Dementia and IRA

[Joe Btfsplk]

A client called and said her father's second wife was raiding his rollover IRA, taking out $ 50,000 recently to buy a new car. She said her father had dementia and his IRA was down to $ 180,000 and disappearing fast.

She said she had power of attorney, and that she and her sister were the IRA beneficiaries.

Could she arrange for the IRA custodian to change all withdrawals to a new bank account in which only she and her father could sign checks?

She said a lawyer suggested that she transfer the funds to her name in a trust for him, but I think that would constitute a withdrawal of the whole $ 180,000. Am I right?

I had been wondering why her father did not come to me to do his tax return last year. Now I think I know.

[Koss]

Ira & Poa

If she has a general power of attorney, or a special power of attorney that explicitly authorizes her to manage her father's retirement accounts, then I would recommend that she perform an indirect rollover, and move the funds to another institution.

Just be careful that in doing so, she is not violating the rule about one rollover per rolling calendar year.

Numerous other questions arise:

How is the spouse withdrawing funds? An IRA cannot be a joint account. Why is the current trustee allowing this? Is she walking him into the bank and telling him to sign something?

The trustee could be liable for permitting unauthorized or fraudulent withdrawals, if they did not exercise due diligence, or if it was superficially obvious that this man did not know what he was signing.

Does the IRA contain assets such as stocks or mutual funds that perhaps should not be liquidated? This could affect the idea of moving the assets to another trustee.

Your client should seriously consider retaining an attorney to institute guardianship or conservator proceedings. These are harsh words, but sometimes these things need to be said out loud, in a very blunt manner. She should have her father declared incompetent, and notify the bank immediately. Then the bank will not permit any further withdrawals, even if he is actually signing the right instruments.

Burton M. Koss

[DonPriebe]

That may not be the best idea ...

Your client should seriously consider retaining an attorney to institute guardianship or conservator proceedings. These are harsh words, but sometimes these things need to be said out loud, in a very blunt manner. She should have her father declared incompetent, and notify the bank immediately. Then the bank will not permit any further withdrawals, even if he is actually signing the right instruments.

And who would make a better guardian than a loving wife? Certainly not a greedy daughter.

[Joe Btfsplk]

And who would make a better guardian than a loving wife? Certainly not a greedy daughter.

That is not the case. She wants to conserve the money for her father's support, not for herself.

I think Koss' comments are excellent suggestions and have emailed them to my client for her consideration.

[Koss]

IRA Distributions

No one ever really answered the original question. If the money is pulled out of the IRA and put into a trust, then, yes, that will be a complete distribution that would be fully taxable if it is a traditional IRA.

I'm engaging in wild speculation here. I am assuming for the sake of argument that the guy does not have a massive amount of money or other assets that are stashed somewhere other than his IRA.

If this is the case, then it does seem... well, I don't know, odd, irresponsible... imprudent... to spend fifty grand on a car when the IRA only had 250K or 300K in it to begin with. So I agree that the wife's actions and decisions should be scrutinized. If he is mentally disabled to the point of being incompetent, then there is a substantive question as to whether the wife is making decisions that are in his best interest.

But the original post also said this is his second wife, and that the adult daughters are the beneficiaries of the IRA. So the daughters might have ulterior motives as well. It's clear from the context that the daughters are his children from his first marriage. This is a classic conflict that is often played out in more graphic detail after the guy dies and the family starts contesting the validity of the will or trust. The more difficult cases are the ones where the guy didn't make changes after remarrying, or, worse, where the guy made changes but didn't destroy the previous will, and someone manages to find it, and then the more recent document somehow disappears...

One final observation:

There is a possibility that the spouse is actually making reasonable decisions based on professional advice to spend down the guy's assets in order to qualify him for Medicaid or other benefits. If he's going downhill and headed for a nursing home... she might just have the right idea.

Burton M. Koss

[sea-tax]

Hey I am not an attorney or anything but how can a daughters POA supercede the wife. I mean in most states that I am aware of it the spouse who usually has control of medical decisions , burial, legal issues and the sort.

[OREGON BEAR]

Ira Distribution

Sea Tac

You need to know that the trustee of an IRA account can not take orders from anyone else but the owner of the account, In fact it is against Sec/NASD and I would assume the Banking laws to release any information about his IRA (meaning even talking to someone else). So some one is up to thier arm pits in warm doo doo. Better have good E & O insurance. Daughter who has valid durable POA would qualify to talk to trustee, but I'm sure any compentent trustee would send it through legal and in about a month they might get back to them. This is serious stuff and an Attorney should be retained immedialey.

[WhiteOleander]

Just wanted to add.

I believe that you can roll an IRA trustee to trustee as many times in a year as you want. It is only when the owner takes the funds in his/her name and rolls it themselves that you are limited to once per year.

[Snaggletooth]

Out-of-line

And who would make a better guardian than a loving wife? Certainly not a greedy daughter.

Don, you've made great posts from the land of snow, but this one seems beneath your usual demeanor.

Certainly no one has a corner on the market when it comes to greed, but how are you to respond to your customer? Your client shows up with this problem and by helping her you immediately jump on her side of the fence and declare judgement in her favor.

Of course, one party can be greedier than the other and there always is the possibility that this may simply be the proverbial cat-fight. But your client is your client. How else would you handle it?

I for one agree that this person needs a lawyer worse than an accountant.

[Joe Btfsplk]

IRA and dementia

I still don't know what she will do about it. I've known the daughter for many years and am certain that her only concern is that the wife does not deplete his remaining funds before he dies. When an old geezer's wife dies and he remarries within a year, the new wife might not be quite as loving a bride as Anna Nicole Smith was to the old geezer she married.