Blog of Law Offices of Daniela Lungu

LEGAL  A Variety of Legal Issues Can Be Addressed Every Year

• Protect your personal assets from business liability through a California Corporation
    or an LLC
• Ensure that insurance policies have adequate coverage for defense   
• Adequately capitalize your entity; keep entity separate from personal activity
   

FINANCIAL  Annual Financial Check-Up Is Important To Stay On Track!

• Speak to financial advisor annually to re-evaluate goals and assess portfolio; re-balance retirement portfolio annually
• Check beneficiary designations on each financial account for consistency with estate plan
• Tax Returns – keep at least four years worth from date of filing

CREDIT  Protect Against Fraud and Identity Theft

• Order a credit report from Equifax, Experian and Trans Union annually
• Fix any reporting errors with each credit reporting agency
• Evaluate credit cards for interest rates and offers and make changes accordingly; review
    statements monthly for accuracy
• Shred financial documents with personal information older than three years (except for
    income tax records)
• Photocopy current credit cards and file for safekeeping with financial records; destroy
    inactive cards

ESTATE PLANNING Protect Your Family From Expensive Probate And Taxes

• Update or create Will
• Update or create Living Trust – particularly if you have real property
• Update or create Advance Health Care Directives
• Update or create Durable Power of Attorney for Property
• Update or create Guardianship Documents for Minor Children

INSURANCE  Protect Against the Unexpected And Save Money

• Purchase life insurance policy or reevaluate existing policy to determine if needs are met;    consult with CPA before canceling life insurance policy for tax ramifications
• Ensure that property and casualty policy is sufficient to cover loss
• Purchase umbrella policy to cover unexpected insurance events
• Long Term Care Insurance – purchase a policy or consult with a Medicaid attorney if a policy is not appropriate for you
• Purchase a Funeral Expense Pre-Need Policy
• Ensure that home owner’s insurance coverage is adequate to cover  boats or other watercraft or airplanes and replacement coverage of home and contents

This Complimentary Financial and Legal Checklist is offered to you by the Law Offices of Daniela Lungu, 4695 Chabot Drive, Suite 200, Pleasanton, CA 94588.  Contact our office at (925)558-2710 if you have questions, or need a recommendation to a service provider.

For owners of closely held businesses, such as S corporations, the sale to an intentionally defective grantor trust (IDGT) has developed into one of the most effective techniques to freeze the value of the owner’s estate and transfer any future appreciation in the S corporation to future generations. In the midst of an extended recession that has seen asset values fall sharply across all asset classes, including closely held S corporations, and with interest rates near historic lows, many estate planning attorneys have advised clients that, notwithstanding the current uncertainty regarding the estate, gift, and generation-skipping transfer taxes in 2010, now is the time to take advantage of this tremendous wealth transfer opportunity because most agree that estate and generation-skipping transfer taxes will return in some form in either 2010 or 2011. This article will briefly outline the basic structure of a sale of S corporation stock to an IDGT transaction, but the article’s main focus will be on the often overlooked income tax consequences of selecting among the various types of trusts that can own S corporation stock.

In structuring the sale of S corporation stock to an IDGT, attorneys often draft the terms of the trust with three primary considerations: (1) intentionally violate one or more of the grantor trust rules under IRC §§ 673 to 677 to ensure the trust is treated as a grantor trust for income tax purposes; (2) avoid retaining any powers that could cause the assets of the trust to be included in the grantor’s estate under IRC §§ 2036 to 2038; and (3) ensure that the grantor’s desired positive scheme is created, with particular attention to extending the duration of the trust to as many future generations as possible. This last consideration is often the determining factor in whether the trust that ultimately owns the S corporation stock (on termination of grantor trust status) is an electing small business trust (ESBT) or a qualified subchapter S trust (QSST). Because both ESBTs and QSSTs are permitted S corporation shareholders, attorneys sometimes ignore the potential income tax differences between such trusts in drafting the dispositive terms of the initial trust used in the sale. Although this issue may not come to light during the lifetime of the grantor (that is, while the trust is a grantor trust), it can have a dramatic effect on the total assets available to the grantor’s intended beneficiaries once the grantor is deceased. Specifically, since a 2006 legislative change, the treatment of any interest expense paid on indebtedness incurred to acquire stock in an S corporation (which would be paid as part of a promissory note received in a sale of S corporation stock to a defective grantor trust transaction) is substantially different in QSSTs and ESBTs, and attorneys should be mindful of this difference in drafting trusts to be used in a sale to an IDGT transaction and in making S corporation trust elections for trusts that hold S corporation stock acquired with debt.

