Klitzman Law Group, PLLC

When Should You Start Claiming Social Security Benefits?

“Franklin D. Roosevelt signed the Social Security Act in 1935, creating the federal agency behind the benefits. Two years later, the first social security taxes were collected, and regular ongoing monthly benefits began in 1940.”

Social Security has helped generations of Americans. The intent of the program was to provide workers with income to supplement their retirement pensions. Through the years, reports The Crozet Gazette, the program has changed and now provides benefits to disabled workers, spouses and children of beneficiaries. The article, “When Should I Start Taking My Social Security Checks?” says that more than 62 million people receive benefits, making it one of the most used social benefit programs.

Over the years of working and paying taxes into the system, a working person receives a monthly benefit for life, with a COLA (Cost of Living Adjustment) being the only adjustment. Forty “work credits” are needed to be eligible for the program, which is about 10 years of work for most people. Benefits vary, depending upon the earnings of the individual and the number of years they paid into the system. The maximum benefit in 2019 would be $3,770 per month, although most payments range from $800 to $2,400, according to the Social Security Administration.

To receive the full amount, the worker must wait until FRA (Full Retirement Age) to collect benefits. Depending upon the year of birth, FRA can be age 65, 66 or 65. However, workers can take benefits as early as age 62 or as late as age 70. If benefits are taken early, the monthly amount is lower, and that can not change. The later benefits are claimed, the higher the monthly benefit will be.

The question to which there is no single answer, is when to start collecting benefits.

The first issue is if the person needs income and there are no other sources. Many people begin collecting Social Security early, because of unwanted early retirement. They are let go from their jobs and have a hard time finding another position. Another consideration is health. If someone has a chronic illness or a serious illness and they don’t expect to live a long time, it makes sense to take the money earlier.

What most people are looking for when they ask about the timing of benefits is a “break even” age. However, that is an inexact science. Unexpected events happen, so while the numbers may work at one point in time, life circumstances may happen, which makes those numbers useless.

Keep in mind that Social Security benefits may be taxable. Therefore, if you are still working, it makes sense to delay taking benefits.

There are varying opinions on what the future of Social Security will look like. In fact, 2018 was the first year since the 1980s when the program paid out more in benefits, than it received in tax revenue. Congress can authorize funding to address demographic shifts that will impact the trust assets. Social Security was designed as a supplement for worker pensions and not to be the sole income source, so retirement planning should include but not depend upon Social Security.

Reference: The Crozet Gazette (April 5, 2019) “When Should I Start Taking My Social Security Checks?”

 

Estate Planning with Loved Survivors In Mind

There are several major considerations that need to be evaluated before any provisions in the trust document are drafted with the requisite language outlining the rights of the spouse that has been left alone.”

There is a strong need for clarity regarding the rules about what happens when a spouse from a second marriage, who is not an owner of the home, wants to remain in the home after the death of the owner. A kind-hearted practice is to allow the surviving spouse to remain in the home and enjoy the memories the couple shared, says The Union in the article “Estate planning from the heart.”

Giving the surviving spouse the ability to remain in the home, honors the relationship of the spouse with the decedent. It is an act of kindness. However, it does need to be made legally enforceable, in case there are any challenges. Several considerations need to be evaluated in the estate plan:

Can the surviving spouse manage the cost of the home? This may include a monthly mortgage payment, property taxes, homeowner’s dues, insurance, yard upkeep, interior and exterior maintenance and any repairs that are needed to keep the home working.

Another concern is whether the surviving spouse will continue to be able to maintain the home in the immediate and distant future.

The surviving spouse’s health, including physical and mental abilities, needs to be considered. Will the survivor be able to manage if dementia strikes, or if they are afflicted by a serious illness and left in poor health? All of these challenges need to be considered, when drafting language regarding the rights of a person to remain in the decedent’s home. For instance, if a person is not mentally competent to live on their own, health problems or the declining condition of the property may arise.

A standard of care needs to be made regarding home maintenance and update. It may get very specific, including details like pet care and clean-up, internal cleanliness, the presence of roommates or boarders and an annual or semi-annual inspection to be sure that the home remains in good condition.

