Supporting Your Poor Parents

I suspect there's a good group of you that have navigated this... Are there any smart ways that I can provide security for my poor parents while leveraging their financial situation to increase my tax efficiency? 

Background: I'm early-30s and doing decently well ($500K earnings, $2M+ assets mostly equities, expat in CH) and my parents are mid-60s and scraping by (both unemployed for 8+ years, health issues stacking up, mortgage on a small home, maybe $100K in retirement, probably some high interest cc debt, reliant on medicaid). 

Ideas: Do I buy their house, charge them nominal/zero rent, create a business with them as employees, legally file them as dependents, or...?  OR do I just let them safely peter along while I stack cash at decent returns so I'm ready to provide the safety net if/when it comes up?

For what it's worth, we have a strong relationship and trust in our family and of course want to maintain that. 

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Most Helpful
Nov 2, 2021 - 2:17pm

you said you're an expat so idk that what I'm about to say would help outside the US, but assuming US law, here are a couple of options

1. have them take out a reverse mortgage to get rid of credit card debt and stop the mortgage payments

2. do an intrafamily loan on the house. you lend them the money to payoff the mortgage and then you gift them the payment to pay off the intrafamily loan. e.g. say the mortgage is $100k at 2% for 30y, monthly pmt ~$370, you gift them the $370 (you can give up to $15k per recipient with no gift tax filing), they send it back to you, it amortizes over time). they get the benefit of having no mortgage, you get a tax free way to make that happen. you could also buy the house and gift them the rent money, but then you're on the hook for maintenance and if you have siblings that could get messy

3. depending on their health issues, you could look into buying long term care insurance, life insurance, or an annuity so that they always have some sort of income, and again you can do $30k/yr (or if you're married, $60k/yr into that), you can likely stay the owner, just make them the annuitant/insured. in short, you can make yourself the beneficiary and owner of a product based off of their lives, you get the tax free growth (if an annuity/life insurance product that grows), the offloading of possible medical expenses, or some combination of the two

also, I'd be VERY cautious about claiming them as dependents as that could mess up medicaid eligibility and/or the premiums (if it gets based off your MAGI), I'm not super informed there given that I don't run into medicaid people all that often, but I'd be very careful about that. have seen this done many times and usually what helps the parents out is just eliminating one large expense that they can't fund themselves (e.g. mortgage, credit cards, etc.). often times this is a weight off their shoulders and while they still may live modest lives, it doesn't require you to make ongoing support payments, which I'd caution against (becuase you can't pull it back easily)

finally, stating the obvious, what do they actually need? is it that their income is $800 a month but expenses are $1k/mo? close that gap for them via paying off CC loans or whatever. is it something else? don't just throw money at a problem before having an in depth conversation. I'm not a psychologist, but you ought to do this delicately as there is likely a tremendous amount of shame on their part, so maybe frame it like "you did a great job raising me, I'm doing well, and now it's time for me to return the favor"

Funniest
  • PM in HF - Other
Nov 2, 2021 - 10:42pm

What you cannot just buy TQQQ in their name? 

Outstanding answer this is what a good IA should be explaining to everyone. 

As an example, I have some investments in fixed income products that go directly to my parents and much more tax advantage for them. Know a few people who have done the house thing.

Nov 3, 2021 - 2:26pm

If I were you, I'd interview a couple people, but it all depends on your goal and what you want out of your planner. If morgan Stanley, they want AUM (like I do!) so they may not be interested in planning like this unless you're willing to have someone manage your stuff for you. I'd go the RIA route and see if you can do a short term engagement, maybe they write some insurance policies, but no ongoing 1% fee or anything

If I wasn't in the business, id ask an estate planning attorney, get the legal stuff figured out first, and then knowing what you need to do, ask them for a referral 

Nov 2, 2021 - 2:35pm

You say you have a strong relationship but you then say they are "scraping by" and you have no idea how much they have in retirement savings or how much high interest debt they carry. You can't be that close then imo.

