Ask Liz Weston

Get smart with your money

Financial Advisors

Q&A: A husband handles the investing. What happens when he’s gone?

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Dear Liz: My husband has always handled our investments. He doesn’t think it makes sense to pay someone 1% to do what he can do on his own. As we’re getting older, I’m starting to worry about what I would do if he dies first. We also have a friend who got scammed, and it’s made me wonder whether that could happen to us. I would like to talk to a fee-only advisor like you always recommend, but I’m not sure how to get him on board.

Answer: Start with your concerns about having to take over the finances should he die or become incapacitated. Having someone trustworthy to help you through this process can be incredibly valuable, and it doesn’t need to be someone who charges 1% to manage your investments.

You can get referrals to fiduciary, fee-only planners who charge by the hour at Garrett Planning Network. The XY Planning Network and the Alliance for Comprehensive Planners represent fiduciary, fee-only planners who charge retainer fees. (Fiduciary means the planner is committed to putting your best interests first. Most advisors are held to a lower suitability standard, which means they don’t have to put your interests ahead of their own.)

Researchers have found that our financial decision-making abilities peak at age 53. Unfortunately, our confidence in our financial acumen remains high even as our cognition declines. The growing gap between our self-regard and reality can leave us vulnerable to bad investments, bad decisions and bad people.

An advisor could take a look at your portfolio and recommend ways to make it easier to manage as you age. The advisor also could discuss strategies and safeguards to protect you from mistakes and predators. Once you have established the relationship, you should be able to get more help down the road if you need it. (Consider the advisor’s age and status, though; a younger advisor or one who’s part of a large practice might be a better idea in this scenario than a solo practitioner who is approaching retirement age.)

Q&A: How to Choose a Trusted Financial Advisor for Long-Term Care Insurance and Asset Protection

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Dear Liz: My 68-year-old husband has Alzheimer’s disease. I thought we were responsible, having a nice nest egg of over $2 million, a house that is paid off and no debts. However, I am now terrified that it will all be depleted because of long-term care costs. Per your advice, I consulted a fee-only financial planner to get his opinion about long-term-care insurance for myself (my husband no longer qualifies). Turns out he will be the one to get the policy for me, should I decide to go forward. I feel uncomfortable that the financial advisor has an obvious stake with this long-term-care policy and therefore might be biased with his advice.

Answer: Understandably. If the advisor would earn a commission from this policy, as your question implies, then he is not a fee-only financial planner. Fee-only planners receive payment only from their clients, not from commissions or other arrangements that could bias their advice.

Long-term-care insurance is expensive, and you’d be smart to take any policy you were considering buying to a fee-only planner committed to putting your best interests first. Most advisors don’t have to uphold this type of fiduciary standard.

You can get referrals to fee-only planners from the Garrett Planning Network, which represents advisors who charge by the hour; the XY Planning Network and the Alliance of Comprehensive Planners, which represents those who charge retainers; and the National Assn. of Personal Financial Advisors, which includes planners who charge a percentage of the assets they manage.

Also consider talking to an elder law attorney, who can advise you about possible ways to protect your assets from depletion. You can get referrals from the National Academy of Elder Law Attorneys.

Q&A: These major financial decisions shouldn’t be DIY projects. Talk to an expert!

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Dear Liz: I anticipate being dead soon (cancer). I have established an irrevocable trust for my 8-year-old child, with my 47-year-old wife as the trustee. With respect to taxes and other issues and naming beneficiaries, what is the optimal strategy regarding my child for life insurance and traditional and Roth IRAs? My wife will get the 401(k).

Answer: The best person to answer those questions is the estate planning attorney you (presumably) used to create the irrevocable trust. Estate planning should not be a do-it-yourself activity, particularly when minor children are involved. The wrong plan could give too much too soon to your child, or tie up the money too long. You also don’t want to unreasonably stint your wife in your efforts to preserve money for your child. Also, the optimal strategies for tax purposes may not be the best for your family’s situation.