An IDGT is an irrevocable trust that is treated as owned by the grantor for income tax purposes but not for estate tax purposes. A sale of assets to an IDGT in exchange for a promissory note is a popular estate freezing technique, which can allow future growth of the sold assets to occur outside of the estate of the grantor. In addition, because the grantor pays the income tax on the income generated by the assets held by the trust, these payments are essentially tax-free gifts to the beneficiaries of the IDGT. For an in-depth discussion of the intricacies of a sale of assets to an IDGT, see Louis A. Mezzullo, Freezing Techniques: Installment Sales to Grantor Trusts, 14 Prob. & Prop. 16, Tan./Feb. 2000. As a brief synopsis, an installment sale of assets to an IDGT typically follows these steps: (1) the grantor first establishes an IDGT; (2) the grantor funds the IDGT with a small amount of “seed money” (10% to 20% of the value of the assets sold is often cited as adequate coverage) and/ or the grantor obtains personal guarantees (typically from the IDGT beneficiaries); and (3) the grantor enters into an installment sale agreement with the IDGT trustee, in which the grantor seIls S corporation stock to the IDGT in exchange for a promissory note with an interest rate equal to the Applicable Federal Rate.
The growth of the S corporation stock sold to the IDGT is now outside the estate of the grantor and any S corporation dividend paid will be paid to the IDGT. The IDGT will use cash flow from the S corporation stock to service the promissory note payments due to the grantor, and the grantor now has an established cash flow in the form of the interest and possibly principal payments. So long as the growth rate of the S corporation stock sold to the IDGT exceeds the interest rate of the promissory note, the grantor has effectively transferred such excess growth from her estate to the IDGT. The assets in the IDGT should not be brought back into the grantor’s estate even if she dies during the term of the promissory note. In addition, the grantor is able to leverage her GST exemption because the allocation is made for only the small initial gift to the IDGT, even though significantly more assets may ultimately make up the IDGT’s equity.
In the current economic environment, asset values are depressed and interest rates are at historic lows. The result of this confluence of events is that the value of the S corporation stock may be lower than it was a couple years ago, while the interest rate required to be charged on the promissory note will be near historic lows, creating an extremely low threshold for asset growth to make the transaction successful.  S corporations are corporations that satisfy all of the requirements of IRC§ 1361 and make an election to be treated as an S corporation. Among the various limitations on S corporations, the corporation must be a domestic corporation and must not have as a shareholder a person who is not an individual, an estate during the period of administration, a trust of a specified type, and (in taxable years beginning after 1997) an exempt organization of a specified type.  The specified trusts include • a voting trust; • a grantor trust or a former grantor trust for the two-year period beginning on the day of the deemed owner’s death; • a trust treated under IRC§ 678 as owned by an individual other than the grantor; • aQSST; • a testamentary trust for stock transferred to it under to the terms of a will (a “will recipient trust”) or an IRe § 645 electing trust, but only for the two-year period
beginning on the day on which the stock is transferred to the trust; and an ESBT. In the context of a sale to an IDGT, the initial trust that purchases the S corporation stock is a grantor trust and thus an eligible S corporation shareholder. ollowing the death of the grantor, there is a two-year” grace” period for the trust before it must make an election to be treated as a different type of eligible S corporation shareholder. Typically, once the two-year period following the
death of the grantor has ended, the trust owning the S corporation stock or successor subtrusts will elect to be treated as a QSST or as an ESBT, depending on the terms of the trust. As a result, the remainder of this article will focus primarily on the income tax differences between QSSTs and ‘ ESBTs.  A QSST is a trust that satisfies the following requirements: (1) all income of the trust is distributed or is required to be distributed currently to one individual who is a U.S. citizen or resident; (2) during the life of the current income beneficiary, there is only one income beneficiary; (3) if the trust distributes any trust principal during the life of the current income beneficiary, it can only be distributed to that current income beneficiary; (4) the current income beneficiary’S income interest in the trust must terminate on the earlier of the current income beneficiary’s death or the termination of the trust; and (5) if the trust terminates during the lifetime
of the current income beneficiary, all of the trust assets will be distributed to that income beneficiary.
An election to treat the trust as a QSST and to treat the income beneficiary as the owner of the trust’s S corporation stock must be made by the income beneficiary (not the trustee) within two months and 15 days after the trust’s receipt of the S corporation stock. Similarly, a QSST election must be made within two months and 15 days from (1)
the date that the grantor trust ceases being a grantor trust (or the two-year grace period following the death of the grantor) or (2) the end of the two-year period for a testamentary trust.  
The requirements for an ESBT are not as restrictive as those for a QSST. An ESBT can have multiple beneficiaries, and the trust income can be accumulated and/ or sprinkled among multiple trust beneficiaries. A trust is eligible to be an ESBT if it is a domestic trust that does not have as a beneficiary any person other than an individual, an estate,
or certain charitable organizations. An election to treat the trust as an ESBT must be made by the trustee of the trust (rather than the beneficiary of the trust in the QSST context), and the trustee must make the
election within the same time constraints imposed on a QSST election for the election to be timely.

IRC §136<1(d)(1)(B) essentially creates two portions within a QSST, with one portion consisting of income, deductions, and credits related to the S corporation (the S Portion) and one portion consisting of all
other income, deductions, and credits (the Non-S Portion). The QSST’s income beneficiary is treated as the owner of the S Portion for most income tax purposes. Thus, the current income beneficiary will report the QSST’s share of the S corporation’s income tax items (such as income, deductions, and credits) directly. All of the QSST’s Non-S Portion will be reported by the trustee and taxable under the rules of Subchapter J. ESBTs also use the S Portion/Non- S Portion concept for income tax purposes, with one significant reporting difference. The S Portion of an ESBT is taxed as a
separate trust, the tax attributes of which cannot be merged or commingled with the tax attributes of the Non-S Portion. The primary difference between QSST income taxation and ESBT income taxation is in the treatment of the S Portion of the income tax items. For a QSST, the S Portion is taxable to the current income beneficiary of the
trust, whereas for an ESBT, the S Portion is taxable to the trust. For the ESBT, the S Portion is taxed under special ESBT rules. lRC §§ 641(c)(2)(A) and 641(c)(2)(B) state that for the S Portion, an ESBT must pay the tax at the highest marginal rate for trusts and estates and receives no personal exemption or standard deduction. The Non-S Portion is taxed under the same rules as all other trusts. After understanding the differences between the taxation of the S Portion and the Non-S Portion of various trusts owning S corporation stock, it is important to determine which income tax items of each trust belong in each Portion. For most items, this determination is easy. The S corporation will send a Form 1120S Schedule K -1 to each of the S corporation’s shareholders, in- cluding the trust. The Schedule K-1 will detail the S corporation’s income, deductions, and credits attributable to the shareholder. These items are all attributable to the trust’s S Portion. As a default, all other income, deductions, and credits make up the trust’s Non-S Portion. Congress, however, has created special carveouts of tax items that are not found on the S corporation’s Schedule  K-1 but that are attributed to the S Portion nonetheless. For QSSTs, Treas. Reg. § 1.1361-10)(8) states that the trust will be treated as the
shareholder for purposes of the income tax treatment of the sale of the S corporation stock held by the QSST. Thus, the
capital gain on the disposition of the S corporation stock by the QSST will be in the Non-S Portion. On contemplation
this makes sense, because the disposition of the stock is an action taken by the trust and not by the S corporation itself.
The Code and the Regulations are silent on the issue of the deduction for interest on acquisition indebtedness of the QSST related to the trust’s purchase of S corporation stock. Because this is similar to the disposition of the S corporation stock, however, it is probable that the deduction for interest on acquisition indebtedness is in the Non-S Portion, too.
Moreover, as explained in the next paragraph, Congress has explicitly treated this deduction and the treatment of the
disposition of the S corporation stock differently in the ESBT context, and one can assume that if Congress intended for QSSTs to have the same treatment, it would have acted accordingly. The authors have confirmed in informal conversations with the Internal Revenue Service (lRS) that the lRS concurs with the analysis outlined above. For ESBTs, lRC § 641(c)(2)(C)(ii) states that any gain or loss from the disposition of stock in the S corporation shall be attributed to the S Portion. In addition,lRC § 641(c)(2)(C)(iv) states that the deduction for interest on acquisition indebtedness of the ESBT related to the trust’s purchase of the S corporation stock also shall be attributed to the S Portion. The acquisition indebtedness interest deduction is only includable in the S Portion for taxable years beginning after December 31, 2006. Treas. Reg. § 1.641(c)-1(d), which states that such interest is attributed to the S Portion but is not a deductible administrative expense for the S Portion, has not been updated to reflect the congressional change in 2006, and is applicable only for tax years before December 31, 2006. Thus, for ESBTs, the gain or loss on the disposition of the S corporation stock and the interest deduction related to the acquisition of the S corporation stock are both includable in the S Portion, which is the opposite result of the QSST rules, which include both items in the Non-S Portion.

