Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 4, 1994 TAG: 9404010111
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
Could I be held responsible for any of my parents' debts? I am concerned about how I could best help my parents if and when they need assistance and, at the same time, protect my own assets. Is there anyone in the area with whom I could meet personally who specializes in this type of thing?
A: Bruce Stockburger, a tax and estate-planning specialist with the Roanoke law firm of Gentry, Locke, Rakes & Moore, said your letter raises a question frequently asked by individuals with elderly parents.
Although Virginia has a statute (Section 20-88) that provides a duty of support and maintenance of an individual's mother or father, he said, the statute is so vaguely worded and limited in its scope that he is unaware of any use of the statute as an attempt to enforce the debt of a parent against the parent's children.
Under the federal Medicaid regulations, he said, the responsibility for an applicant's support by relatives is limited to the applicant's spouse. Additionally, the parent of an unemancipated child under the age of 18 is responsible for such child's support. However, it is clear under the Medicaid law and regulations that a child is not legally responsible for his or her parents' support and maintenance.
In planning for the ongoing support for a parent, Stockburger said, significant income tax issues need to be considered and coordinated with the Medicaid/Medicare regulations in order to optimize the support the parent may receive from the federal assistance programs.
Stockburger said another major concern for a person with an elderly parent is the propensity of the providers of health care and long-term care to request the child to obligate himself or herself for the financial cost of providing the parents with care.
In many cases, he said, children innocently sign documents accepting financial responsibility for a parent's care which could adversely affect the parent's eligibility for public assistance.
Some of these issues are controversial from a social policy standpoint and have surfaced frequently in the media, Stockburger said.
"From our standpoint, this type of planning should be as deliberate as any other financial and estate planning so that the individuals involved have an accurate idea of exactly where they stand in relation to such financial responsibilities," Stockburger said.
If you want to discuss your own specific situation, you should find a lawyer who specializes in tax and estate planning in your community.
Q: After my mother's death in 1964, I put money of hers in U.S. Savings Bonds. I need suggestions and advice now on what to do with them. Should I convert to HH Bonds? Buy CDs? After 30 years, do they draw interest?
A: U.S. Savings Bonds purchased through November 1965 pay interest for 40 years. Bonds bought after that date earn interest for 30 years.
Because you bought the bonds in 1964, they should still be earning interest at market rates. Right now, that rate is 4.25 percent, which is higher than you could get in a certificate of deposit. (You had a guaranteed rate of 6 percent through 1992.)
Conversion to HH Bonds is a means of postponing tax on the earnings over the years. You are taxed only on the semi-annual interest as you receive it, but you must take that interest. HH bonds are designed for people who want current income instead of gains, so your decision depends on your needs.
Q: I would like to know if a tax-deferred variable annuity is a good investment.
A: It depends on your particular situation and on what else you have in your financial portfolio.
An annuity would not be your initial investment, because you should have an emergency cash fund first. Then you need investments that are liquid, in the sense that you can easily reach the money in them. An example would be investing in a variety of mutual funds with different objectives.
The advantage of an annuity is that the money grows on a tax-deferred basis. You can also get an income that will last you the rest of your life, although the income would be subject to erosion by inflation.
A major disadvantage is that most annuities have a penalty for early withdrawal. The penalty declines over a period of years, but the money is illiquid for eight to 10 years. Commissions may also be high, and you must ascertain the financial soundness of the insurance company with which you are investing.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010. Or leave a recorded message by calling (703) 981-3434 and, when asked for a mailbox number, press 66639 (MONEY), followed by the # symbol.
by CNB