February 21, 2022
Q. Should my parents put all their assets in my name and/or should I be on all their accounts?
A. This is a sticky question. Before I provide some thoughts on this, let me first say that we believe it is CRITICAL to work with an Attorney that specializes in Estate & Elder Law. Second, I’ll give the disclosure that we are not offering legal advice here but offering up some things to think about.
Ask yourself why you would want to do this. What’s the end goal? If they put all the assets in your name, they've just gifted everything, so what do they now live off of?
Are your parents in a more favorable tax environment or will this end up costing more by doing this - especially if the funds would be subject to a stepped-up basis if they could be inherited property. If you are given the property, the basis carries forward; if you inherit the property, under today’s laws, the basis gets “refreshed.” that could save thousands in capital gains tax.
Consider the liability you may be taking on if you jointly own the property. For example, if you jointly own a vehicle with one of your parents, and they get into an accident, there could be liability issues that you are subjecting yourself to without knowing it.
If one of the goals is to allow you to help them with the bills, consider a power of attorney - this will let you help your parents without them putting your name on the account.
If you are trying to avoid probate, then you can add beneficiaries to most accounts (i.e. for bank accounts, consider a Totten Trust, for brokerage accounts, consider a Transfer on Death arrangement).
We know many clients that have set up life estate (use) on their home, whereby the kids own the property, but they have life use. A downside to this is if your parents ever want to take out a home equity or mortgage on the house, then you will need to sign-off on the loan. Additionally, if your parents ever want to sell the house, you will be subject to the capital gain (unless it’s transferred back to the parents); there won’t be the exclusion that is normally offered when it has been your primary residence.
Although it is common for parents to predecease their children, we all know families where the parents outlive their children. If your parents transfer their assets to you and you predecease them, the assets may not go in the desired direction; this could certainly cause family conflict.
If you have high school or college age students, receiving assets could affect your financial aid - even if you aren’t getting Federal Aid, you might be eligible for Institutional Aid and receiving a significant amount of assets could affect the Expected Family Contribution (EFC).
As you can see, this is not a one size fits all response and I’ll reiterate that we feel it is a great investment to work with an attorney on this type of planning. We also encourage you to talk to an attorney in both your State and the State that your parents live in - not all State Laws are the same.
For more information see What Issues Should I Consider for My Aging Parents and Step-by-Step Guide to Receiving Long-Term Care on the Resource page of our website.
Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters under this section.