In drafting a trust to be used in a sale of S corporation stock, most attorneys will follow the grantor’s desired dispositive scheme. Often little attention is paid to the ultimate income taxation of the trust at the outset because the trust will ini- tially be a grantor trust, taxed entirely to the grantor, regardless of the dispositive scheme and without an election. On determination of grantor trust status, typical- ly as a result of the death of the grantor, the attorney, the trustee, and potentially the beneficiary or beneficiaries will confer and make a decision to have the successor or resulting trust treated as a QSST or an ESBT. Occasionally, because of the terms of the trust, either election will be permissible. In this scenario, the preference, before Congress allowed an ESBT to deduct the acquisition indebtedness interest in the S Portion, was often to make a QSST election to allow for the S corporation income to be taxed at the individual beneficiary’s income tax rates rather than the highest marginal income tax rate mandated under the ESBT rules. To illustrate the different income tax consequences of a trust electing to be treated as a QSST or an ESBT it is helpful to walk through some examples.Before the 2006 legislative change to ESBTs, attorneys drafting a trust to be used
in a sale to an IDGT would guide grantors to draft trust dispositive schemes in a way that allowed for a future QSST election knowing that such an election could be income tax advantageous in the future.
Now that the ESBT has certain income tax advantages not available to the QSST, however, the choice is no longer obvious. By drafting a trust to allow for a future QSST election, the attorney allows the
trustee to make the proper election deci- sion in the future when more facts are known. The downside to this is that a trust with terms that allow for a QSST election will be relatively restrictive and inflexible. The trust can have only one beneficiary, and if there is a reason to not make distri- butions to that beneficiary (for example, the beneficiary is a spendthrift or has sub- stance abuse issues), the trustee must still make income distributions. Instead, if the income tax situation will be more efficient as an ESBT, the attorney can draft the trust without the limitations imposed by the Code for QSSTs.After a 2006 legislative change by Congress, the treatment of interest paid on the indebtedness related to the acquisition of S corporation stock and of the disposition of S corporation stock by a trust is significantly different between QSSTs and ESBTs. As a result, attorneys drafting trusts for use in a sale to an IDGT transaction, which will likely have interest payments related to promissory notes issued in consideration for the purchase of the S corporation stock, must take into account whether the trust will be more tax efficient as a QSST or an ESBT once grantor trust status terminates. In addition, attorneys should review QSST elections made before 2007 to determine if it would be more tax efficient to convert the QSST to an ESBT.

 The word “homestead” has both a popular and a legal significance. In its popular sense, it signifies the place of the home or residence of the family. It represents the dwelling-house in which a family resides, with the usual and customary appurtenances, including the outbuildings of every kind necessary or convenient for family use, and lands used for the purposes thereof . In the legal context, homestead refers to the privilege extended to families and family members to continue to live in their home despite claims of creditors. Although homestead is traditionally described as an estate in land, under modern statutes it is in reality a monetary exemption so long as the value of the property exceeds the amount of the statutory exemption. The principal object of the creation of the homestead estate is to protect the homesteader in the enjoyment of a home and to secure to him or her shelter beyond the reach of his improvidence or financial misfortune. The law gives greater significance to the preservation of the homestead than payment of debts.

Homestead Laws

Homestead rights did not exist under the common law. Such rights are peculiar to the U.S and exist only by virtue of statute or constitutional provision. Homestead laws are designed to protect small individual property owners, such as homeowners, from the ever changing economic climate of the U.S. These laws allow an individual to register a portion of his/her real and personal property as “homestead,” thereby making that portion of the individual’s estate off-limits to most creditors. The idea behind these homestead laws is the preservation of the family farm, home, or other assets in the face of severe economic conditions.

The general rules of statutory construction apply with respect to homestead law provisions. If the meanings of the words are unambiguous, easily understood and plain, no construction or interpretation is required. Since homestead rights are preferred over the rights of creditors, statutory construction is strict towards creditors.

State laws greatly vary with respect to homestead law. Homestead exemption statutes are subject to change at any time according to the will of the state.

Persons Entitled to Homestead Exception

Homestead rights are created by statutory provisions. Most statutes provide that every person at the age of eighteen or over, married or single, residing within the state can hold a homestead exempt from attachment, execution, and forced sale. It implies natural persons regardless of marital status or lack of dependents. However, some statutes restrict homestead exemption to some combination of ranks. Restrictions are generally on the basis of marital status, head of a family, and dependents. Some jurisdictions like Arkansas limit homestead rights to the head of the family.