For example, the best way to minimize taxes may be to leave all the retirement money to your wife. Spouses who inherit retirement funds have the option of treating the accounts as their own. That means your wife wouldn’t have to begin required minimum distributions from the 401(k) or the traditional IRA until she’s 75. (The current RMD age is 73, but it rises to 75 for people born in 1960 and later.) She would not have to take distributions from a Roth IRA she inherits from you.

Non-spouse heirs generally have to drain retirement accounts within 10 years. Minors who inherit retirement funds don’t have to take the first distribution until they turn 21, but then the accounts must be emptied within 10 years.

Life insurance proceeds typically aren’t taxable, or payable to a minor child. But you can create a trust to receive and dole out the proceeds to your child. Your estate planning attorney can help you set this up.

Q&A: Beware the insurance salesperson in financial planner’s clothing

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Dear Liz: Do you have any general advice for choosing a tax preparer? My financial advisor has recommended switching my 403(b) contributions over to Roth 403(b) with the same investment plan. I am worried that this could put us at risk for a higher tax bracket currently.

Answer: Ideally, a financial advisor wouldn’t recommend switching to a Roth option without knowing a fair amount about your current and future tax situations. Otherwise, the advisor wouldn’t be qualified to determine whether giving up the current tax break is likely to pay off later.

Unfortunately, not all financial advisors are truly qualified to give the advice they do. Some, particularly those advising people about 403(b) investments, are insurance salespeople rather than fiduciary financial planners.

You can get referrals to tax pros from the National Assn. of Enrolled Agents and your state’s chapter of certified public accountants. (The American Institute of CPAs has compiled a list of those at its website.) Both enrolled agents and CPAs are fiduciaries who promise to put your best interests first.

For broader financial advice, consider getting referrals from one of the organizations representing fee-only fiduciary planners such as the Garrett Planning Network, the XY Planning Network, the National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners.

Also, teachers should consider spending some time on the nonprofit 403bwise website, which grades school districts’ retirement plans and seeks to educate teachers about the costs of trusting the wrong people.

An aging father chafes at a daughter’s request for financial safeguards

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Dear Liz: I am 88. My wife who is 81 has Alzheimer’s but not so bad that we cannot do most things together as before. My younger daughter, an attorney, wants me to sign an agreement that will make it a little more problematic for me to access my substantial financial accounts. She thinks somehow I will get tricked into giving the money to some scam artist. I like the idea of being protected but do not care to have her being able to decide if I can spend my own money as I see fit. She says the document can be deleted by me at any time, but I still feel put upon.

Answer: Take this document to your estate planning attorney for a review. The attorney can help you assess whether this is the best approach or if there are other ways to keep you safe.

If you don’t have an attorney, get one. Estate planning is not a do-it-yourself endeavor when you’re both in your 80s and one of you has dementia.

You’re understandably in a “live for today” mode. You’re focusing, for example, on what you and your wife can still do, rather than on the cognition she’s lost or the losses yet to come. Your daughter’s focus on the future may feel like an imposition, but the reality is that you won’t become less vulnerable to fraud, scams and plain bad decisions as time passes.

Q&A: Minimizing your taxes is fine — to a point

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Dear Liz: In reading your columns, one can get the impression that reducing tax liability is the primary objective for many financial advisors. I disagree with this. Paying a fair share of taxes is a responsibility to society and the less fortunate, especially for wealthy people. Why are so many financial “professionals” so obsessed with paying less in taxes?

Answer: Tax planning is an essential part of comprehensive financial planning. No one is under an obligation to pay the maximum tax possible. Those who specialize in tax avoidance love to quote a judge named Learned Hand, who wrote in 1934: “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

Where advisors — and taxpayers — get into trouble is when they prioritize tax avoidance over all other concerns. That’s how you get advisors doing tax loss harvesting on a financial account to reduce capital gains for an older couple in the 0% capital gains bracket (an example of this behavior from a recent column).