The most common problem for a surviving spouse is the financial ability to remain in the home and pay the bills. One solution may be to permit the survivor to stay in the house for two years, creating a trust that can support the cost of maintaining the home during the hardest period of mourning. This gives the surviving spouse time to recover and adjust to the loss.

If the surviving spouse does not have the mental capacity to remain in the house, the choices are difficult. Ideally, both spouses are involved in planning for this possibility, long before the owner of the property dies. There is nothing pleasant or easy about this. However, it must be done. Ignoring it, makes a bad situation worse. Will the person need care, how will that care be paid for, etc.? Don’t leave it for the family to manage.

In the case of a second marriage, leaving the house to an individual who does not have the ability to manage it, creates a difficult situation, unless the decedent is able to leave enough assets in trust for the surviving spouse to maintain the home. There should be no assumption of the ability of the surviving spouse to care for the home, as an unexpected illness or accident could make a person who is healthy at the time of the signing of the agreement, change to one who needs a great deal of help.

The key to a surviving non-owner spouse is to address the “what-if’s” early on, in the context of the estate plan. A plan should be put in place, which may involve trusts or other estate planning tools, to allow the surviving spouse to remain in the home, if that is the couple’s wish, and a plan “A,” “B,” and “C” for the unexpected events that occur in the course of aging.

An estate planning attorney will be able to create a plan that makes sense for the spouse, the surviving spouse and the heirs. A family meeting will be helpful to ensure that everyone involved knows what the plan is, so there are no misunderstandings, and all can act from a place of kindness.

Reference: The Union (April 7, 2019) “Estate planning from the heart”

 

Want Guaranteed Income, while Putting Off Benefits?

“In some situations, financial advisors will shift some of a client’s assets to a single premium immediate annuity, so they can put off tapping Social Security.”

It’s a conflict faced by pre-retirees: they are still working full time, but that’s going to end soon. They will need income, but they want to delay taking their Social Security benefits for as long as possible. There are assets in place, but what about volatile markets? One option is to look to the world of annuities, says CNBC’s article “Here’s one way to get guaranteed income while delaying Social Security.”

If assets are available, some financial advisors recommend that rather than taking gradual amounts out of retirement accounts, including IRAs, 401(k)s, pensions, savings, etc., the money be used to purchase a single premium immediate annuity, also known as a SPIA.

Annuities offer guaranteed income, either for a set time period or for life, vary widely in their features and can be tricky to understand. They’re also expensive. Annuities are also polarizing — people either hate them or they love them.

SPIAs are a bit more straightforward than other annuities. They make up only a fraction of annuities sold every year, $9.7 billion versus $233.7 billion last year, as reported by the LIMRA Secure Retirement Institute.

The SPIA may be part of the retirement income puzzle, but there are cautions from financial advisors. For one thing, it’s a place to secure a payout over a period of time and not a tool for asset growth.

In exchange for guaranteed income over a set period of time, which could be for the rest of your life, you hand over a lump sum to an insurance company. There’s no set up fee, and it comes with no annual expenses. However, once the transaction is done, you can’t get your money back. You have an income stream, but that’s it. If you or a family member have an emergency, you have no flexibility to get that money back. There are rare exceptions, where insurance companies allow for a limited emergency withdrawal.

The annuity’s income is taxed. Therefore, if you use the money from a tax-deferred account, like an IRA or 401(k), you’ll pay taxes on the income as you receive it over the life of the annuity. If the funding comes from sources that are not tax advantaged, you’ll pay taxes only on the portion of the SPIA that was not taxed through what the insurance company calls an exclusion. Don’t forget that liquidating funds from a brokerage account will generate tax liabilities.

Some financial advisors recommend going with an old-school Certificate of Deposit (CD) instead, or U.S. Treasury bonds, which are backed by the government. The yields are low, but they are secure.

Who is the best candidate for a SPIA? It is for someone who simply cannot manage their money and are best having it be given to them in a highly controlled monthly fashion. In this way, it can protect some people from themselves in retirement.

