Bad Luck Or A Bad Broker?

Q: In October 1999, just before I retired, I switched my mutual funds and various stocks to an account with a new stockbroker. I don't know much about stocks, so I didn't object when he bought techs, invested on margin and traded a lot. When the market fell, he told me to sit tight. Now I've lost about 80 percent of my portfolio. Did he have a fiduciary duty to place my holdings in a money-market account before they tanked? Or is it my fault for not changing stockbrokers?
R. Henry, Clovis, Calif.

A: This is a tough one. Brokers don't owe you a fiduciary duty in the legal sense of keeping your money safe. But they do owe you investment picks that suit your age and circumstances.

Maybe you have an arbitration case against the broker. At your point in life, you should have been advised to shift to a more conservative mode, says attorney Allan Fedor of Fedor & Fedor in Largo, Fla. Even if you wanted to gamble, the broker should have limited that part of your portfolio to the 15 percent range.

Attorney Seth Lipner of Deutsch & Lipner in Garden City, N.Y., agrees that anyone concentrated in techs and telecoms at retirement wasn't getting "wise, rational advice." On the other hand, maybe you went along because your friends made money in techs and you hoped the broker would do the same for you. The broker will certainly tell an arbitration panel that you understood the risks. You could have hollered "stop'' at any time.

My advice? When you don't know anything about stocks, it's never safe to rely completely on someone else. You cannot judge what's being done. Relax, and buy an index mutual fund instead.

Q: I'm in a difficult situation. My husband of many years has become manic-depressive and can no longer handle money. To protect our assets, I've put them all in my name. They'll pass to him in trust if I die first. But my largest assets are 401(k) plans and IRAs. If they're inherited by a trust, will income taxes be owed immediately on the investment gains?
Name withheld

A: You're making the absolute best of an awful situation, and I salute you. On paper, your plan could work--if the trust is properly drawn. IRA proceeds can be paid gradually to a trust over your husband's life expectancy, and taxed when received.

Not all trusts qualify for the "life-expectancy payout," says estate-planning attorney Natalie Choate of Bingham Dana in Boston. They have to comply with various IRS rules. But the rules aren't a problem as long as the lawyer who draws your trust is aware of them. (That's a wake-up call to attorneys who aren't tax experts and use simple trust forms.) Overall, taxes will be a little higher than if your husband had inherited the IRA directly, in part because trusts are taxed at higher rates. But at least you'd know the money was safe.

The problem will be your 401(k), Choate says. Most employee plans don't allow life-expectancy payouts. The money would probably have to be paid to the trust in one fell swoop, and taxed. If that would leave your husband short, consider buying term life insurance to cover the tax. You could cancel the policy when you retire. At that point, you'd roll the 401(k) into your IRA.

By the way, before you can make a trust the beneficiary of your 401(k), your husband has to agree--in writing. That's not a Talibany antifemale rule. It prevents a worker of any sex from secretly cutting his or her spouse out of a retirement plan.

For more information, Choate recommends the book "IRAs, 401(k)s and Other Retirement Plans: Taking Your Money Out," from Nolo Press (800-992-6656).

Q:For many years, I had a home office and took a depreciation deduction for part of the value of my home. I stopped that about eight years ago. What is my tax liability when I sell?
Fred Doty, Statesville, N.C.

A: Lucky you--you quit working in the years when taxpayers got a free pass on the depreciation. The IRS doesn't recapture taxes on home-office write-offs taken through May 6, 1997. You'd owe only on depreciation taken after that day. As for capital-gains taxes, married couples can take $500,000 in profits tax-free, as long as you've lived in the house for two of the past five years. Singles get half that exemption, or $250,000.

Q:I signed up with Cingular Wireless (formerly Comcast Cellular One) for a low-rate, two-year plan. Three months later my rate went up. Isn't that bait-and-switch?
Susan Male, Princeton Junction, N.J.

A: Well, here's the drill. The fine print gives the company the right to raise your rates on 30 days' notice. But your contract also gives you the right to cancel within those 30 days and pay no fee. This is standard in the industry. Customers--take note.

I do think it's crummy to tout a low rate and then say, "Oops." People who don't read the notices that come with their phone bills will be trapped. It would be fairer to let you cancel after seeing the increase. Even then, it's a pain to have to shop for another service.

Your persistent complaints got Cingular to extend your cancellation period. Your story may get consumers to read the fine print.