It’s a delicate discussion, but when parents are aging, their children should find out if their parents have several basic estate planning documents in place and talk about their final wishes. If they have not done any planning, now is the time—before a crisis occurs.
The Monterey Herald’s recent article, “Financial planning: Making sure Mom is taken care of,” says to first make sure that she has her basic estate planning documents in place. She should have a will, trust, and an Advance Health Care Directive. Talk to an experienced estate planning attorney to make sure these documents fully reflect your mother’s desires. An Advance Health Care Directive lets her name a person to make health care decisions on her behalf, if she becomes incapacitated. This decision-making authority is called a Power of Attorney for Health Care, or Health Care Proxy, and the person receiving the authority is known as the agent.
Based on the way in which the form is written, the agent can have broad authority, including the ability to consent to or refuse medical treatment, surgical procedures and artificial nutrition or hydration. The form also allows a person to leave instructions for health care, such as whether or not to be resuscitated, have life prolonged artificially, or to receive treatment to alleviate pain, even if it hastens death. To limit these instructions in any specific way, talk to an attorney.
When planning for your mother’s assets she should create a living trust and then “retitle” or “align” all of her assets in the trust. Any assets that she owns alone that is not controlled by contract or deed will be subject to probate and probate court proceedings. Probate is a costly, lengthy and public process. Assets that must be aligned to avoid probate and also ensure they pass as intended include, real estate, bank accounts, annuities, IRAs, 40(k)s, life insurance, stocks, bonds, investment accounts, stock options and other employee benefits. You should conduct a full inventory of your parent’s accounts, including where they’re held and how they’re titled and continue to track the value of each account, any changes to existing accounts and new accounts. Update the named beneficiaries on IRAs, retirement plans and life insurance policies and verify that the institution has documented these changes consistent with your instructions.
Some adult children will have their parent name them as a co-trustee. Note that this will make things administratively easier for the child when helping mom while not exposing these assets to the child’s divorces, bankruptcies or law suits. One of the worst pieces of advice is to simply add a child’s name to an account as a joint owner. Jointly owned accounts will exposed to legal claims made against the child, even though the mom and the child simply “added the child’s name for convenience.” Another reason not to simply add your name to your mother’s account is if your mother has low-cost basis investment. Adding a child will be deemed a gift and result in a “carry over” basis which will cause an unnecessary capital gain taxes after the mother’s death when the assets are sold. The step-up in cost basis that assets receive at the time of death makes it better for the account to remain in her living trust with the child as a co-trustee. While this article is directed towards your mother, this can be applied to any parent and even yourself. Estate planning is an important piece of planning for lifeTM. Make sure you and your parent(s) work with an experienced estate planning attorney to make sure that no matter what happens your parent’s wishes are fulfilled.
Reference: Monterey Herald (March 20, 2019) “Financial planning: Making sure Mom is taken care of”