Moving an Elderly Relative Could Trigger a Tax Problem

It's a common scenario: An elderly relative is no longer able to live alone, so family members sell the relative's house and have the relative start living with them or in a nursing home or assisted living facility that's closer to the family. 

One thing you might not consider during this stressful process is that if the relative moves to a different state, you might have just changed the person's official state of residence for tax purposes. And that could have a significant effect on his or her estate plan.

For instance, if someone moves from a state with no state estate tax to a state with such a tax, and he or she passes away, an estate tax might be owed on the value of the person's assets - even if he or she lived in the new state for only a very short time.

This is a significant danger because, while the federal estate tax generally doesn't apply to estates unless they're worth over $5 million, many state estate taxes start at a much lower figure. In Massachusetts, for example, the state estate tax threshold is only $1 million. 

Such an outcome could even lead to friction between heirs. For instance, suppose the relative's will leaves one child certain specific assets and the other child "everything else." The relative may have set things up so the children would receive more or less equal bequests. But under the law, if a state estate tax is suddenly due, all of it will come from the share of the child who gets "everything else." This could upset a careful estate plan and create family disharmony.

If you're thinking of moving an elderly relative to an out-of-state home or facility, it's a good idea to speak with an estate planner about the change. There might be ways to avoid having the relative be treated as a resident of the new state.

Of course, you might also discover that there are tax advantages to having the relative be treated as a resident of the new state, and you'll want to plan for that as well.

The Advantages of Making a List of Assets and Debts

Have you ever considered writing down a list of all your assets (with account number, passwords, and so on), as well as debts and recurring payments?

Making such a list and putting it in a secure place can be a godsend if something ever happens to you and you become incapacitated, because your family will have a much easier time looking after your affairs.

In a recent article in the Wall Street Journal, a middle-class couple described the extraordinary difficulties they faced when the wife's parents developed medical problems and could no longer handle their own finances. The couple had no idea what assets the parents owned, what insurance they had, where to find records, what bills needed to be paid, and so on. Handling the parents' affairs became a nearly full-time investigative job.

As a result of the experience, the couple resolved to maintain such a list for their own children.

The problem has only gotten worse in recent years, because of the proliferation of electronic reporting. In the past, bills and account statements would arrive regularly by mail, but now, many people access everything online. As a result, a family might never have the comfort of knowing they've located all of a person's assets.

If you make such a list, a good plan is to update it at least once a year, maybe when you do your taxes. The list has other advantages - for instance, you can always go to one spot if you forget an account number or a password. Also, reviewing and updating the list regularly can help you see what changes or improvements might be needed in your own estate planning.

Health Care Proxy

Every single Massachusetts resident over the age of eighteen should have a valid Health Care Proxy.  It is a document that allows you to choose a trusted person who will make medical decisions for you if you are unconscious or unable to competently make decisions for yourself. When you designate your spouse, adult child, or other trusted person as your healthcare agent, that designated person will be empowered to communicate with medical care providers and make your wishes known if you are unable to do so.

The Health Care Proxy is important because certain laws and regulations can create enormous obstacles to coordinating medical care if you become seriously ill or incapacitated.  Everyone needs a valid Health Care Proxy because the power to make medical decisions should be left to a loved one who knows you and will make decisions based on your wishes.  The document is also flexible and ensures that you will make your own decisions once you regain consciousness and/or competency.

The most common uses of the Health Care Proxy occur either when there is an accident that leaves a person temporarily or permanently incapacitated, or when a person succumbs to a progressively worsening disease that renders him unable to make decisions for himself.  For example, an adult child can use the Health Care Proxy to communicate a parent’s wish to be taken off life support in the event of an accident that renders the parent incapable of living without life support devices.

While most of us don’t like to think about these possibilities, it is important to at least give some thought to what we want to happen in the unlikely event of an accident or terminal illness.  The most important aspect of the Health Care Proxy document is to provide peace of mind that your wishes will be communicated if you are unable to communicate for yourself.

Here at my office, we can fully explain the details of the Health Care Proxy to you as well as discuss the most effective way to implement and use the document.  If you have questions, please give us a call at 978-343-7772

Durable Power of Attorney

The Durable Power of Attorney is a lifesaving document for many people. It allows you to choose a trusted person who will make financial decisions for you if you are physically or mentally unable to make decisions on your own. This document makes all the difference because it ensures that a trusted friend or relative is standing by to pay your bills and deal with your financial issues in times of emergency.

The most common use of the Durable Power of Attorney occurs when an adult child uses the power to provide extra care and support to an aging or ill parent. For example, an adult child can use the power to be added as a signatory to a parent’s checking account, which authorizes the child to sign checks to pay the ongoing bills of the parent. Just a few of the many additional uses of the Durable Power of Attorney include: using it to sell real estate; buy and sell investment assets; file income tax returns; and work with insurance companies to obtain benefits.

Sometimes, the most important use of the power is simply being able to obtain information about a parent. With current concerns about privacy and keeping information out of the wrong hands, it can be difficult – if not impossible – to find out if a parent has an account, an insurance contract, a pension with a former employer, a long term care policy, a life insurance policy, a U.S. Savings Bond, a stock certificate, or other type of financial document. Without the Durable Power of Attorney, many institutions will simply refuse to provide even basic information about the existence of an account, much less allow access to it.

The power can be extremely helpful in these situations because most institutions will accept it as valid proof that an adult child has been given permission by a parent to access financial information. When they see the Durable Power of Attorney, those institutions will often let you know at least what they are holding and whether or not they will release it.

To speak with someone or to make an appointment, please call us at (978)-343-7772.