MAKING CENTS: In case something happens to Mom

It’s when, not what if, something happens to mom

In the ordinary course of meeting with clients, we routinely see situations where elderly parents and adult children do things in case something happens to mom. In case? What’s that about? There is no in case; it is more about when and how something happens to mom and then what are the consequences of your moves in anticipation of the undesired but inevitable outcomes.

Among the more common “in case” moves are to have a child as a joint owner on financial accounts.

As a joint owner, there are several unintended consequences and possibilities that may occur. Either joint owner would have full access and control of the property and can do what they please with the money without consulting the other. Of course, we trust our children, but it may not be wise to leave your nest egg subject to the liabilities and vulnerabilities of another person.

The next consideration is gift taxes. When you add someone other than a spouse as a joint owner of an account, you have made a gift in the eyes of the taxing authorities. If that account is worth less than $14,000, there is no worry. This exemption is called the annual gift tax exclusion.

A further consideration is the ultimate disposition of the property. If we can assume that the elderly mom will pre-decease her joint owner in the account, the younger child will become the sole owner of the account. This is fine if that joint owner is your only child or intended beneficiary, otherwise it could become a disaster. As the new sole owner, your child is not required to fork over any part of that money to their brothers or sisters, regardless of what your will says. And if that child later finds that it is their moral obligation to split the assets with their siblings, it will create gift tax issues.

What could be even worse is changing title to the home to one or more of your children. This poses problems for several reasons. First, you do not own you home anymore and are a tenant of your children. As a tenant, the IRS requires that you pay a fair market rate of rent to the landlord or else they can impute rental income under audit. Imputed rental income means that they’ll require your children to report rental income showing the income and expenses of the rental property.

It is also safe to assume that mom’s home was worth more than $14,000 at the time of the gift, and therefore a gift tax return is required.

In general, mom has the best intentions of protection and legacy for the assets. But unfortunately, this is one area where mom would have been well served to hire a professional to plan this properly.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

MAKING CENTS: How to avoid a financial family feud

All too often families fight about money. Commonly these feuds begin over real estate, family businesses or care decisions for aging parents. No parent’s dream for the future of his or her family includes disownment or troubles among the siblings, yet parents are most often the ones to blame for the problems.

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Preventing future feuds can be accomplished through clear communication and creating a plan surrounding the financial assets. I’ve personally witnessed many parents avoid the significant decisions and communication required. They all seem to assume that the situation will work itself out. That does happen, but not without heartache and estrangement.

Real estate, whether it be rental property or that memorable vacation home, are constant problems. The two main issues here are maintenance and usage. On the maintenance front, there may be one or more child who is capable and interested in maintaining the home.

Typically there is a child who wants to sell the home, one who wants to keep the home but can’t afford to, and one who wants to keep it and can afford it. What parents need to do is place the property into an entity such as a trust and endow it with cash for future maintenance. The directives in this trust should be based on the parents’ vision for how they would like the situation to end after their demise.

Family businesses frequently have a similar fate as real estate, but with a different twist. The twist is nepotism versus ability. Most business consultants would agree that business owners have a fiduciary responsibility to their customers, employees and family to adequately plan for the succession of that business. If all children are active in the business, it may make sense for all to inherit or buy that business. But that doesn’t mean they are all equals in terms of abilities, titles and responsibilities in the operation; and that issue needs to be addressed well in advance of any succession strategy.

Caring for aging parents is another cause of family feuds. Whether it is over unequal time spent in delivering care or the division of assets post mortem, this, too, can be avoided.

Long-term care insurance is one solution, but not everyone can afford or qualify. The other is simple and direct communication. Too many parents have a secret plan where they expect care from their children.

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

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