But you seem to want to help your folks out and I commend you, but wtf have you been waiting for?

I would meet with them and say you are in a position to help. I would immediately eliminate any high interest debt, especially credit card balances.

Then tackle the mortgage. If it is desirable land, maybe you can buy it outright from them.

Finally, meet with a fee only financial planner and understand exactly what their current budget is. You need to understand what their options are. I would not claim them as dependents. Rather I would allow them to use their poor status to qualify for social security and government assistance, especially for Medicare costs. And then maybe buy them some whole life and long term health care insurance. Don't give them straight cash if they suck at saving or are susceptible to scams.

Nov 3, 2021 - 5:26pm

good advice costs money, don't filter on price initially. once you've selected 2-4 options, make sure no one's fucking you on price. for example, if you get quoted at $20k for a fee-only plan and someone with equal credentials is charging $10k, obviously don't pay 2x, but if you're looking for someone who charges 50bps or less, you're going to get shitty advice, shitty service, or both

just google "fee-only financial planner [your city]"

also try smartasset.com (just don't give them your email/phone unless you want to get peppered)

search CFP directory

call merrill, morgan, ubs, stifel, wells, rayjay, rbc in your local area. call the manager, see how you're treated, should give you a sense of the culture. if your inquiry is met with hustle and attention, that's a very good sign. if you don't get a call back, well they just self-selected out of the dating pool

ask estate planning attorneys (better people skills than CPAs and don't have their moods dependent on tax filing deadlines)

last and most definitely least, look through barron's & forbes directories for your city. dirty little secret about those though is they reward big over good, so lots of high quality planners never make the list, but lots of high quality people do, just don't take it as gospel

Nov 3, 2021 - 12:03am

Sorry I can't really be of help but I just had to say it annoys me to no end when people who make over half a million a year and have millions saved up before they turn 40 consider themselves to being "ok" or "decent". I've seen it a lot in tech and finance-dominated forums. 

Nov 3, 2021 - 8:26am

thebrofessor is this forum's Financial Planner. Dude is solid from every angle as far as I can tell but feel free to look at his post history and judge for yourself.

In terms of calling yourself "decently well" when you make 500k/yr - it's inaccurate at best. For perspective, making 500k is 150k more than the threshold to enter the top 1% of incomes. Congrats amigo, you're crushing it.

I can understand from both sides though. It is generally seen as distasteful to talk numbers + it's generally annoying when you're reading about someone smashing your W2 record and saying they're only doing "decently well". 

Just had my trade dispute rejected by Schwab for a loss of 35k. This single issue alone should be a gigantic red flag to anyone who trades on their platform.

If they have a system error, and you do not video record your trading (they actually said this), they will not honour their fuck up. Switching everything away from them. Fuck this company.

  • 2
Nov 3, 2021 - 1:11pm

I just graduated college so I think it's incomparable, but I do well for myself. I'm just saying to be aware of others' financial situations, it comes off as humble bragging at worst and ignorance at best. I genuinely hope you find good advice though

Nov 3, 2021 - 8:55am

Not going to give tax advice or even planning advice. Been taking care of parents (now just parent since dad passed several yrs ago) since I've been 33. Currently 57. For me, far more important than the tax planning and net efficiency is the people planning, level of expectations, family dynamics (with your spouse, siblings spouses, etc.)

So my brothers and I purchased a home for my parents. Expectations are a big deal. When we decided to do this, we agreed on a price. Then parents got involved in looking at homes  and the creep started. It's only a few bucks more but look what we get....Wish we would have just bought a home and put a big bow on it and said here you go. We financed it, and it made sense for me to be the mortgage holder.  If financing, be careful because it could effect your credit capacity for other things. Dad passed and we learned they got into debt issues. Had equity in the house so we refied and cashed out to pay off mom's CCs. Again expectations. She ultimately viewed that as not costing anyone anything like that was free money. Had to move her to a independent living center and received far less in cash from home sale because of the refi so had to pay out cash for the facility. Expectations! 

