What should you do (or not do) to assist an elderly parent in handling their finances? The time honored (or dishonored) technique is to put your name on their accounts or other financial instruments as a joint owner. If you are thinking of doing that – don’t.
First, you could be liable for income taxes on the interest or capital gain earned from that investment, while not actually receiving the benefit. Second, if you die before your parent, the IRS could take the position that you own at least half of the investment and tax your estate on that portion. Third, if you take money out of the account and use it to pay your parent’s bills, if you have failed to keep goodrecords and receipts, your siblings could confront you with very uncomfortable questions.
What should you do? If a parent really needs your help, and they often do, you should discuss with them and their attorney the making of a durable power of attorney for property. These powers of attorney are recognized by all financial institutions and will ease your efforts to assist your elderly parents, without exposing you to liabilities such as those mentioned above. A durable power of attorney for property remains effective even if your parents should become mentally incapacitated and will, if not otherwise stated, remain effective until a parent’s death. You will still have to keep records of your receipts and expenditures, but you will likely avoid the other problems that often come with joint accounts set up for convenience.