Reference: CNBC (April 4, 2019) “Here’s one way to get guaranteed income while delaying Social Security”

 

Spring is Financial Cleaning Season

“Invest in a good shredder to destroy sensitive personal information to protect against fraud or identity theft.”

It’s time to clean out, tidy up and purge our homes of things we don’t use, don’t need and haven’t worn in five years. This is also the season where we gather up all of our financial documents and do our taxes, says The Press Enterprise in the article “Add this to Kondo-spring cleaning list: Organize your finances.” While cleaning out paperwork may not feel as rewarding as piling up clothing to donate to a local charity, the time and energy saved will be appreciated in years to come.

Start by making a monthly payment schedule with company name, due date and amount due. Include estimated taxes, property taxes, insurance premiums and any other bills that you receive on a routine basis. Use this to help budget and plan for the coming year.

Set up electronic bill paying through your bank for recurring bills. You can make your mortgage payments, insurance and all predictable expenses occur automatically. Keep all paper bills that arrive by mail, like property tax and insurance premium notices, until they are paid.

Schedule a set time to pay your bills. That may be weekly, biweekly, or monthly, but make an appointment for yourself and stick to it. During this time, review your monthly payment schedule, review statements for accuracy, pay and then either file or toss.

Set up systems for your important documents. Don’t just stuff them in a file cabinet. Use a manual filing system, a three-ring binder, electronic scanning and storage or a combination of a few different methods. If you go all digital, make sure you have an encrypted and automatic back-up system.

If you don’t already have one, open a safe deposit box or purchase a highly-rated fireproof safe to store documents like birth certificates, marriage licenses, deeds, car registrations, estate planning documents and passports. Tell family members where these documents are located and provide instructions so they can be accessed in an emergency. In addition to yourself and your spouse, give a family member the ability to access your safe deposit box.

Consolidate your accounts. If you have more than one checking, savings, retirement or brokerage account, try to simplify your life by combining like accounts. Fewer accounts mean fewer statements, less paperwork and less hassle, when filing taxes.

The same goes for credit cards. If you can’t close cards because of outstanding balances, create a spreadsheet of outstanding balances, the interest rates you are paying and payment dates for each. Get serious about paying them off, attacking the ones with the highest interest rates first.

If you haven’t reviewed your estate plan or your beneficiary designations, review all your accounts and estate planning documents. This is a good time to make an appointment with your estate planning attorney, especially if you haven’t reviewed your estate plan in three or four years.

Reference: The Press-Enterprise (March 30, 2019) “Add this to Kondo-spring cleaning list: Organize your finances”

 

Retirement Benefits Disappeared? Here’s Help

“No one wants to lose money, particularly for retirement. However, it happens — people lose track of, or don't know they have, retirement accounts.”

It’s not that hard to lose track of accounts, especially if you change jobs or move around a lot.

Sometimes companies change their names, or are sold, and people can’t find them. Some people may not even know that they were automatically enrolled in a 401(k) plan, according to the article “Finding lost retirement benefits” from Albany Times Union. There are also employees who leave in a huff and never complete paperwork. How many HR directors have the time or resources to track down former employees?

There’s no exact number for how many unclaimed benefits there are, but a report released by the GAO (Government Accountability Office) reports that more than 25 million people left at least one retirement plan behind, when they left a job in the years between 2004-2013. Could one of those people, be you?

Here’s what you need to know to start looking for lost retirement accounts:

Start digging through your old files. Depending on how you keep your records, that may mean cracking open the filing cabinets that have been stored in the basement for the last 20 years, or the stack of the stuff you’ve been meaning to file that just keep growing. You might find some clues in old tax paperwork, employment related documents or the folders you received when you started working in a new job, filed and forgot about. If the company has been bought and sold a few times, this may take a while, even if you do finally locate the original paperwork.

Contact your old employer. If you cannot find the company, then try the Department of Labor website for Form 5500 filings. This form would have contact information for the plan. The DOL also has the EBSA — Employee Benefit Security Administration — that offers help over the phone. On the website, you’ll find a searchable database for abandoned pension plans.

