The PMD Answerman Q & A

Physician's Money Digest, April15 2003, Volume 10, Issue 7

Q: What taxes are owed (eg, capital gains andordinary income tax) for stocks traded in traditionalIRAs vs Roth IRAs?

A: You owe no capital gains or ordinary incometaxes on transactions within your traditional or RothIRA. IRAs are tax-deferred. You will owe ordinaryincome taxes when you take normal distributions fromyour traditional IRA, not from your Roth, except onthat portion that represents after-tax contributions.

Q: My teenage nephew was recently a victimof a severe bus accident, and has become permanentlydisabled. My sister, his mother, wasadvised to see an attorney to set up a special-needstrust. What is a special-needs trust? Doyou recommend we set one up?

A: A special-needs trust is normally established byparents with disabled children who are receiving stateor federal assistance (eg, supplemental Social Securitybenefits). This trust allows the parents to provide somemonetary help to their children without disqualifyingthem from continued public assistance. Property held ina special-needs trust does not usually count as aresource of the disabled person if access to this trust isrestricted. I recommend consulting a trust attorney whois very experienced in setting up special-needs trusts.

Q: I have a terminal illness and realize I madea mistake of not involving my husband in any ofour financial matters. We have no children and Ihave handled the finances completely during our27 years of marriage, everything from makingthe investment decisions, to writing checks, topaying our bills. What do you recommend I dowithin the next year to prepare him to copefinancially without me?

A: In many families, I have found that 1 spouse hasassumed primary responsibility for the family's moneymatters. If that spouse dies first, the surviving spousemay have a hard time handling personal financial mattersalong with settling a spouse's estate. Frequentlythe wife is the one responsible for handling thefinances while her husband pursues his career.

I recommend that you involve your husband in familyfinances by immediately placing him in chargeunder your loving guidance. Teach him to reconcile thecheckbook balance with the bank statement balance,set up a filing system for your finances by category, paybills before the due date, and prepare a manual ofyour family finances so that he feels comfortable withit. Show him your monthly cash flow on an annualbasis so that he understands what the monthly incomeand expenditures will be after you are gone.

You will need to update your records and get rid ofoutdated files. Prepare a statement of net worth, listingall assets and liabilities, as well as the location ofany documents, certificates of ownership, deeds, insurancepolicies, wills, and trusts. You and your husbandneed to meet with your professional advisors (ie, youraccountant, your financialadvisor, and your attorney) and have an open discussionwith them regarding what kind of guidance andadvice he can expect to receive from them. Your husbandneeds to feel comfortable with these advisors,not intimidated by them.

Q: What is the difference between a mortgagetitle for the property my wife and I own that designatesus as "joint tenants with right of survivorship"and as "tenants by the entirety"?

A: "Joint tenants with right of survivorship"(JTWROS) permits 2 people to own property togetheras co-owners. When 1 co-owner dies, the surviving coownerautomatically receives both interests. JTWROSmay be used by married couples and unrelated people.Neither owner may sell or refinance without the permissionof the other. Creditors of 1 owner can force thesale of a property to satisfy a judgment even thoughthe other owner did not benefit from the debt.

Unlike JTWROS, the titling of "tenants by the entirety"prohibits a creditor from forcing the sale of the assetto satisfy debts of a co-owner. Tenants by the entiretyare only allowed for legally married couples.

Steven C. Camp, a financial planner in FortLauderdale, Fla, is a Wharton graduate andauthor of 3 personal finance books, includingMONEY Rx for Physicians (Trunkey Publishing;$14.95). He welcomes questions or commentsat 954-565-8608 or pmdanswerman@aol.com.