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Tax & Estate Planning
Role reversal: Tips to help “kids” care for elderly parents
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Stan Lee’s imagination created characters like Spider-Man and the Hulk, seemingly invincible superheroes who successfully beat the bad guys, but even he couldn’t avoid coming under the sway of an alleged abuser. The comic legend’s business manager recently pled not guilty to charges of embezzlement, forgery and false imprisonment, but family members were already concerned about undue influence, seeking a restraining order against the manager because they believed Lee was being isolated from family and friends and susceptible to fraud.


As this case plays out in the courts, it illustrates that such abuse can happen to anyone — even someone with the fame, fortune and stature of the Marvel Comics mastermind. But the good news is that ensuring an elderly parent’s financial well-being can be simply a matter of having a frank conversation and a set of estate planning documents.


Yes, talking about money can be uncomfortable; we’re used to our parents taking care of us, so reversing the caregiver dynamic between parent and child is not easy. But you wouldn’t hesitate to encourage them to get nursing care to aid an aging body. Similarly, helping them devise a well-constructed estate plan can shore up financial health.


Parents still getting A+ checkups from their doctor? That’s probably an even better time to broach the subject, before the stress and worry that comes from debilitation or illness distracts everyone from long-term planning. And since, in many cases, people don’t understand or acknowledge when they have become incapacitated, it’s better to formalize their wishes now before they could become targets of people who don’t have their best interests at heart.


So, let’s take stock of where we are. Assuming your parents can still make decisions for themselves, the first question is: Do the parents have an estate plan and, if they do, does it reflect their current wishes? Estate plans are often a snapshot of a specific time in our lives. But the people or the projects that were once priorities may not be the top priorities today. Plans to fund college educations and weddings may now be replaced with paying for private school tuition for grandchildren or a late-in-life philanthropic interest. Estate plans should be refreshed regularly to reflect a current picture of financial goals and values.


The two key documents in estate planning are a durable financial power of attorney and a health care directive. A financial power of attorney, which enables an agent chosen by a parent to make certain financial decisions on behalf of that parent, must be durable so it can remain valid after a parent’s incapacity. The health care directive provides the same authority for medical decisions. It should also contain the parent’s living will to spell out end-of-life preferences.


Next, make sure that the parents have a revocable, or living, trust. Like a will, a trust provides heirs with a roadmap to how an individual wants their assets distributed. But unlike wills, trusts don’t have to go through the probate courts, making the transfer of assets easy, efficient and private. Next, encourage parents to designate successor trustees. Typically, each spouse will choose the other as their fiduciary. If they are close in age, it makes sense to have a backup — in case they pass away or become incapacitated at around the same time.


Once these documents are in place, it could make sense to put in place a gifting strategy that could reduce the parent’s taxable estate. This strategy includes: 


 

  • Annual exclusion gifts: Each year, an individual can give $15,000 each to as many people as she likes, without cutting into her lifetime exemption. For example, if the parents have three children, and each of them has a spouse and three children, two years of exclusion gifts would reduce the taxable estate by $900,000.

  • Paying tuition or medical expenses directly to an institution: As long as certain requirements are met, these prepayments are not considered a taxable gift. (Note: these payments are not refundable under any circumstances.)

If a child is already paying for any portion of the parent’s care or living expenses, she needs to make sure the support is structured using tools like special needs trusts or Medicaid-qualifying trusts that don’t disqualify the parent from receiving state or federal benefits. And it’s worth it to review the child’s own estate planning documents in the slight chance she will pass away before they do.


As society ages, the issues of elder care and responsible estate planning will be faced by a growing number of people. According to research from the University of Southern California, financial abuse, as alleged in the Stan Lee case, is the most common form of elder abuse. Once a parent is no longer able to think clearly, this sort of abuse can come from caregivers, family members or even advisors.


Stan Lee died in November 2018, but questions surrounding the disbursement of his estate persist. Starting a dialog with parents and helping them set up a proper estate plan can be a vaccination, of sorts, that can help everyone avoid making the pain worse. By starting a dialogue with parents and helping them set up a proper estate plan, children could help insulate them from elder abuse down the line.


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