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Baby Boomers: Will They Be Able to Afford Their Parents?

By: Lee R. Phillips

Do you worry about whether your aging parents have their "affairs in
order?" You should. After all, you’re the one who will have to pay
unnecessary taxes and endure time-consuming court procedures if your
parents don’t have an effective estate plan. Without some forethought
on their part and your part, you could be facing a lot of wasted time
and money in addition to a lot of frustration. All of the waste and
frustration can easily be avoided.

Experts predict $10 trillion will be transferred in the next two
decades from parents to baby boomers. The average inheritance will be
$200,000. The parents have spent all of their lives saving to leave
something to their family. For most boomers, their inheritance will be
the largest single financial transaction most they will ever handle.
Depending upon the planning done today, the amount actually transferred
could be doubled.

During the final years of a parent’s life, the family can lose a lot of
the estate in rest home expenses or legal fees. Too often the family
has to get a court order to have a parent declared incompetent and get
permission to manage their affairs. After both parents die, probate
will eat 2-5% of the estate, and estate taxes can take another 37-50%.
Additionally, the estate mess can take many days of time out of the
boomer’s busy life. Not only money is lost, but life styles often have
to be altered just to work through the mess.

Good planning is worth every effort made and every dime spent, not just
in the money and timesavings, but also in the peace of mind it will
give to both the parents and the kids. Boomers need to help get the
planning done. However, discussing money, especially in this context,
is very unpleasant for most families. The kids don’t want to appear
grabby or look like they are just waiting for their parents to die so
they can get their inheritance. The parents don’t want to face their
own mortality, and they don’t want the kids nosing in their financial
affairs. The bottom line is nothing gets done.

The sooner this discussion takes place the better. Everybody has to
recognize that planning is good business and financial management. The
parents have an obligation to take care of it for the children’s sake,
and the children have an obligation to help their aging parents. The
discussion will take place at some point. The worst time to have the
discussion is when a parent is in intensive care.

The following six tips will help protect a parent’s hard-earned money,
transfer the maximum amount of inheritance to the family, and ease the
family’s legal and emotional burden.

1. Review current wills and/or living trusts. Do the documents reflect
the parent’s current wishes? Have there been changes in family
relationships, such as divorces, marriages, or new grandchildren?

2. Look into living trusts. All wills that transfer property must go
through a court process called probate. Probate eats time and money –
lots of both. Today, many families use living trusts to avoid probate,
reduce legal fees, and pay the least possible taxes. Living trusts work
well, provided they are handled properly during the parent’s life. Is
the living trust being used properly?

3. Dodge family disputes. Make sure either the will or trust distribute
personal items with a list describing the item and the intended
recipient. Most states allows distribution of personal items through a
“personal letter,” which is just a list of items and their intended
recipient. The letter is not part of the will until death, and then it
essentially becomes part of the will. Thus, the letter can be rewritten
or updated as often as desired without a trip back to the attorney. The
letter must be “authorized” by the individual’s will in order for it to
be effective. If specific distribution of personal items like the shot
gun, wedding ring, and the family stamp collection is made in the
letter, family fights will be avoided.

4. Split trusts to save taxes. If mom and dad have over $1.5 million in
their estate, including the life insurance, retirement money, and
business, they should either have an individual trust for each or have
a trust that “splits” into two trusts when the first one of them dies.
This shields up to $3 million from estate taxes that eat away at a
family’s wealth.

5. Protect life insurance. Life insurance is taxed. The family doesn’t
have to pay income tax on the money they get, but the money is taxed in
the departed loved one’s estate and the IRS will routinely take up to
50% of it. A living trust can help in smaller estates, and an
irrevocable insurance trust can totally eliminate the tax in bigger
estates.

6. Solve the incompetence problem. Use a durable power of attorney to
transfer power to someone when the parent can no longer take care of
their own business affairs. The power of attorney has to have language
in it that states it will endure the incompetence of the individual
making the power of attorney. With the power of attorney, there isn’t
any need to have the parent declared incompetent and have a court
appoint a guardian. It removes a lot of frustration.

The parents need to soften up and realize that estate planning and asset protection is
something they need to talk about and be taking care of. If they cannot
do it for themselves, they need to realize that their children are the
ones that they have to turn to. The boomers need to take their parents’
estate planning very seriously. The boomers have a lot at stake – a lot of money, a lot of time, and a lot of frustration.

Article Source: http://add-articles.com

Attorney Lee R. Phillips is a nationally recognized expert in the field of finance, estate planning, and asset protection. Lee is licensed to practice law before the United States Supreme Court & also holds licenses in insurance and securities. Lee is a dynamic speaker & has spoken to over a half million people throughout United States, Canada & the Pacific Rim helping them understand the law.

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