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Estate planning for one's elderly parents

It is quite common for individuals to start thinking about building an estate plan once they have children, as they naturally begin to consider who will manage the assets left to the children and who will act as guardian in the event of untimely death.

However, adults caring for both children and for elderly parents are increasingly wondering what would happen to their parents if they should predecease them. Should they include their parents in their estate plan as beneficiaries along with their children? And if so, how?

There are various options for adult children caring for elderly parents. Two simple ways to do this are to assist your parents during your lifetime by taking advantage of the annual gift tax exclusion amount. This allows you to make yearly gifts up to $13,000 per person, to any number of people without worrying about gift tax.

Another way to help parents is to pay their medical expenses directly to the medical provider. These gifts are not taxable.

Another option is to set up a trust in your will to provide for your parents in case they outlive you. One can set up the trust so that the remainder will then flow back to your children once your parents are gone. The trust may also be set up to provide the trustee discretion to terminate the instrument down the line and distribute the remains among your children.

Yet another option is to set up trusts during your lifetime to make periodic payments to your parents over and above the $13,000 annual exclusion. One example of this would be grantor retained annuity trusts. In this type of trust, one makes a donation to the trusts and receives an annual payment for a fixed period of time. At end of the term, any appreciation can be passed to a beneficiary as a tax-free gift. Elderly parents would qualify as beneficiaries. If you die before the term ends, the value of the trust would go to your parent.

If one leaves outright gifts to a parent, one must be careful not to leave gifts that would disqualify them from government benefits they wish to continue receiving.

There are other strategies to ensure that your parents will be adequately cared for in the event of an untimely death. It is important to work closely with an estate planning attorney to ensure that your financial and family goals are met and that you set up the most efficient and cost effective estate plan possible.

Source: Forbes, "Your Parents As Beneficiaries of Your Estate," Ashlea Ebeling, 31 Jan 2011.

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