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When it comes to IRAs most couples name each other the beneficiary and the remaining spouse creates a spousal rollover. If the surviving spouse is incapacitated by an ailment such as dementia, complications can arise.

What happens when end-of-life affairs are set up for a couple and one member later becomes incompetent? The potential problem was examined recently by Morningstar in “Planning for the Dementia Factor in Retirement.”

The scenario discussed in the article is when a husband has an IRA account and names his wife as the beneficiary when she does not have an IRA account of her own. If the wife outlives the husband, the plan is for her to inherit the IRA and create a spousal rollover IRA.

However, if the couple plans to live into their elderly years, then it is possible that the wife could have dementia when the husband passes away. That would mean she would not be competent to elect the spousal rollover or to name a beneficiary for it.

The article discusses three current solutions to this problem.

  • The first solution is to do nothing. If the wife has dementia, then a guardian can be found for her who can make these decisions. This is the worst choice as getting a guardian is expensive and time-consuming.
  • The second, and better solution, is for the wife to get a general durable power of attorney now. Should she be incapacitated at the time her husband passes away, the power of attorney can make the appropriate decisions.
  • The third, and more comprehensive solution, is to utilize a trusteed IRA. This would allow a trustee to name a beneficiary for the rollover IRA. However, a power of attorney would still be needed to make the spousal rollover decision in the first place.

It is always important to discuss potential problems such as incompetence when creating your estate plan.

Reference: Morningstar (Dec. 12, 2015) “Planning for the Dementia Factor in Retirement.”

For more information on guardianship, elder law, and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.