Generally, it is not necessary that a homestead claimant be married. However, a homestead right is not given to a man and woman living together with an unmarried status . A married couple can claim a homestead exemption on the basis of their marital status. In case of married couples, parties share the single homestead exemption. Moreover, each spouse can claim full exemption. Spouses enjoy homestead rights regardless of property ownership . A person married to a debtor is entitled to an exemption on the basis of a homestead declaration. The declaration of homestead by a non debtor spouse terminates and extinguishes the debtor’s homestead. This is to restrict a debtor from enjoying both spouses’ homestead exemptions. After declaration, spouses are entitled to a single homestead exemption.

A parent can also be a homestead holder. The dependent child must be living with the parent on the homestead property. The parent as head of the family must be controlling the family. A grandparent having a grandchild depending upon him/ her for support can be a head of the family for the purpose of a homestead exemption . An adult child supporting a parent can also be a head of the family for homestead exemption purposes.

Properties Subject to Homestead Exceptions

The rules governing the nature of property entitled to be registered as homestead property adhere to regional patterns. Real property subject to the homestead exemptions vary in value. Generally, an undivided interest in real estate, accompanied by the exclusive occupancy of the premises by the owner of such interest and his/her family as a home, is sufficient to support a homestead exemption. Property subject to homestead exemption is described in each homestead statutes. In order to claim a homestead exemption a homestead holder must enjoy the ownership and occupation of the homestead

A claim to statutory exemption for homestead is limited to:

•Size;
•Value; and
•Character of the land as urban or rural.
Usually state constitutional provisions describe the monetary limit on the amount of an exemption that a debtor can claim. Such statues contain area limits on the exemption. Most states impose a dollar limit on debtors’ homestead exemptions. However, in some states, a homestead exemption is unlimited. A homestead holder has a right to hold as exemption money or profit derived from the use of homestead.

Some statutes exempt money gained from the sale of a homestead property. For a debtor to exempt money gained from the sale of a homestead property, the debtor must establish some link between the money at issue and the homestead in question. In some jurisdictions, an owner is entitled to receive the amount of the homestead exemption on sale of the homestead property. The sale can be conducted voluntarily by the owner or involuntarily by the sheriff pursuant to writ of execution .

Exclusive occupancy of the property by the claimant and family as a home has been held to be a requirement for exemption. However, two separate homestead estates cannot coextensively exist on the same premises at the same time.

Encumbrance of Homestead Property

The owner of a homestead has the right to encumber the homestead. Consent of both the spouses is manifest through the signature of both the spouses on the instrument validating the encumbrance on a homestead. The spousal signature is mandatory in all transactions pertaining to a homestead, except in the case of a purchase-money mortgage.

An owner of a homestead is free to mortgage the property in the absence of contrary stipulations in a statute. However, if there is a statutory prohibition as to the mortgage of a homestead, such mortgage shall be invalid. The mortgaged property may be subjected to sale under foreclosure. When the mortgage covers both homestead and other property, the debtor may require the mortgagor to resort to the other property first.

The Law permits the leasing of a homestead in certain limited instances. One spouse may lease the homestead lands for a reasonable term without the consent of the other spouse, provided such lease does not interfere with the use of the property as the home of the family. A lessee of a homestead cannot change the terms of a contract by entering into an agreement with only one spouse.

Regarding the matter of encumbering a homestead by the husband or wife of an insane spouse, the law differs depending on the state. While some states do not permit such a transaction, some provide procedures by which the sane spouse may obtain a court order authorizing a conveyance. In some states, alienation of the homestead of an insane person is allowed by joinder of the guardian with the sane spouse.

Conveyance of Homestead Property

The homestead estate cannot be casually conveyed. Any conveyance of the estate must be made explicitly, specifically, and in writing. Irrespective of the manner of spousal land ownership recognized in each state, generally, there exist rules that govern the conveyance of homestead property by a spouse(s).

Generally, no spouse may convey homestead property without consent.

by: USLegal,Inc.

A health care directive is a written document that specifies what type of medical care you want in the future, or who you want to make decisions for you, should you lose the ability to make decisions for yourself. Generally, a person must be at least 18 years old and of sound mind to make a health care directive. The document must be signed and notarized according to the laws in your state. Laws governing directives vary by state, so local laws should be consulted for specific requirements in your area. Healthcare directives are the best possible way to assure that decisions regarding your future medical care will reflect your own wishes, in the event that you are unable to voice those wishes. A healthcare directive is also known as advance directive.

Need for a Healthcare Directive

A health care directive becomes important in cases where the patient is in a condition where s/he cannot communicate the health care choices. Having a healthcare directive provides you some assurance that your personal wishes concerning medical and mental treatment will be honored at a time when you are not able to express them. Another advantage is that it can be helpful when there are conflicting opinions among relatives as to what should be done. Further, it may also prevent the need for a guardianship imposed through the probate court. However, even though advantageous, it is not necessary for every person to have a healthcare directive. The decision to have a healthcare directive is purely voluntary.

Choosing an Agent

Choosing an agent is one of the most important decisions to be made while making a health care directive. The agent can be given powers to make those personal care decisions you normally make for yourself. Therefore, the agent appointed should be someone close to and trusted by the individual. It should be someone who cares deeply about your welfare. People often choose their spouse or other close family member to be their agent. You can also limit your agent’s authority if you choose to do so. Generally, an agent will not be legally or financially liable for decisions made as long as they are in accordance with the individual’s wishes and beliefs.

Different Types of Healthcare Directives

The types of health care directives vary based on state law and individual preferences within the states’ legal requirements. The three most common types of healthcare directives are the durable power of attorney for health care, living will and do-not-resuscitate order/declaration.