There is a federal agency in charge of insuring private-sector pension benefits–the Pension Benefit Guaranty Corp. The PBGC has reported that more than 80,000 people who earned a pension have not yet claimed it, and more than $400 million is waiting for them. The pension amounts range from twelve cents to almost a $1 million.

Check your state’s Unclaimed Property division. Each state has its own database, and there’s also a website called missingmoney.com that was created by the National Association of Unclaimed Property Administrators.

Contact the Social Security Administration. The SSA might provide a notice alerting you to potential benefits, when you are ready to claim your Social Security benefits. However, this is only a notice, and does not guarantee that the funds are still there.

Another source to contact is the U.S. Administration on Aging’s Pension Counseling and Information Program, which provides legal assistance at no cost.

A word to the wise, is to keep track of all accounts through your employer with a system of either paper or digital files. If you leave a job, make sure that you have all the necessary documents about all of the benefits offered. If you don’t get to this task until a few months into a new job, that’s okay too — just as long as you get to it before too much time goes by.

Reference: Albany Times Union (March 30, 2019) “Finding lost retirement benefits”

 

What’s the Best Way to Pass the Family Vacation Home to the Next Generation?

“Before gifting a holiday property, an individual or couple (who can gift up to $22.8 million against their lifetime estate-tax exclusion through 2025), should find out whether their children want it.”

The generous exclusion that allows wealthy individuals to gift up to $11.4 million and not get hit with federal estate taxes, came from the Tax Cut and Jobs Act of 2017. However, it’s not expected to last forever, according to the article “What to Know When Gifting the Family Vacation Home” from Barron’s Penta. Those who can, may want to take advantage of this window to be extra-magnanimous before the exemption sunsets to about $5 million (adjusted for inflation) in 2025.

At issue for potentially giving, is that when someone transfers property, the recipients must account for it, according to the original price paid for the property. This is known as the basis. For example, shares of stock valued at $5 million today that were originally purchased for $1 million 10 years ago, would be subject to income taxes only on $4 million, if the recipient were to sell the stock.

Advice given to wealthy individuals is to make use of that higher estate tax exclusion while it’s still in place, and that may include property that they expect to gift to beneficiaries. The most likely asset would be the family vacation home, whether it’s a ski chalet or a beach house.

First, make sure your children want the property. There’s no sense going through all the processes, unless they plan on enjoying the vacation home. Next, figure out the best way to gift the home, while making the most of the high exclusion.

A nice point: you won’t have to give up the use or control of the house during this process. Experts advise not making an outright gift. This can lead to less control or the loss of a share to a child’s spouse, in the event of a marital split.

Another option: transfer the property into a trust. There are several kinds that would work for this purpose. Another is to consider a Limited Liability Corporation, which also serves to protect the family’s assets against any claims, if someone were to be injured on the property. The parents would transfer the property into the LLC and give children interests in the company.

A fairly common structure for vacation home ownership is called a Qualified Personal Residence Trust (QPRT). These are used by families who want to retain the right to continue using the home, usually for the rest of their lives. The property is transferred to the designated beneficiaries at death. If it is set up properly, a QPRT avoids any income or estate taxes.

A trust also lets an individual or a couple be very specific in how the property will be used, who can use it and any rules about how they want the home maintained. Making sure that a beloved family vacation home is well-cared for and not rented out for college parties, for instance, can provide a lot of comfort for a couple who have poured their hearts into creating a lovely vacation home.

Speak with an experienced estate planning attorney to learn how you can take advantage of the current federal estate tax exemption to pass your family’s vacation home on to the next generation.

Reference: Barron’s Penta (March 31, 2019) “What to Know When Gifting the Family Vacation Home”

 

Should My Estate Plan Include a Trust?

“Many investors have an idea how they would like their assets distributed upon their passing. However, they are not sure of the best way to do so. Trusts are entities that ensure money and assets are handled according to the grantor’s instructions, keep the estate and its dealings private, and can be structured to a specific need.”

