A lot of estate planning advice focuses on the steps you can take to protect and provide for your spouse and children, while minimizing your tax burden. But what about taking care of your mom and dad? Many adult children are in a better financial position than their elderly parents, and want to know what they can do to share the fruits of their labor. Here are just a few suggestions:
- Give Gifts: Under the current federal gift tax law, you can give up to $13,000 in money or property to an individual recipient annually, without triggering the need to file a gift tax return, and without dipping into your lifetime gift tax exemption ($5 million for the years 2011 and 2012). If you’re married, you and your spouse can combine your annual exclusions and give $26,000 to each of your parents.
- Pay Medical Bills: If your parents are unwilling to accept cash from you, it might be helpful to pay their medical bills for them. As long as you make payments directly to the doctor or medical facility, the medical bills you cover on your parents’ behalf are not subject to gift tax. Plus, if the medical bills you pay on your parents’ behalf exceed 7.5% of your Adjusted Gross Income, you can claim those expenses as an income tax deduction. Of course, the IRS determines what constitutes an acceptable medical expense, and you’ll want to check with an estate planning attorney or your financial advisor to make sure you’re following the rules.
- Establish a Trust: There’s also the option of establishing an irrevocable trust, and naming your parents as beneficiaries. You can serve as trustee, and use the trust to provide your parents with financial assistance, or even provide a home for them.
Your estate planning attorney can help you figure out the best strategies for providing your mom and dad with financial help while minimizing your tax burden.