Durable power of attorney for health care, sometimes called the health care power of attorney or health care proxy, is a power of attorney where the principal appoints an agent to make health care decisions for the principal in the event the principal becomes disabled or incapacitated. This document places a friend or family member in charge of making decisions for the individual and usually provides the agent with guidelines for making those decisions. The agent appointed is can make decisions in accordance with what the individual would have wanted. However, if the individual has specified his/her wishes clearly on the proxy form, they must be followed despite any possible objections from the agent. Even though health care proxies are permitted by all the U.S. states the specifics vary. For example, some jurisdictions place limitations on the persons who can act as agents. Therefore local laws should be consulted for specific requirements

A living will is a document that allows a person to explain in writing which medical treatment s/he does or does not want during a terminal illness. Its purpose is to allow you to make decisions about life support and direct others to implement your desires in that regard. A living will takes effect only when the patient is incapacitated and can no longer express his or her wishes. A living will can be very specific or very general. Although the term living will gives the impression that it is a will, in reality, it is more similar to a power of attorney than a will. Most states have laws in support of living wills. However, these laws vary by state. Some states require two witnesses to witness your signature or that the form be signed in the presence of a notary public, or both.

A do not resuscitate order/declaration ( DNR) is an advance directive that is to be followed when a person’s heart or breathing stops and they are unable to communicate their wishes to refuse treatment that could allow them to die. DNR orders come from physicians, not from patients. If a patient wants cardiopulmonary resuscitation (CPR) to be withheld, he or she has to discuss the decision with a physician and get the order written. Laws regarding do not resuscitate orders vary by state. Some states have standardized forms for DNR orders; if the order is not written on that specific form, it cannot be honored. Whereas some other states are less regimented, honoring any type of DNR order.

by: USLegal,Inc.

Conflicts of interest in a business relationship may arise in several different situations. A conflict may arise when the personal interests of someone in a position of trust clashes with the person’s professional interests. A conflict may also arise when a person has different professional responsibilities and those responsibilities collide. A person who has these types of competing interests may have difficulty in fulfilling professional obligations.

Owners and managers of businesses may encounter conflicts during the course of the business. Conflicts of interest are often the result of a transaction between a business, such as a corporation, and a manager of the business. The manager may take advantage of this relationship and complete a transaction that benefits himself/herself and not the corporation.

In a majority of U.S. jurisdictions, the resolution of a conflict of interest for a controlling shareholder, director, or officer of a corporation focuses on the fairness of the transaction. The person who is involved in the transaction must prove that the transaction is the result of fair dealing and demonstrates a fair price.

Conflicts of Interest Within Huge Corporations

Corporations have always had the problem of conflicts of interest. For that reason, they often have policies requiring complete disclosure from employees as to whether they have any financial interest in transactions the company is about to engage in. thus, if a company is buying land, it would like to know that some officer with responsibility for that transaction owns interest in the land.

Accounting

In the accounting world, a conflict of interest may involve a situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest. Such competing interests can make it difficult to fulfill his/her duties impartially. A conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession. A conflict of interest could impair an individual’s ability to perform his/her duties and responsibilities objectively.

Handling Conflict of Interest

A person who faces a conflict of interest may not be able to avoid the conflict. In such an instance, the person may be required to take certain steps by law or may need to follow certain practices in order to avoid any appearance of impropriety.

Laws governing businesses handle conflicts by several different means. For instance, partners in a partnership are bound by a duty of loyalty that prevents the partner from competing in a business to the detriment of the partnership.

The following are some of the means by which conflicts of interest may be handled, either by law or as good professional practice:

a. duty of loyalty: in partnership law, for example, a partner is bound by a duty of loyalty, which forbids the partner from personally engaging in a business transaction to the detriment of the partnership.
b. fairness: some laws, such as those governing conflicts of interest within corporations, require that transactions involving such conflicts are fair.
c. full Disclosure: many professionals, such as lawyers and government officials, are required by law to give full, written disclosure of any conflicts of interest.
d. recusal: decision-makers, such as judges or members of government agencies, may choose to recuse themselves in situations where the subject of a decision involves a conflict of interest.
e. third-party evaluations: in some situations, such as where majority shareholders in a corporation decide to buy out minority shareholders, a neutral third party may be used to determine a fair market price for the minority shares.
Impact on Business

Conflicts of interest can lead an organization to bad decisions, additional expense, and increased risk in operations. Periodic overviews of business relationships, expert advisor roles, and business activity can decrease risk associated with potential bias.

by: USLegal,Inc.

Financial Planning for Singles
 
Six basic rules to help you secure your future.

By Cameron Huddleston, Contributing Editor, Kiplinger.com
July 6, 2010
 

 The August issue of Kiplinger’s Personal Finance has advice to help couples who can’t wed (or choose not to) customize their tax and estate planning. Finance Basics for Partners has tips on how unmarried couples can handle everything from property division to child custody to who makes end-of-life decisions.

It also offers these six rules to help singles plan their financial lives:
——————————————————————————–

Protect income. Employer-paid disability insurance typically replaces 60% of your income, but you owe tax on the benefit. Aim to replace another 15% to 20% of your salary through individual coverage. See Why You Need Disability Insurance for more information.

Cover future care. The median cost of a private room in a nursing home is now $206 a day, according to Genworth Financial, and the price is expected to rise rapidly. Pick up a long-term-care policy with inflation to help cover the costs (see Long-Term Care You Can Afford).

Choose a wingman. Use the appropriate legal documents to assign your health-care power of attorney, which lets your representative make medical decisions for you if you cannot, as well as your durable power of attorney, which gives your representative the authority to make financial decisions on your behalf. If you have minor children, you will need to nominate a guardian for them in a legally executed will. (If you don’t have children, see this advice on turning to extended family, friends, neighbors or trusted advisers to make health-care and financial decisions in case you become incapacitated.)

Boost earning power. Your ability to earn money is your biggest asset, says Sheryl Garrett, of the Garrett Planning Network. Burnish your skills with professional training or by getting an advanced degree. See Grad Degrees From a Distance for information about getting your master’s online.

Pump up retirement accounts. At a minimum, you should contribute enough to your 401(k) to get any company match. If you have cash to spare, set up a Roth IRA. You’ll pay taxes on your contributions upfront, but your earnings will accumulate tax-free, and you won’t owe taxes when you withdraw money in retirement (see Why You Need a Roth IRA).