There are as many types of trusts, as there are reasons to have trusts. They all have benefits and drawbacks. What type of trust is best for you? The answer is best discussed in person with an estate planning attorney. However, an article from U.S. News & World Report titled “8 Things to Know About Trusts,” gives a good overview.

Revocable or Irrevocable? Revocable trusts are usually established for a person (the grantor) during their lifetime, and then pass assets to the named beneficiaries, when the grantor dies. The revocable trust allows for a fair amount of flexibility during the grantor’s lifetime. An irrevocable trust is harder to change, and in some cases cannot be changed or amended. Some states do allow the option of “decanting” trusts, that is, pouring over assets from one trust to another. You’ll want to work with an experienced estate planning attorney to be sure trusts are set up correctly and achieve the goals you want.

Trusts can protect assets. Irrevocable trusts are often used, when a grantor must go into a nursing home and the goal is to protect assets. However, this means that the grantor no longer has access to the money and has fundamentally given it away to the trust. Putting assets into an irrevocable trust is commonly done to preserve assets, when a person needs to become eligible for Medicaid.  The trust must be created and funded five years before applying for benefits. Irrevocable trusts can also be used to obtain veteran’s benefits, if they are asset-based. VA benefits have a three-year look-back period, as compared to Medicaid’s five-year look-back period.

Trusts can’t own retirement accounts. Trusts can own non-retirement bank accounts, life insurance policies, property and securities. However, retirement accounts usually become taxable immediately, if they are owned by a trust, except in certain limited circumstances.

Trusts help avoid probate after the grantor’s death. Most people think of trusts for this purpose. Assets in a trust do not pass through probate, which is the process of settling an estate through the courts. Having someone named as a trustee, a trusted family member, friend or a financial institution, means that the assets can be managed for the beneficiaries, if they are not deemed able to manage the assets. Another good part about trusts: you can direct how and when the funds are to be distributed.

Trusts offer privacy. When a will is filed in the courthouse, it becomes part of the public record. Trusts are not, and that keeps assets and distribution plans private. A grantor could put real estate and other personal property into a trust and title of ownership would remain private.

Tax savings. Before the federal estate tax exemptions became so high, people would put assets into trusts to avoid taxation. However, state taxes may still be avoided, if the assets don’t reach state tax levels. You can also transfer funds into an irrevocable trust to transfer it to others, without making it become part of a taxable estate. This is something to discuss in detail with an estate planning attorney.

Work with an experienced trusts and estates lawyer. Trusts and their administration can be complex. Seek the help of a trusts and estates attorney, who will be able to factor in tax liability and the impact of the trusts on the rest of your estate plan. Remember that every state has its own laws about trusts. Finally, an estate plan needs to be updated every few years. For example, trusts that were set up for a far lower federal estate tax exemption several years ago are now out of date, and may not work to achieve their intended goal. The laws changes, and the role of trusts also changes.

Reference: U.S. News & World Report (March 29, 2019) “8 Things to Know About Trusts”

 

Retirement Planning Mistakes that Can Be Fixed and Those that Can’t

“Retirement planning mistakes — especially the ones you can’t correct — can be costly. However, some are correctable. Here are three that can be fixed, experts say.”

Mistakes that can be fixed are a wonderful thing. We learn from them, and hopefully we don’t make the same mistake twice. However, in the case of retirement planning, there are mistakes that can’t be fixed, says USA Today in the article “Social Security, IRA and tax mistakes to avoid when planning retirement” and happily, there are mistakes that can be repaired before too much damage is done.

Here are the fixable mistakes:

Getting your buckets mixed up. You may have heard of the planning model that uses buckets to help you get focused. The money you save for retirement is either in a taxable, tax-free or tax-deferred bucket. When people get to the end of the year or into tax season, they tend to focus on putting money into tax-deferred accounts, especially if they are over 50 and making catch-up contributions. However, it might be better to put money away in taxable or Roth IRA accounts.

