Dear Rick:
Back in October I decided to quit my job and become a full-time caregiver to my elderly mom. My mom is in her 80s and is still mentally sharp and feisty; however, she has her health issues and we decided it made sense for her to move in with me. My mother has limited means; she has Social Security, a small bank account and a small annuity. My mother is a widow and I am an only child, and since my father passed away about 15 years ago, I’ve been on my mom’s bank account, and I am the beneficiary of the annuity. My first question is whether my mom’s will is still valid. My mom did her will about 15 years ago after my dad’s death. I am named as the beneficiary and the personal representative of the estate. My question is do wills expire, or is her will that she did 15 years ago still valid? In addition, do I need any other legal documents? My second question deals with her house. My mom and I have decided that we should put her house up for sale. I figure sometime in the summer after I clean the house out, we will put it up for sale. The house is worth probably about $130,000, and my parents bought the house over 50 years ago for about $20,000. My question is will there be any taxes that my mom would owe on the sale of the house? My last question deals with the annuity. I was going to cash out the annuity and use the money to make some upgrades for my house such as a walk-in tub for my mom, rails and other things to make life easier for her. My mom bought the annuity about 15 years ago for about $25,000 and it’s only worth about $30,000 today; what taxes would she owe?
Thank you.
Susan
Dear Susan:
I commend you for putting your life on hold to help your mom. I know that being a caregiver can sometimes be a thankless job; however, you should know you are going to improve the quality of life for your mom and that is something you should take pride in.
In reviewing your mom’s situation, her will is still valid. Wills do not expire, and if the will still meets your mom’s needs there is no reason to redo it. On the other hand, I do believe you need some other legal documents. The two legal documents I would obtain would be a general durable power of attorney and a medical durable power of attorney. A general durable power of attorney would give you the right to act on your mom’s behalf for things above and beyond medical. Having a general durable power of attorney for mom would allow you to deal with any financial or legal issues that may come up. As an example, if there is an issue with Social Security, your power of attorney would allow you to act on your mom’s behalf.
The medical power of attorney would allow you to be actively involved in your mom’s medical decisions. In addition, the medical power of attorney would allow you access to your mom’s medical records and allow doctors and medical providers to deal with you. In addition, the medical power of attorney would give you the power to deal with end-of-life issues. I believe both these powers of attorneys are important to give you the power and legal authority to handle your mom’s affairs.
With regards to the annuity, since this is a non-IRA annuity, the amount subject to tax is not the gross proceeds you receive but rather, the difference between the gross proceeds and what you pay for the annuity. Since she paid $25,000 for the annuity and your gross proceeds upon sale is $30,000, the amount subject to tax would be $5,000.
As a side note I think cashing out the annuity and using it to do some home modifications so that your mom would have a better quality of life is a great use of that money. After all, our money should be used to provide us with quality of life, and that is exactly what you are doing.
Being a parent’s caregiver is not an easy job and it can be very frustrating. However, I think those who have become caregivers for their parents will tell you that this is one of the most fulfilling things they ever did.
Good luck!
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com