By Jan Warner and Jan Stucker
Knight Ridder Newspapers
QMy second husband died only three years after our marriage. He was 68, and I am 57. I inherited his IRA and need to make withdrawals to support myself, but I am getting conflicting advice about what to do. My financial advisor tells me to create a new IRA in my name, while my CPA says that I should keep my husband’s IRA in tact. Whose advice should I follow?
As a surviving spouse who has inherited an IRA, according to the Internal Revenue Service, you have two choices: (1) Keep your deceased husband’s IRA account as is, or (2) “roll it over” into a new IRA in your name. In that you have not yet reached age 59 1/2 and need to take withdrawals, we believe that you should listen to your CPA and keep his account in tact.
Here’s why: If you establish a new IRA and take withdrawals, in addition to paying income taxes, the withdrawals you take until you reach age 59 1/2 will be subject to a 10 percent early withdrawal penalty that is, unless you take substantially equal withdrawals until you reach age 59 1/2 or for five years, whichever is longer. In this event, you can escape the 10 percent penalty, but you will tie yourself into an irrevocable situation for five years. But, by leaving the old account in place, as beneficiary, you will be able to take withdrawals without incurring the 10 percent penalty.
Because the rules governing distributions from IRA’s are complex and because rules change, you should not act without receiving a written opinion from your chosen tax expert.
By Jan Warner
and Jan Stucker
Knight Ridder Newspapers
Q. Our mother (age 76) and father (age 83) are both failing physically and mentally; however, although I live closest to our parents and see them regularly, my two brothers who live in other states and I cannot seem to agree on what is the best course of action to take.
These conflicts are causing breaches in our family relationship, and, in the meanwhile, our parents are suffering. We had one meeting with a lawyer who lost control of the meeting which turned out to be a disaster. Do you have suggestions about how to break the logjam?
A. In working with elderly individuals and their families on a plan for long term care, it is important to understand that there are numerous unique concerns for the planner, some due to the intra-family dynamics.
To be effective, the attorney must identify, assess and address the issues as early as possible in the planning process because all long term care planning is filled with conflicts.
Some of these conflicts include whether to preserve assets for beneficiaries or use assets to fund long-term care; and whether the elder person is comfortable with giving up control of assets and, if so, to whom. If the elder person is not comfortable with giving up control of assets, alternate planning ideas should be discussed.
Another area of conflict is “quality of care versus cost of care.” Certainly, everyone wants the best care available for their family; however, as with any commodity, the more you get, the more it costs. Should the elder stay at home? Does he need residential care? Can we have a nurse come into the house? Can a wife or child take care of the elderly person? Dose he or she need a nursing home? Should the elder have a private room?
Elderly persons and family members must determine what care can be afforded and still meet the family’s other financial needs based on their unique circumstances.
The attorney, the elderly person, and the family must face the question of the elder person’s needs versus his or her desires. Almost no one wants to be in a nursing home, but some people need to be in a nursing home.
The perception of the elderly person’s health and the ability of the family to care for him or her may be very different from the true facts.
The family must remember that providing the best care for the elderly person at the best price is the goal of the planning process. This unfortunately is not always clear and causes squabbles within the family which can be avoided if family members are educated and understand that someone needs to be in charge.
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