Money Management Q&As

Can two people share a power of attorney?

Q: My mother wants to give my sister and me a dual power of attorney over her assets. Can she do so?

A: Yes, however, if she adopts a power of attorney naming both of you, state law generally requires that you act jointly. This could create problems if the two of you can't agree or one of you happens to be away when a document needs to be signed. If your mother is confident that you'll both see eye to eye in managing her financial affairs, the power of attorney should state clearly that you can act "severally" (legal jargon for separately), so that only a single signature is necessary.

The wrong way to dodge estate tax

Q: An insurance agent tells me that the proceeds of a policy on my life will be included in my estate if I own the policy. Can I avoid this by transferring ownership to my revocable living trust?

A: No. For tax purposes, you're considered the owner of all the trust assets. To get the policy out of your estate, someone other than you must own it. This could be an individual, such as your spouse or child, or an irrevocable trust over which you have no control. Of course, if your spouse is the sole beneficiary of the policy, the proceeds will escape tax no matter who owns it, thanks to the marital deduction. Be aware, though, that tax law is especially tricky in this regard, so get professional advice before you take any action.

Changing your name with Social Security

Q: I took my husband's name when we recently married. How do I make sure my Social Security record doesn't get fouled up?

A: Even though your Social Security Number will remain the same, you should file Form SS-5, along with your original marriage certificate or a copy certified by the issuing agency. (A photocopy or notarized copy won't do.) If you can't provide the certificate, Social Security will accept one or more official documents identifying you by your old and new names, such as a driver's license, passport, or ID card. Your documents will be returned.

You can download the form at www.ssa.gov/online/ss-5.html , request it by phone at 800-772-1213, or pick it up at your local Social Security office.

Help the handicapped and help yourself

Q: I plan to install a ramp to make access to my office easier for elderly and disabled patients. Can I claim an immediate deduction for the cost instead of depreciating it as part of the building?

A: Yes, you can claim up to $15,000 immediately, provided the ramp meets specific standards. For example, it may not rise more than one inch per foot and must have a nonslip surface, level areas at 30-foot intervals, and a handrail 32 inches high. (For full details, see IRS Publication 535.)

If the ramp doesn't qualify, the entire cost must be treated as a depreciable business expense. You must also depreciate expenses that exceed $15,000.

Make sure creditors can't touch college savings

Q: I want to take advantage of the tax breaks a college savings program (529 plan) offers, but would my contributions to it be vulnerable in case of a malpractice judgment against me?

A: Possibly, if you're the account owner and can withdraw the funds. However, it may depend on the plan you choose. A dozen or so states have plans that contain protections from creditors. Even a plan that doesn't have them may be creditor-proof if it bars transfer of ownership. Also, a pending federal law would shield contributions to 529 accounts made at least two years before filing for bankruptcy.

If this issue is of serious concern, get legal advice before choosing a particular program. You might want to consider forgoing the 529 tax advantages and putting college savings into a custodial account or irrevocable trust instead.

When IRA funds must be kept separate

Q: I'd like to transfer an IRA bank account to my profit-sharing plan, of which I'm trustee. But the bank manager says I shouldn't because only a financial institution can be an IRA trustee. Would my proposed transfer be illegal?

A: No. The law allows a retirement plan to accept funds transferred from an existing IRA, regardless of who the plan trustee is, provided the funds are eligible for rollover. (Required minimum distributions, for example, are ineligible.)

The restriction the manager is referring to does apply to IRAs set up for plan participants who wish to contribute to one. Such contributions must not be merged with plan funds; they're to be kept in individual accounts under a qualified trustee or custodian.

Do you need a hired gun to collect from an insurer?

Q: After a storm damaged my property, an independent public adjuster called to offer his help in negotiating with the insurance company. How can I judge whether his services would be worth the cost?

A: A diligent public adjuster will carefully study the fine print in your policy, do a lot of the paperwork and haggling for you, and make sure you receive all the benefits you're entitled to. But he won't come cheap. His fee will normally run to at least 10 percent of the value of the claim settlement, but it could be even higher—15 percent is common, and some rapacious adjusters have been known to charge as much as 50 percent. (Following a disaster, some state insurance departments set fee limits to forestall such gouging.) As a rule, the larger the claim, the lower the commission rate. You probably shouldn't consider a public adjuster for a claim less than $25,000.

The National Association of Public Insurance Adjusters (www.napia.com) maintains a database of certified professional public adjusters (CPPA) who have at least five years experience, and senior adjusters (SPPA) who have twice that minimum. That's a good place to start your search. But if your state licenses adjusters, as many do, before hiring one you should contact the licensing board to be sure he's in good standing and has no unresolved complaints against him. Steer clear of anyone who recommends a particular construction firm to restore your property—he may have a conflict of interest.

Convertible funds as investment hedges

Q: I lost more than 20 percent in a no-load S&P 500 index fund last year, while bond funds made money. Would I have done better to keep a foot in both camps with a convertible fund?

A: Very likely, though you'd still have had a loss. Among no-load funds that invest in bonds (and preferred shares) convertible into common stock, the three leaders were Northern Income Equity, Gabelli Global Convertible Securities, and Value Line Convertible. All had negative total returns in 2002—respectively, –4.5, –4.9, and –7.8 percent. The best-performing load fund, Davis Convertible Securities–Class A, returned –1.2 percent.

Edited by Lawrence Farber,
Contributing Writer

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

Lawrence Farber. Money Management Q&As. Medical Economics Nov. 21, 2003;80:71.