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What financial support should I offer my parents?
Q: My parents have had some financial setbacks very late in life -- certainly too late for either of them to go back to work. I'd like to help them out financially. How much can I give them without there being any tax consequences?
A: The gift tax exclusion for 2014 is $14,000. That represents the amount you can give annually without having to pay gift taxes. This amount is subject to change from year to year, so you should check for the correct amount with each new tax year if you expect to continue giving your parents money in the future.
It is very generous of you to help your parents out in this way, and you should also consider whether they need financial support in the form of help with decisions about money. These decisions often become increasingly confusing to people as they get older, and the financial setbacks you reference may be a sign that your parents are having trouble handling these decisions. Consider getting involved with some or all of the following:
- Assessing their savings and budget situation. Figure out if your planned gift will allow them to make ends meet, or if there are bigger issues that need to be addressed.
- Reviewing account transactions. Look through the transaction histories of their investment, savings and checking accounts. Older people are especially vulnerable to fraud, so you should make sure there is not any suspicious activity associated with the financial setbacks they have experienced.
- Updating investment allocations. Asset allocation should be reviewed frequently as people move through their retirement years anyway, but it is especially timely if they have experienced a change in financial condition the way your parents have.
- Checking the competitiveness of their savings accounts. Older Americans are often the least comfortable with online bank accounts, but these vehicles may offer them a higher savings account yield.
- Looking at their checking account fees. Many banks have upped their fees in recent years. Check on what your parents are paying, and see if there are cheaper alternatives.
- Discussing a long-term game plan. Your parents need to decide what they want to do when they are not physically able to live alone any more, and you can help them come to grips with the costs and funding options involved. You should also discuss whether a power of attorney is appropriate so you are authorized to act on their behalf if this becomes necessary.
I'm sure your parents will appreciate the financial gift you are planning to give them. But what may prove equally valuable in the long run is the gift of your time you offer in making sure their financial affairs are being managed well.
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