Set up an emergency fund. Aim for enough money to cover your expenses for at least six months or, in this uncertain job market, even a year (see How Much Cash You Really Need).

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The Power of Power of Attorney
 
This document will help you manage your parents’ finances when they no longer can.

By Cameron Huddleston, Contributing Editor, Kiplinger.com
July 13, 2010

  Some day your parents may no longer be able to handle their finances on their own. Before that day comes, you need to have the right legal documents to help them manage their money when they can’t.

The most important document you will need is power of attorney. It’s like the key to a car — without it, you can’t drive, says Stephen J. Silverberg, an elder law attorney in Roslyn Heights, N.Y., and immediate past president of the National Academy of Elder Law Attorneys (NAELA). However, unlike taking away the car keys when your parent should no longer be driving, you can’t wait until mom or dad doesn’t have the mental capacity to handle financial transactions to get this document. For a power of attorney to be valid, your parent must be competent when he or she signs it.
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Power of attorney lets you handle any financial transaction for your parents — from signing checks to selling their home. Make sure you have durable power of attorney, which takes effect immediately. A springing power of attorney will not take effect until your parent is deemed incompetent.

If you have siblings, all of you can be given power of attorney, and the document can specify whether you must act together or independently. To prevent abuse by any one child, the document can build in oversight by requiring the power of attorney to answer to a third party. It also can limit powers to prevent you (and your siblings) from changing your parents’ wills or beneficiary designations on life insurance policies. See Prevent Power of Attorney Abuse for more information.

The power of attorney should conform to the laws of the state (or states, if your parents divide their time between two) where your parents live. Silverberg recommends hiring an attorney who specializes in elder law to draft this document — not someone who will just use a standard form that might not provide you with all the powers you need and the protections your parents deserve. You can search for an elder law attorney where you live on the NAELA Web site. The site also has questions to ask when selecting an elder law attorney.

To be clear, a power of attorney document is not a golden ticket. Many financial institutions and brokerages have their own forms that must be signed before you can gain access to your family member’s accounts. Also, be sure to give the institutions a copy (not original) of the power of attorney document soon after it is signed. If you wait years to do this, the institution may ask you to get your attorney to recertify the document (see Powerless Power of Attorney).

To learn more about managing your parents’ finances when they can’t, see my upcoming article in the October issue of Kiplinger’s Personal Finance magazine.
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A Gift to Your Spouse
Prepare a financial plan that will protect your spouse after you die or if you become seriously ill.

By Susan B. Garland, Editor, Kiplinger’s Retirement Report
April 23, 2009

 
EDITOR’S NOTE: This article was originally published in the February 2009 issue of Kiplinger’s Retirement Report. To subscribe, click here.

You can rarely go wrong with flowers or a candlelit dinner for a special occasion. But if you want to give your spouse a really nice gift, draw up a financial plan that will provide lifelong care for your significant other if you die first or become incapacitated.

Statistics show that it’s likely the husband will die first. About 75% of those 85 and older are widows, according to the Women’s Institute for a Secure Retirement. On average, the group adds, widowhood leads to a 20% decline in income, after adjusting for consumption needs. Widowers face financial challenges, too, of course.

You’re probably thinking that your estate plan will take care of your spouse. That’s a great start. But make sure you consider other safeguards, from possibly boosting Social Security survivor benefits to tutoring your spouse on the family’s investments. And don’t forget the flowers.
Pump Up Retirement Savings

Topping the gift list is a bigger nest egg. If you or your spouse, or both, are still working, try to hang in longer than planned. Besides adding to your 401(k) or IRA, additional work years could make you eligible for a larger pension and Social Security benefits.

A study by T. Rowe Price shows that a few extra work years can help a lot. By postponing retirement to age 65, from 62, you can increase your annual retirement income from investments by an inflation-adjusted 22%, assuming that you save 15% of your salary. (The study assumes that rather than starting to tap a $500,000 nest egg at age 62, you instead add about $15,000 a year to the pot, and that it grows at an average 6.7% a year.)

Also, postponing Social Security benefits will increase a retiree’s income. Collecting benefits at 70, rather than at the early retirement age of 62, can boost the purchasing power of these benefits by 88%, the T. Rowe Price analysis found.

A delay will increase the survivor benefit, too. The lower-earning spouse, usually the wife, is entitled to a survivor benefit equal to her husband’s benefit. But if a husband born between 1943 and 1954 claims at 62, he permanently reduces his benefits by 25% from what he would receive if he claimed at his full retirement age of 66. For each year he delays beyond 66, he’ll get an 8% boost in benefits. “When a worker dies, the widow will get 100%. The bigger the benefit, the better,” says Laurel Beedon, senior policy analyst at the women’s institute.

That’s what Wayne Huck, 66, figured when he decided to wait until 70 to claim his benefits. His wife, Mary, 64, recently applied for benefits based on her own much lower earnings. If Wayne dies first, Mary can switch to the higher survivor benefit. “This will give her a nice annuity if something happens to me down the road,” says Huck, a certified public accountant in Wethersfield, Conn.

Until he collects his own benefit, Huck will collect a spousal benefit equal to 50% of Mary’s. This strategy of restricting an application to spousal benefits works only when the higher-earning spouse has reached full retirement age. Once he turns 70, Huck will apply for his own benefit.

Besides maximizing Social Security payments, both spouses should take full advantage of tax-deferred accounts. If you’re not both working, remember that a working spouse can invest in a spousal IRA for a nonworking husband or wife. The nonworking spouse can make a deductible contribution of up to $5,000 to a traditional or Roth IRA, plus an extra $1,000 if he or she is 50 or older.
Get Up to Speed on the Finances

In many marriages, one spouse takes the lead on investments and record keeping. If that spouse dies first or becomes incapacitated, the other is left scrambling to find documents and to figure out how much income is due from annuities and dividends. To avoid that, the person in control of the portfolio should review all investments with the other spouse.