A Roth account will let you withdraw money tax-free. A taxable account may also let you withdraw money at good tax rates for capital gains and dividend income.

In 2019, the annual IRA contribution is $6,000, or if you’re 50 and over, $7,000. The annual contribution for a 401(k) limit and other employee plans is $19,000 or $25,000, if you’re 50 and older.

You may need the tax savings later, when tax rates may be higher, more than you need it now.

Another fixable mistake: your HSA (Health Savings Account). Contributions go in and out of HSA accounts tax-free, if they’re used for qualified medical expenses. The money also grows tax-free in those accounts.

Making your Social Security plan. There are smart ways to take Social Security benefits, and there are not-so-smart ways to take Social Security benefits. How can you figure out what works best for you? Ask for help from the people who know. That includes your CPA, estate planning attorney and financial advisor. You should also talk with the people at Social Security. If you can delay taking benefits until FRA (Full Retirement Age), your monthly benefit will increase up to age 70. Should you withdraw money from your IRAs before taking Social Security? It all depends on your retirement savings. However, withdrawing money from your IRA now, would reduce future tax bills on the RMDs (Required Minimum Distributions) that begin at age 70½. Those distributions are taxed as ordinary income. If you’ve got large IRAs, RMDs might push you into a higher tax bracket.

Tax planning for the long-term. Do you stop thinking about taxes the minute your annual taxes are filed? Most people do but that’s a mistake. Instead, start thinking about tax planning. Experts say consider the amount of taxable income over the next five to 15 years. Once you have a general idea of what that will be, start figuring out how you’ll avoid launching yourself into a higher tax bracket. There are many different tax strategies, and your estate planning attorney and CPA will be able to help with tax planning. However, there are also two fairly straightforward ones you can put into place yourself.

First, tax harvesting. This involves selling investments at a loss, when you are in high-income years and selling investments that produce capital gains in low-income years. For instance, use a capital loss as an offset to ordinary income (up to $3,000 per year). If you have more than $3,000, it becomes a carry-over to future tax years. Selling investments that produce capital gains in a low-income year might make the difference between paying taxes at 15% instead of 20%, or even 0% rather than 15%. Check with your tax professional.

Next, using IRA or Roth IRAs. If you qualify to contribute to a traditional IRA in high-income years and a Roth IRA in low-income year, you get the best of both worlds. The first will let you reduce your AGI (Adjusted Gross Income). The second will let you reduce your future tax bill.

Planning for taxes as part of retirement, making smart Social Security decisions and making sure to save in the right tax bucket can make a difference. Make sure you work with qualified professionals and, if you can, get it right the first time.

Reference: USA Today (March 30, 2019) “Social Security, IRA and tax mistakes to avoid when planning retirement”

Wills v. Trusts: What’s Right for You?

“While we are young, many of us neglect to consider what will happen to our family and property after we pass away. Youth gives us the illusion of invulnerability, but the truth is that tomorrow is not promised to anyone.”

It’s a good idea to take the time and make the effort to create an estate plan to take care of your estate — no matter if it’s a condo apartment and a housecat or a big house and lots of money in the bank — just in case something unexpected occurs tomorrow. That’s the advice from AZ Big Media in the article “The pros and cons of wills vs. trusts.”

Estate planning is the area of the law that focuses on the disposition of assets and expenses, when a person dies. The goal is to take care of the “business side” of life while you are living, so your family and loved ones don’t have to pick up the pieces after you are gone. It’s much more expensive, time-consuming and stressful for the survivors to do this after death, than it is if you plan in advance.

You have likely heard the words “trust” and “will” as part of estate planning. What are the differences between the two, and how do you know which one you need?

A will is the most commonly used legal document for leaving instructions about your property after you die. It is also used to name an executor — the person who will be in charge of your assets, their distribution, paying taxes and any estate expenses after you die. The will is very important, if you have minor children. This is how you will name guardians to raise your children, if something unexpected occurs to you and your partner, spouse or co-parent. The will is also the document you use to name the person who you would like to care for your pets, if you have any.

