The “Sandwich Generation” refers to those who are currently taking care of your children and elderly parents. It may be personally gratifying to help your parents, but it also can be a time-consuming and financial burden.
How can you best handle the financial affairs of parents in the later stages of life? Incorporate their needs into your own estate plan while tweaking, when necessary, the arrangements they’ve already made. Here are some critical action steps to take to better manage your situation:
Identify key contacts. Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents, and physicians.
List and value their assets. If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. Keep a list of their investment holdings, IRAs and other retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits.
Execute the proper estate planning documents. Develop a plan incorporating several legal documents. If your parents already have one or more of these documents, the paperwork may need to be revised. Some elements commonly included in an estate plan are:
- Wills. Your parents’ wills control the disposition of their possessions and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically passes to the survivor). Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you may be the optimal choice.
- Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate, so this might save time and money, while avoiding public disclosure.
- Powers of attorney for health and finances. These documents authorize someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.
- Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies so they can act according to their wishes.
- Beneficiary designations. Undoubtedly, your parents have completed beneficiary designations for retirement plans, IRAs, and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.
Spread the wealth. If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $17,000 (for 2023) without paying any gift tax. Plus, payments to medical providers aren’t considered gifts, so you may make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amount.
If you’re part of the Sandwich Generation, you already have a lot on your plate. Please contact us if you have questions regarding your parents’ estate plans or your own. We’d be pleased to assist you during this challenging time.