It’s also a good idea for spouses to write each other a “love letter” — not the mushy kind, but a document that leaves instructions for the surviving spouse. The document could include everything from when to pay certain bills to funeral plans.
Keith Klovee-Smith, 60, and his wife, Susan, 64, have written such a document, which they call “In the Unlikely Event of Death.” He is senior vice-president and national manager of Olympia, Wash.–based Wells Fargo Elder Services, which coordinates legal, financial and medical services for aging clients.

The couple’s document, which is compiled in a three-ring binder, includes powers of attorney, copies of insurance policies, information on company benefits and, Klovee-Smith says, “anything that would remotely touch an estate.” He and his wife regularly update the information. “In our desire to keep it up, we find that it provokes conversation that is healthy for our marriage and our ultimate plans,” he says.

In his job, Klovee-Smith sees firsthand what happens when a surviving spouse is left in the dark: “A person may have taken out different insurance products over a lifetime, but then may have forgotten about them.” A love letter “forces people to look at everything,” he says.

You also need a plan for cash flow after the death of a spouse. If bank and brokerage accounts are in the name of one spouse, retitle assets so at least some money is held jointly, or you can name the spouse as a beneficiary on a “payable on death” account, says Susan Fenimore, a certified financial planner at Financial Consulate, in Hunt Valley, Md. Otherwise, Fenimore says, “a checking account will be tied up in probate, and your spouse won’t have immediate access to cash.”
Plan for a Serious Illness

The older a couple gets, the more likely a serious illness will leave at least one spouse temporarily or permanently incapacitated. Preparing for such an event is likely to require the help of an estate-planning lawyer. Note that state laws vary.

Both spouses should draft durable financial and health-care powers of attorney, says Robert Romanoff, who heads the Asset Planning and Preservation Service Group at the law firm of Levenfeld Pearlstein, in Chicago.

Romanoff says the financial document will give your spouse or other agent the authority to pay expenses if you become incapacitated. This is especially important if the disabled spouse, perhaps the husband, holds most assets in his name. If the wife does not have the power of attorney, Romanoff says, “she is not authorized to manage the accounts.”

Regarding health care, many states give a spouse the right to make medical decisions for the sick spouse, but others don’t. A couple should discuss the types of treatments that would be provided or withheld. Such talks can ease the burden for authorized agents, who won’t have to make heart-wrenching decisions on their own. “Their job is to carry out your wishes,” Romanoff says.

If your spouse is already chronically ill, consider setting up a special-needs trust to arrange for the management of your spouse’s finances and caregiving in the event you die first, says Peter Strauss, a senior counsel at Epstein Becker Green, in New York City.

Say you have a serious heart ailment and your wife has Alzheimer’s or another condition that impairs her decision-making capability. “You don’t want to leave the money outright to the spouse because she can’t manage it and could be subject to financial abuse,” Strauss says. You would transfer enough money to the trust to support your wife after you die. The trustee you select would make the investment decisions and pay for the surviving spouse’s care.

The caregiving spouse should also arrange for someone to oversee the spouse’s ongoing care. The spouse could direct the trust to hire a professional care manager who, says Strauss, “could come into the picture to supervise and monitor the home care when the caregiving spouse dies.”

Each spouse needs to make sure that the other has enough money to live on in case one needs long-term care down the road. “A long nursing-home stay could drain all of your resources,” says Fenimore. “It could leave the surviving spouse with nothing.”

Consider long-term-care insurance. One option for married couples is a shared-care policy, with perhaps a total of five years of coverage. If one spouse needs two years of coverage, the other can use the remaining three years. Or one spouse can use all of it.
A Pension With Lifetime Protection

If you’re approaching retirement and are due a pension, you face a big decision. Do you take a joint-and-survivor option, which reduces the monthly payment but continues through both your own and your spouse’s lifetime? Or do you take a single-life annuity that pays a larger benefit but ends at your death?

Many financial experts say most couples should take the joint-and-survivor option. In fact, federal law requires the joint-and-survivor option, unless your spouse waives his or her right to it. Be careful here. Rebecca Davis, staff attorney at the Pension Rights Center, in Washington, D.C., says her organization gets calls from surviving spouses who had signed away their rights to the lifetime annuity. “They thought it was a formality,” Davis says. “They didn’t understand what they were signing.”

If you choose the joint-and-survivor option, the survivor’s benefit will be a percentage of the monthly pension you receive — 50%, 75% or even 100%. Say a husband is eligible for a monthly single annuity of $2,000, and he and his wife decide to use the 50% option. The monthly benefit would be trimmed, perhaps by 10%, to $1,800. After the retired worker dies, the surviving spouse will get $900 a month — 50% of the reduced benefit — until death. With the 75% option, the surviving spouse would get 75% of that reduced benefit.

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Taxes When Mom or Dad Depends on You
 
Even modest retirement income can thwart your attempt to claim a parent as a dependent.

By Mary Beth Franklin, Senior Editor, Kiplinger’s Personal Finance
March 2, 2011

  Although you may spend a lot of time and money supporting an aging parent, claiming your mom or dad as a dependent for tax purposes can be difficult. But it’s not impossible.

First, your parent must be a U.S. citizen or live in the United States, Canada or Mexico. In addition, your parent must not file a joint tax return, unless it is to claim a refund. There are also gross-income limitations and financial-support requirements to meet.
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Your parent’s gross income cannot be greater than the personal-exemption amount, which is $3,650 for 2010. Gross income excludes all or part of your parent’s Social Security benefits, depending upon his or her income level. But even then, many seniors with modest incomes from a pension, interest or investments are still disqualified by this test.

You must also furnish more than one-half of your parent’s support during the year in order to claim him or her as a dependent. If you parent lives in your home, you can count the fair-market rental value of your parent’s lodging as part of that support calculation.

The tax code provides some flexibility on this provision when several siblings pitch in to help with their parent’s expenses but no single sibling covers more than half of the expenses. In such cases, one sibling can claim the parent as a dependent as long as he or she:
•provided as least 10% of the parent’s support;
•no one else provided more than half of the support; and
•everyone else who provided at least 10% support signs a declaration that they won’t claim the exemption, specifying the years for which they are waiving this right. The sibling claiming the parent as a dependent must keep the declaration for his or her records and file IRS Form 2120, “Multiple Support Declaration,” with his or her tax return.

