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Financial planning for older parents is a family affair
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But the IRS doesn't have to be mom and dad's biggest beneficiary. In almost every case, you can plan around them. People end up paying more just because they're unaware of their options.

One of the easiest options is sharing the wealth while you're still around.

Giving it away, not to Uncle Sam
Federal tax law currently allows each person to give $11,000 a year to anyone without tax consequences for either the giver or receiver. This generosity can reduce an estate's value, and possible tax, substantially.

For example, Grandpa can give his four children, their spouses and 10 grandkids each the maximum gift, immediately taking $198,000 off the tax rolls in one year. Grandma can do the same, doubling the amount of the estate's value that won't be taxed.

In addition, estate holders can pay unlimited tuition and health care expenses for anyone without incurring any tax. So if you pay $30,000 for Johnny's tuition to Harvard, plus an $11,000 gift, you can cut your estate and help your family.

The best thing about this, adds DiVencenzo, is you get to reduce your taxable estate while you're still around to enjoy the giving -- and get the thanks.

Medical costs eat away at estates
Sometimes, though, giving away assets to reduce an estate is not a pleasant exercise. But it's one that the millions of Americans aged 65 or older contemplate so they can get federal assistance for long-term care costs.

Nursing home and assisted living costs now run $45,000 and higher per year, according to Stella Henry, and the current senior population isn't financially prepared.

"We have this huge number of Americans caught in the middle," says Henry, a registered nurse who along with her husband owns and operates Vista del Sol Care Center in Culver City, Calif. "They have no long-term care insurance, but too much income to qualify for government help."

To reach the Medicaid eligibility limit, many seniors spend down or give away much of their estates. A trust also is an option here, but it takes careful pre-planning. A parent's assets must be transferred to the trust, and taken out of their control, at least three years before the care begins.

Financial planning for the whole family
This older generation finds giving away everything very difficult to do. Plus, they've been through the Depression and it's a tough thing for them to surrender everything, even knowing their kids love them and will manage the money properly and make sure that their needs are taken care of.

It's that element of faith, experts say, that exacts as big a toll on family relationships as the actual expenditure of money. But in this day, it's very likely one of the kids is going to have to deal with an older parent's needs -- retirement and health -- and how to pay for them.

And it's better if those discussions are done together before there's a crisis.

"Parents say, 'I don't want to be a burden and what I have is not really any of my kids' business,'" says Martinez. "But when an illness happens, it becomes their business."

Bankrate.com's corrections policy -- Posted: May 4, 2004
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