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Steps to Build Plan
  Step 1 - Organize documents
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  Step 3 - Inventory
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  Step 5 - Develop plan
  Step 6 - Review plan
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Estate Plan Items
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Dealing with your parents' finances

(Article by Susan E. Kuhn, Fortune Magazine, September 1996)

Talking about money is tough, but not having wills, trusts, and a strategy is worse.

The kids are in college, the mortgage is due, and now Mom and Dad need help with their taxes. Sorry, baby-boomers, but the latest financial crisis is aging parents. Unless you relish the prospect of bailing out your folks, it's time for a parent-child talk about money. Deciding who'll handle investment decisions, inherit assets or the family home, or provide general care isn'teasy, but it could save you from some big financial problems later on.

To give you a jolt, following are eight of the biggest mistakes your parents could be making right now.

(1) Your parents have no will, it is unsigned, or nobody knows where it is. Don’t wait for disaster, says Sanford Schlesinger, head of trusts and estates for Kaye Scholer Fierman Hays & Handler in New York: "Since the TWA crash, people won't go on vacation without a will." Ask if your parents have an up-to-date document, and make sure everyone in the family knows its whereabouts.

(2) Your parents haven’t drawn up a power of attorney or a living will. It's never too early to plan ahead for the day when you can’t pay bills. Says Dee Lee of Harvard Financial Educators, who runs elder-care seminars: "My kids have met with my lawyer. I want them to understand that my parents died young, one at 33, the other at 44, so I have no idea of my own longevity." A durable power of attorney will let you withdraw funds from your parents’ accounts and pay their taxes at any time; if they are concerned about abuse, powers can be designed to spring into action at a specific time - when they become incapacitated, for example. Many banks, leery of rip-offs, require you to fill out their own version. Living wills, which inform doctors of your parents’ medical wishes (to be kept on life support, say), are not recognized in every state, but your parents can also arrange for a health care proxy, which designates someone else to make such decisions for them.

(3) The trust your parents set up isn’t properly safeguarded. True story: A man started a trust to gradually hand over half a million dollars in a life insurance policy to his daughter. But: he never changed the title of the insurance policy from her name to that of the trust., which would have restricted her access to the money. At his death she got the money, quit college, and immediately blew most of it. Says Thomas Belhy, president of Ford Pitt Capital Group in Pittsburgh: "The trust was staged to protect the daughter from exactly what happened."

(4) The trust is outdated. Another horror story: A man died, leaving his wife a 30-year-old trust. When the document was written, a spouse’s tax deduction was limited to half of an estate’s assets. He never updated the trust. The widow, today entitled to receive everything tax-free, had to pay taxes on half the assets. Solution: Have a trust checkup every three years.

(5) Fearful that a long illness in a nursing home will eat up everything, your parents have put assets in your name. Not wise, especially if the asset, such as the family home, is worth ten times what your parents originally paid for it. When parents gift a house, the children must assume the original cost basis, saddling them with a huge potential capital-gains tax should they choose to sell. But if the parents hold on and specify who gets it in their will, the children get the house at death with no hidden tax bombs. The cost basis is stepped up to reflect current market values.

(6) Or, to elude creditors, Dad has put everything in Mom's name. No problem - until you consider the tax consequences. Estate taxes per person are levied on assets exceeding $600,000, progressively increasing from 37% to 55% over $3 million. The trick is to juggle the assets so that both estates utilize the $600,000 unified tax credit and neither exceeds $3 million. Sometimes it's better to pay some tax when Dad dies, says David Scott Sloan, chairman of trusts and estates at Sherburne Powers & Needham in Boston, than tax Mom's assets at the max later.

(7) Your parents aren’t giving away as much as they should. Anyone interested in helping others and reducing their estate can give an individual up to $10,000 a year without paying tax. Spouses with several kids can give each $20,000 annually. In addition, anybody can pay for another’s tuition tax-free at an accredited school, simply by writing a check directly to the institution. Of course, gifting mistakes can be made. There’s the guy who stopped giving when the stock market slumped, then asked later if he could double up; you can’t. Another gave away his IBM stock -at a loss. In hindsight he should have sold the stock to take the loss on his income tax form, and then passed on the cash.

(8) Parents automatically hand over control of their money to the kids. Dad thinks he's doing your Mom a favor by putting the children in charge of investments. But that leaves Mom with little legal recourse. Remember King Lear. Sad to say, some children may care more about aggressively growing the inheritance than making sure Mom has enough income to live on, warns investment manager Heidi Steiger of Neuberger & Berman in New York City. Far better to make Mom a co-trustee.