Today, many people are living longer, but that means the “sandwich generation” (i.e., the generation of people responsible for taking care of both their children and their aging parents) is growing. Many children of aging parents struggle with the idea of when to approach their parents about a plan for their senior years. Oftentimes, aging parents themselves are uncomfortable with the role reversal and hesitate to initiate conversations.
Many parents have already determined, through an estate plan, how their assets will be dealt with in the event of their death. The issue to consider next is how to ensure things are taken care of if your parents have health problems. It is important to have this conversation because advanced planning can alleviate stress, and circumstances can change quickly as your parents age.
The following are things to discuss with your parents in their golden years.
Updating legal documents
Your parents should each have a durable power of attorney and a healthcare proxy. In fact, everyone over age 18 should have these documents. (See my article Three Legal Documents Your Child Should Sign When They Turn 18 for more information on this.) Should one or both of your parents need care either at home or in a nursing home, these documents will ensure that the care that is provided is in line with their wishes.
A durable power of attorney allows an agent to make financial decisions on a person's behalf, while a healthcare proxy allows someone to make medical decisions on a person's behalf.
In most cases, if your parents are married, they will have designated each other as agents. In the case of a parent who's in ill health, it is advised that you have a conversation with the other parent about different scenarios that would require him or her to make medical decisions and pay medical expenses.
It is possible, however, that there will be a scenario in which both parents are in ill health. If this is the case, a backup agent (such as one of their children) should be chosen for the power of attorney and healthcare proxy.
In other situations, spouses acknowledge that their spouse may no longer be best suited for the role and name a child as the primary designee.
Most seniors don't want to lose control of their assets, and a conversation about protecting assets through the transfer of assets is a difficult conversation to have. The best way to address this concern is to have an open and honest conversation about your parent's financial situation and the assets they would need in their control to feel financially secure.
Any assets remaining in their control could be at risk if they experience a medical event that requires long-term care in a nursing home or extensive home care. Medicaid, a government program that helps eligible individuals with medical costs, can be used to pay for nursing home care, but typically an individual is required to use all of their own assets to pay for their medical care before they are eligible to use Medicaid benefits.
To protect their assets if a medical emergency occurs, parents should consider the transfer of assets. This process works best when planned in advance:
Most parents want the majority of their assets to be passed on to their children, and they want to avoid paying estate taxes on their assets. However, before gifting assets, which may avoid estate tax, consider that it may create an income tax liability in the future for the children. Prior to gifting, thought should be given to the potential income tax consequences of gifting low-basis assets and the income tax benefits of a step-up in basis.
As a rule of thumb, it is recommended that you start having these conversations with your parents when they reach their 70s, or if you start to notice memory loss or other health conditions. Of course, you are the best gauge of your parent's physical and mental health, and only you can determine the appropriate time to initiate this conversation.
It might be uncomfortable at first, but you'll appreciate having these things worked out ahead of time as your parents age.
This article was provided by Allen Falke, originally published in Kiplinger's Personal Finance Magazine, and brought to you by the Ronald J. Fichera Law Firm, where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us today!
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.