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Looking after the needs of growing children is hard enough. Add that to the demands of caring for aging parents, and the responsibilities of the so-called "sandwich generation" can be overwhelming, particularly when it comes to the issue of estate planning.
Concerns such as day-to-day care, health needs, and other critical
issues aside, it's essential that adults with both young and old family
members to care for address a number of estate planning issues.
That way, no generation's happiness or well-being need be compromised at the expense of another's:
The first and perhaps most critical issue is to obtain durable power of attorney from your parents. That way, you have access to their assets to pay for doctor, nursing home, or hospital expenses in the event that they're incapable of doing so. It also allows you to make
legal and financial decisions (some broad power of attorney arrangements allow you to set up trusts and other sorts of financial arrangements).
Asking for power of attorney can be a delicate issue, but it's
central to maintaining control later on. When talking with your
parents, financial pros suggest emphasizing that power of attorney will
let you take proper care of them should you have to. Of course,
implementing important estate planning steps is easy if your parents
remain in good health, but power of attorney covers you in the event you have to make choices without their input.
Depending on the circumstances, consider buying long-term
care insurance. This covers the expense of nursing homes and other
types of elder care. The earlier you can get coverage, the lower the
premiums will be--for instance, a person aged 55 and in good health
should expect to pay about $1200 a year for long-term care insurance.
This buys the equivalent of $100 a day in nursing home expense coverage.
However, it's important to bear two caveats in mind. First,
the older your parent, the more the insurance will cost. For instance, a 64-year-old in good health would pay close to $2,000 a year for $100 a day in long-term care coverage.
Coverage becomes all the more costly if an illness is
involved. For example, a person with diabetes can expect to pay
anywhere from 25-50% more in premiums than a comparably aged
person in good health.
If your parents' estate is worth $675,000 or more, consider
setting up a bypass trust. (Unlike other steps, this must be done by
your parents' choice and not by power of attorney, since a bypass trust
involves changing a will). A bypass trust stipulates that, when the
first spouse dies, his or her share of the assets go into a trust, which the surviving spouse can use as needed. Then, once the other spouse passes away, all assets pass to heirs free of estate taxes, thanks to a one-time exemption. Not only can this skirt heavy estate taxes, but it also provides a source of income should the surviving spouse need it.
By the same token, don't overlook gifts from members of the
older generation as another way to avoid estate taxes. The law allows
annual gifts of up to $10,000 in either cash or property. Each family
member is eligible for a $10,000 gift and the transfer occurs tax-free.
Avoid the old strategy of spending down your parents' assets
so they can qualify for Medicaid (that usually meant spending all but
$2,000 of your folks' assets). New governmental regulations have made
it much more difficult to empty the bank to qualify for Medicaid.
Instead, seek out an attorney specializing in elder law to determine how your parents can qualify for federal and other sorts of assistance.
Finally, amid all your planning for your parents and
children, don't overlook the importance of making out your own will.
Estimates hold nearly three-quarters of Americans don't have wills and,
should you die without one, the state can step in to distribute your
estate.
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