Tips on everything from tax breaks to Medicare drug benefits.
By Christine Benz | 05-20-10 | 06:00 AM | Email Article

"Old age is no place for sissies," Bette Davis famously said. But nor is there room for squeamishness if you're the child of aging parents. As their parents age, many adult children are stretched thinly, caring not only for their parents' needs but also those of their own children, all the while holding down jobs. If you can do all that and hold on to a semblance of sanity in your life, you're no sissy yourself.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

One unheralded--and underdiscussed--duty for many children is assuming a more hands-on role in their elderly parents' finances. In a recent column, I outlined how to conduct a "temperature check" of parents' money matters.

The goal of such a checkup is to gauge whether your folks need your help or are managing just fine on their own. If it's the latter, it's probably best to butt the heck out--you'll probably have plenty of other opportunities to get involved down the line.

Helping elderly parents manage their money is a broad topic that would be impossible to cover in a single article, so today I'll cover a few more to-dos for adult children who'd like to make sure their parents' money situation is under control.

1. Check up on the status of estate planning
Estate planning is a tough-to-broach topic under the best of circumstances, but seems to get even more awkward as we age and as the need for an estate plan becomes less of an abstraction. But if you're discussing financial matters with your parents, one of the key questions to ask is when they last visited an estate-planning attorney, if they have at all. Do they have current documents delineating their wishes in case they die or become incapacitated? Have they identified key agents such as executors and powers of attorney for financial matters and health care? A previous article, "Get Your Estate Plan in Gear," delves into some of the key "need to knows" in the realm of estate-planning.

A lot may have changed in your parents' lives--and in the estate tax rules--since they originally drafted their estate plans. It may be tempting to push estate planning even further into the future, given that the estate tax is currently in a state of flux. (There is no estate tax for 2010, but it's set to return with a vengeance in 2011; barring legislative action, estates of more than $1 million will owe estate taxes.) However, properly drafted estate plans shouldn't require a major reworking if and when the estate tax laws change. And if your parents' assets fall below the $1 million threshold, you have no reason to delay.

2. Help manage required minimum distributions
If your parents are over age 70 1/2 and taking required minimum distributions from their IRAs and qualified plans, check in to make sure that they have a strategy for receiving their distributions by Dec. 31 of each calendar year.

Why is it so important to get the timing right? Any amount of RMD that isn't withdrawn but should have been will be subject to a 50% penalty. And though the IRS' website says the penalty will be waived if the account owner can make a case that the shortfall was the result of a reasonable error, it's best to avoid tangling with the IRS if you don't have to. Most financial-service providers allow you to automate your RMDs (sometimes called MRDs), which can save seniors the hassle of having to calculate and time their distributions correctly.

3. Coach them on available tax breaks
If your parents own their home, they may be able to take advantage of an array of property tax breaks available to seniors, those who have owned their own homes for a number of years, or those whose income levels fall below a certain threshold. For seniors living on a fixed income, those tax savings can be meaningful, so it pays to check in with your local assessor's office to make sure your parents are taking advantage of any reductions available to them. Obtaining such a break may mean the difference between being able to stay in their current home and having to move to another, less costly location.

One other big tax break that seniors sometimes miss is the deduction for medical and dental expenses. These expenses must total 7.5% of income to be deductible, and even though that may seem an impossibly high threshold for younger folks with higher incomes and few medical expenses, it's not all that hard to hit for people with fixed incomes who are paying Medicare Part B and Medigap insurance premiums. Premiums for qualified long-term care insurance are also deductible up to a certain level. (The deductibility ratchets higher as you age.) Talk to your parents about saving the receipts they need to claim this valuable deduction; the previous article on the financial temperature check touches on setting up an-easy-to-use filing system for elderly parents.

4. Help find the best prescription-drug coverage
Many seniors are contending with an ever-changing array of medical prescriptions, so the Medicare prescription drug plan that made sense for them a year or two ago may not be the best fit for them now. The program's open enrollment period runs from Nov. 15 to Dec. 31. If your parents are Web-savvy, they can use Medicare's prescription drug plan finder to help identify the best, most cost-effective plan for them. Alternatively, you can coach them on selecting a plan. This article provides a helpful overview of the key variables to consider when choosing coverage.

5. Assist in finding an advisor
Even seniors who have been dedicated do-it-yourself investors for most of their lives sometimes hit the wall: They decide they don't need the aggravation of managing their own finances, they've been dissatisfied with their own investment results, or they'd rather leave more time for enjoyable pursuits such as travel or golf. They've determined they need to hand off their money management to a professional.

Finding the right financial advisor can be complicated, however. There's a bewildering array of compensation structures and designations to sort through, and not all advisors adhere to a fiduciary standard, meaning they're not required to act in their clients' best interests. Help backstop your parents' selection process by offering to co-interview any prospective advisors; if an advisor won't agree to this setup, that's a red flag. Morningstar.com users have also weighed in with guidance on choosing an advisor in this useful thread on our "Discuss" boards.  

See More Articles by Christine Benz


Become a Morningstar Content Contributor Today!

Contributing content to Morningstar allows you to increase your firm's exposure to a premium audience of financial advisors and individual investors.

Please click here to learn more about the Morningstar Content Submission Platform.

For additional guidance in using the Content Submission Platform, please view this video.

 

New! 30-Minute Money Solutions
Need help picking up the pieces in this turbulent market? 30-Minute Money Solutions by Morningstar director of personal finance Christine Benz simplifies the daunting task of getting your financial house in order. Written for novice and experienced investors alike, this book offers manageable, step-by-step solutions for tackling money challenges and building a comprehensive financial plan in simple 30-minute increments. Learn more.
Order Your Copy Today--$16.95
Securities mentioned in this article

Ticker

Price($)

Change(%)
Morningstar Rating Morningstar Analyst Report
With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds
Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
Sponsored Links
Sponsor Center
Content Partners