Planning for Your Parents' Retirement


Young professionals, already saddled with concerns about their own finances and future retirement, also need to plan for their parents' retirement.

This year, Thanksgiving wasn’t just a time for my family to come together; apparently, it was also time for my parents, closing in on retirement, to discuss their finances with my sister and me. As a result, I got a crash course in the role I will have in the trust they are setting up.

At a point when I have barely gotten a handle on my own financial situation, I’ve now learned that I will potentially have to handle my parents’ finances as well. Although both of my parents are in good health and they probably won’t fully retire for a few more years, they took the time to meet with a financial advisor and draw up some paperwork: namely a will and a trust.

All around the country, financial planners are working with clients on their estate plans. As of now, the exemption limit for estate taxes on the federal level is set to drop from $5.12 million to a measly $1 million at the beginning of 2013. On top of that, there are state rules. And in lovely New Jersey, which has one of the highest tax burdens in the country and where my parents and I live, the limit is even lower: Only the first $675,000 of an estate is exempt from the state’s estate tax.

To save money in his estate by avoiding the estate tax, my father is setting up a trust. However, he is not appointing his children as the beneficiaries. The point of this trust is that when my father passes away, my mother will be taken care of. In addition, the money that goes into the trust will not be taxed for estate tax purposes, so my parents don’t have to worry about the exemption level.

As the child living closest to them (my sister is in Virginia), I have been named the trustee of the trust. This means that should my father pass away, my mother can only access the money in the trust if I allow it. And I can’t allow it unless the requests for money that my mother makes are legitimate—the point is that she will have to continue to live at the level she is accustomed to.

So, yes, I would be able to take money out of the trust to pay for my mother’s groceries, mortgage payments, health care, and a vacation or two each year. But I would not be able to hand over money for a shopping spree on Rodeo Drive or one of those 50-day-plus cruises around the world.

And if my grandmother’s decline in health is any indication, then my own mother won’t always be able to ask for money for the appropriate reasons. There may come a day when she can’t remember that she just tucked $200 for a new winter coat into her wallet.

Getting your own finances in order is tough enough, but every child has to face the fact that one day, they may be in charge of their parents’ as well.

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