Long story short, we pay for her housing, her car, her LTC, and some of her living expenses. She lives on SS. In fairness, medical expenses (RX, Dental, eyeglasses, co pays) are very expensive for seniors. Her uncovered RX expenses are at least $300/m and that's with a good med sup. Dental is a killer as she breaks teeth each yr and that's always a few grand. We could have let her go on Medicaid and low income housing but didn't want her to have that type of lifestyle. She has a modest existence. Small but nice house (about 1100 sqft), Toyota Camry, good insurance, cable TV, etc. She's 86. Not healthy but will likely be around for at least another 5 yrs (hopefully). Just be careful what you start. I've been contributing for 24 yrs. It will likely be over 30 when it's all said and done. Actual cash with reasonable interest is easily $750k! 15k (more or less) per yr (after tax!) for 30 yrs = 450k actual cash. Reasonable ROR without anything crazy and you get there. Think about how that will effect your retirement, college funding. It's great to be able to do this. Just make sure you have the right expectations up front and along the way. We've had many conversations where we just don't want to spend that extra X because it's not necessary. On the other hand, it's our mother so you do what you can. Having others involved (my brothers and their spouses) makes it complicated as we each have a different perspective on how things should be. Ironically the one with the least wants to do the most. I always have to reign him in and remind him this will last for a long time. You get the idea. It's a blessing to be able to help. Just get the human  elements right up front. Save you a lot of heartache.

Nov 3, 2021 - 1:53pm

Grew up super poor with parents who are from mexico. Made a yolo investment in bitcoin and bought the parents a house they could never dream of. It feels good to give back to those who sacrificed everything for you. 

  • VP in IB - Cov
Nov 3, 2021 - 8:23pm

Similar situation? Parents have basically no money, no income (both are 65+) and previously had low paying job. Brother and I've been helping out since college and basically now cover it all (split down the middle). Some things I do

- Don't file them as dependent. It can mess with their benefits. Eg better to be dual / qualify for exchange plans than the small benefit you'll get $ wise given your income level. If you make $50k the math might work but not at $500K

- Pay for their mortgage (but it's very low) and all other expenses. I kind of own the house legally but they are primary mortgage holders  if you buy and let them live rent free it's probably

fine

- didn't let them buy a bigger house when they wanted. Didn't let them switch their car out (16 yo now). Basically said you don't need it. You need a strong way to deal w these 

- Keep a close eye on what they are spending (full access to bank account, credit cards) to monitor not just bad spending but also potential fraud. Old people get taken to cleaners. I actually put credit check block on my dad. He doesn't need any new account 

- haven't really figured out LTC and know it'll be an issue 

- we keep a close eye on their health and push to go see doctors, etc to prevent vs react. They aren't in good health in any way but not going to ER every few months. Won't cost anything but I don't think I want to deal with the mess if they are hospitalized 

- not as long as other poster, but spent significant amount over the years. Now runrates like $1200-1400/month, post tax, for each of us. Tbh my ex hated it but I spent more on nice dinners a month than supporting them. It can cause issues and you may not have a solution (what are you going to do? Dump your parents?)

- think watching them not stress out like their friends in their age group and not fighting with my brother about it is probably as good of an achievement as any. Both of us being in good income bracket makes such a difference 

  • PM in HF - Other
Nov 3, 2021 - 8:56pm

Great advice, pretty much do all this as well. Monitor the spending I think is very key as mentioned, giving your parents $1000 today vs $50 a month seems dumb at first but after a couple years you are very thankful for it. I have had arguments over 5 years about bigger houses for each parent. Luckily when you have kids your parents realize big houses are not as important as the ability to travel to see them or so finally.

  • Analyst 2 in IB - Cov
Nov 5, 2021 - 12:03am

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