Burial instructions are not included in wills, since the will is not usually read for weeks or sometimes months after a person passes. It’s also not the right way to distribute funds that have been taken care of through the use of beneficiary designations or joint ownership on accounts or assets.

Another document used in estate planning is a trust. There are many different types of trusts, from revocable trusts, which you control as long as you are alive, and irrevocable trusts, which are controlled by trustees. There are too many to name in one article, but if there is something that needs to be accomplished in an estate plan, there’s a good chance there is a special trust designed to do it. An estate planning attorney will be able to tell you if you need a trust, and what purpose it will serve.

Trusts can be used by anyone with assets or property.

A will can be a very simple document. It requires proper formats and formalities to ensure that it is valid. If you try to do this on your own, your heirs will be the ones to find out if you have done it properly.  If it is not done correctly, the court will deem it invalid and your estate will be “intestate,” that is, without a will.

A trust won’t eliminate taxes completely, nor will it eliminate the need for any estate administration. However, it will make passing most assets to another person or another generation easier. Your estate planning attorney will be able to guide you through this process.

Whether you use a will or a trust, or as is most common, a combination of the two, you need an estate plan that includes other documents, including power of attorney and health care power of attorney. These two particular documents are used while you are living, so that someone you name can make financial decisions (power of attorney) and medical health decisions (health care power of attorney) if you should become incapacitated, through illness or injury.

Speak with an estate planning attorney. Every person’s situation is a little different, and an estate planning attorney will create an estate plan that works for you and protects your family.

Reference: AZ Big Media (March 21, 2019) “The pros and cons of wills vs. trusts”

 

What a Durable Power of Attorney Can Do

“In some cases, the parent may have only nominal limitations. In others, a parent may be fully incapacitated. A parent may be mentally capable of handling any situation and physically capable of handling most.”

Helping aging parents with daily tasks can become a challenge, if the parent has limited mobility. A trip to the bank, for example, will require coordinating the adult child’s responsibilities with the aging parent’s limitations. If the parent has more energy in the morning, for instance, but the adult child is working, this can become a bigger challenge than if the adult child can go to the bank on behalf of the parent, when it’s convenient for them — at a lunch break, for instance.

In this situation, as noted in The Daily Sentinel’s article “Tools to help your aging parent,” having a durable power of attorney will help. This type of power of attorney is a legal document that permits a child or other named individual to handle certain responsibilities, like banking. Granting a power of attorney to a child doesn’t mean giving up total control, which is often a concern of aging parents. It simply means that the child is now legally allowed to handle these tasks.

The durable power of attorney is different than the “general medical power of attorney.” As implied by its name, this is limited to making decisions about the parent’s health care and is usually used only when the parent is not able to make these decisions on their own.

There are more serious situations, where neither of these types of power of attorney is enough, such as when the parent lacks capacity because of dementia or a medical decision. It is necessary to protect the parent from themselves or anyone who might try to take advantage of their lack of clear mental capacity. This may require that an adult child needs to be appointed as a guardian for their parent.

Being appointed a guardian can be a very emotional event, since the parent and child are not just switching emotional roles, but legal roles. The parent no longer has the capacity to make significant decisions, because a court has found that they no longer have that ability.

You may have heard the term “conservatorship” used. It is similar to guardianship, except that the conservatorship only allows for control over the parent’s financial affairs.

Guardianship is taken very seriously, as it should be. This removes an adult’s right to make any kind of decision on their own. In some states, including Colorado, the court must first be convinced that the parent is unable to effectively receive or evaluate information or to make or communicate decisions. They must be deemed incapacitated, before guardianship can be established. Once that standard has been met, then guardianship is established. If there is a doubt about incapacity, then no guardianship will be established, and the family is faced with finding other ways to help the aging parent.

Aging parents and their children face many issues that are best addressed before incapacity becomes an issue. If the family does not have a plan for the aging parent’s care, it is recommended that the family make an appointment with an estate planning attorney to discuss the various options.  

Reference: The Daily Sentinel (March 24, 2019) “Tools to help your aging parent”