset you'd want your potential substitute to manage is formally transferred to the trust.

Perils of trading in metals futures

Q A salesman has been trying to persuade me to invest in precious metals futures. He's very convincing, but I'm worried about being scammed. How can I tell?

A You're right to be suspicious, according to the US Commodity Futures Trading Commission, the federal agency that oversees such transactions. A scammer typically promises quick riches, offers to arrange financing for purchases on margin to boost profits, and discourages customers from taking delivery of the metal. Then the company fraudulently charges interest and storage fees, which diminish a customer's account equity until the investor must deposit additional funds or have the account closed out at a total loss. The fees are phony because no metal has been purchased or stored.

As a safeguard, the CFTC recommends that you check whether the company and salesperson are members of the National Futures Association and have ever been subjected to disciplinary action. You can call the NFA at 800-621-3570 or access its Web site at If you're considering an investment with a company based abroad, be mindful that US government agencies generally have little or no regulatory authority over such firms, and it may be difficult or impossible to recover your money. Also, storing metal offshore, particularly in countries with secrecy laws, might make it hard to verify your investment.

How to make sure that a 401(k) plan qualifies

QThe doctors in our group would like to add a 401(k) option to our defined-contribution pension plan, but we're concerned about running afoul of the antidiscrimination rules if too few lower-paid employees participate. I've read that an employer can avoid the problem by making contributions for nonparticipants, but I'm confused about these "safe harbor" requirements. Can you clarify them?

A An employer can choose from two ways to sail into a 401(k) safe harbor: Match at least part of the contributions by employees who elect 401(k) participation, or put in 3 percent of all eligible lower-paid employees' salaries, whether they participate or not. If you're already contributing at least 3 percent of employees' pay to your present pension plan, you can choose the second option without increasing your contribution for them.

Under the first alternative, you'd have to match the full amount of each employee's elective contributions to the 401(k) up to 3 percent of salary, plus half of any additional amount up to 5 percent of salary.


Edited by Lawrence Farber,
Senior Editor


Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to (please include your regular postal address). Sorry, but we're not able to answer readers individually.


Lawrence Farber. Money Management. Medical Economics 2001;4:142.

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