Articles of Interest: Featured Articles

What Did You Tell Your Parents

Would you recommend this to your parents? It’s a question that the child of a client asks when she does not fully understand what you are suggesting but wants to make the right decision for her parent. The thought being, if I would recommend it to my parents, the advice must be appropriate.

Most of my practice involves planning for future events. I help people plan for their potential future disability or for the orderly distribution of their assets after their passing. I help people plan for potential Medicaid eligibility if they require long-term care in the future. Because I am planning for future events, some of which may never occur, my advice can never be flawless. Life has a way of throwing all of us a curve ball.

But there are certain pieces of advice that I give to many of my clients, including my parents. Some pieces of advice have a universal application, meaning that all clients should heed the advice without exception. Some pieces of advice are only suggestions, because the advice deals with future events that may or may not occur.

In the first category of advice is estate planning documents. Almost without exception, I recommend that clients have a last will and testament, a power of attorney, and an advanced health care directive. And, yes, I drafted these documents for my parents.

A last will and testament is a document that has a primary purpose of directing to whom your assets will pass after your death. It is of significant importance that you name the individuals who will receive your assets after your death. Furthermore, when you have a Will, you are not only providing for the orderly disposition of your assets, you are also making the distribution of your assets less costly.

Through your Will, you can name an individual, your executor, to handle the affairs of your estate. By naming an executor, you save your estate money by providing a preordained individual who will handle your affairs.

A general durable power of attorney is something that almost every person over the age of eighteen should have. Once you attain the age of eighteen, no one else can make decisions for you, not your spouse, not your children, no one. So, if you were ever mentally incapacitated, no longer capable of handling your affairs, no one else would be able to help you. Someone in your family would need to become your guardian.

A guardianship is a costly court procedure. Unlike a power of attorney, which costs less than $200, a guardianship frequently costs $4,500 or more.

An advanced health care directive is a document that allows someone else to make health care decisions for you and to access your medical information. Like a power of attorney, an advanced health care directive is something that almost everyone should have.

In the second category of advice are documents that I think advisable for many clients but that do not have the universal application as the estate planning documents that I mentioned. For instance, I have advised my parents to transfer an interest in their home to an irrevocable trust retaining for themselves the right to live in their house for the remainder of their lives.

By doing this, my parents have protected their house against potential long-term care costs. My siblings and I are the beneficiaries of the trust. Yet, by transferring the house into an irrevocable trust, the house is protected against potential pitfalls that my siblings or I may have.

For instance, if any one of us is sued or dies before my parents, the trust insulates my parents’ house from these personal problems. The Trust also offers income tax benefits. By transferring the house into the trust, my parents are retaining the $500,000 exclusion from gain on the sale of the house, if they ever sell the house in the future.

Unlike a power of attorney, however, a deed transfer and trust are not for every client. Simply stated, some people do not want to give away their property. My parents didn’t mind, but your parents might.

So, while I might give a piece of advice to my parents, your parents don’t know me the way my parents do.