Part of the sandwich generation? These 5 estate planning tips will help

A significant section of society now belongs to the “sandwich generation,” a group who takes care of both their children and also their parents. Part of this group must offer financial assistance to parents, too. Because of these adaptations, the definition of estate planning has morphed from providing primarily for one’s children to also include aging parents.

If you intend to have your parents as beneficiaries of your estate plan, be prepared to face several areas of concern. These five tips are worth exploring:

1. Plan for long-term care (LTC). You can easily spend six figures each year of LTC. None of these costs are covered by traditional healthcare policies or Medicare. Develop a plan with your parents to avoid having LTC expenses wipe out their resources. Help them fund their health care needs through LTC insurance or other investments.
2. Make gifts. An uncomplicated way to extend financial assistance to your parents is to make a cash gift to them. Should gift and estate taxes be a factor for you, take advantage of the annual gift tax exclusion, granting you a tax-free $15,000 to each parent, each year.
3. Pay medical expenses. The amount you spend on your parents’ medical bills, without tax implications, is unlimited, provided you make payments directly to medical providers.
4. Set up trusts. Look into trust-based strategies that will enable you to contribute monetarily to your parents without penalty. For instance, you could establish within your estate plan a trust for your parents, in the event you predecease them. After your parents pass away, the trust would allow for any remaining assets to then pass to your children.
5. Buy your parents’ home. One way to help your parents access home equity without moving out is for you to purchase their home and lease it back to them. This is a good option if they have substantial equity. You will also benefit through valuable tax deductions for depreciation, mortgage interest, maintenance and additional related costs. To prevent any negative tax consequences, make certain the purchase price is fair (supported by a qualified appraisal) and the rent you charge your parents is consistent with the going rate in your area.

When evaluating possible choices, try not to extend too much financial assistance to your aging parents. This could lead to gift or estate taxes should assets end up back in your estate. Another negative consequence would be the disqualification of your parents from certain federal or state government benefits due to some financial gifting on your part. To avoid paying extra taxes when helping your parents, please call 949-860-9902 or contact us for additional instruction.