This provision allows siblings to alternate who claims their parent as a dependent each year.
Medical expenses can add up

Once you determine that your parent can be claimed as your dependent, you may be able to deduct your parent’s medical expenses, as long as you itemize and your family’s total medical expenses exceed 7.5% of your adjusted gross income. Only those medical costs in excess of 7.5% of your AGI are deductible.

But it’s not hard for seniors to rack up medical expenses, which can include medical and prescription-drug costs not reimbursed by Medicare, as well as qualified long-term-care expenses or long-term-care insurance premiums, up to prescribed annual limits. For 2010, the deductible amount for a long-term-care insurance policy is $1,230 for those ages 51 through 60; $3,290 for those ages 61 through 70; and $4,110 for those ages 71 and older.

“Sandwich generation” families — those who are also paying medical expenses for adult children under age 27 — can benefit from pooling all of the family’s medical expenses in order to qualify for the medical deduction. For example, say a family had $80,000 in income and paid a total of $8,000 in medical expenses for themselves, their aging parent and their boomerang child. They could deduct $2,000 from their income taxes, which is the excess amount over 7.5% of their AGI ($80,000 x 7.5% = $6,000).

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Managing Your Parents’ Money
Find out as much as you can about your parents’ finances now so that you’re prepared to step in later if necessary.

By Cameron Huddleston, Contributing Editor
From Kiplinger’s Personal Finance magazine, March 2011
   A few months before my mom’s 66th birthday, a doctor diagnosed her with Alzheimer’s disease. At that time — November 2008 — she was exhibiting symptoms of the early stages of dementia, such as short-term memory loss.

In July 2009, another doctor confirmed the Alzheimer’s diagnosis and also said she had white-matter disease — another possible contributor to her dementia. By then, she could still handle daily tasks, such as cooking and bathing, and she was still active socially. Yet she didn’t know what day of the week, month or year it was. She couldn’t recite a sequence of three words the doctor had said just a minute earlier. The doctor told her that she should stop driving and that someone else should handle her finances.

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That someone else was me. Handling my mom’s finances wouldn’t be too difficult, I thought. After all, I’ve been writing about personal finance on Kiplinger.com for nine years. Boy, was I wrong.

For starters, managing someone else’s finances is nothing like managing your own, because you don’t have all the information you need (and getting that information from someone with memory problems is especially tough). The hardest part, though, is the role reversal. “This is the person who might have told you the importance of paying your bills on time,” says Linda Fodrini-Johnson, president of the National Association of Professional Geriatric Care Managers. And now you have to tell your parent what to do.

Research shows that even in the early stages of Alzheimer’s, people have trouble with simple financial tasks — and they are more likely to become victims of fraud. If no one steps in, they might not have any money left by the time they reach the later stages of the disease. “You feel like you’re taking control away from them, but it’s the disease that’s doing that,” Fodrini-Johnson says. “You have to remind yourself that you’re securing your parent’s future.”

Conversation starters
Usually, parents are reluctant even to share financial information with their children, let alone relinquish control, say financial planners and elder-law attorneys. I’ve been lucky because my mom has, for the most part, willingly let me take over her finances.

Ideally, communication begins well before a parent needs help, says Greg Merlino, a financial planner and president of Ameriway Financial Services, in Voorhees, N.J. Otherwise, he says, “it’s like trying to put together a jigsaw puzzle without the box to see what the ultimate outcome will be.”

One way to start the conversation is by talking about your own situation: “Mom and Dad, I recently met with a lawyer to draft powers of attorney for financial and health situations so that my spouse can handle things if I’m ever in a situation in which I can’t.” Then ask your parents what protections they have in place. Or you can mention an article you’ve recently read (such as this one) about the importance of getting your parents’ personal-finance information in case they ever need help managing their money.

If your parents are receptive, find out where they keep lockbox keys and important documents, such as the deed to their home, tax returns, wills and powers of attorney. Get a list of their banks, doctors, accountant, attorney, mortgage company, financial planner and brokerage firm. If your parents are retired, ask where their income comes from (pension, Social Security and IRA withdrawals, for example). Learn their medical history (such as any drug allergies and past surgeries) and what prescription drugs they take. And if they’re willing, get their Social Security numbers, as well as numbers for their bank and investment accounts and insurance policies. Find out who the beneficiaries are. Be sure to ask what their final wishes are and how they want funeral arrangements handled.

Arm yourself with legal power
To help your parents manage their money when they no longer can, you will need power of attorney. Power of attorney lets you handle any financial transaction — from signing checks to selling your parents’ home. This document is like the key to a car — without it, you can’t drive, says Stephen J. Silverberg, an elder-law attorney in Roslyn Heights, N.Y., and a former president of the National Academy of Elder Law Attorneys (NAELA). However, you can’t wait until your mom or dad doesn’t have the mental capacity to handle financial transactions before you get this document. For a power of attorney to be valid, your parent must be competent when he or she signs it. Otherwise, you’ll have to go to court, and a judge will have to deem your parent incompetent.

Make sure you have a durable power of attorney, which takes effect immediately. A springing power of attorney will not take effect until your parent is deemed incompetent by a doctor, who may be hesitant to sign anything that might lead to a legal dispute, Silverberg says.

If you have siblings, all of you can be given power of attorney, and the document can specify whether you must act together. To prevent abuse by one child, the document can build in oversight by requiring anyone exercising the power of attorney to answer to a third party. It can also limit powers to prevent you (and your siblings) from changing your parents’ wills or beneficiary designations on life-insurance policies.

The power of attorney should conform to the laws of the state where your parents live (or states, if your parents divide their time between two). Silverberg recommends hiring a lawyer who specializes in elder law to draft this document. You can search for an elder-law attorney who practices where your parents live at www.naela.org.

Many financial institutions and brokerages have their own forms that must be signed by the account holder before you can gain access. Be sure to give the institutions a copy of the power of attorney (not the original) soon after it is signed. If you wait years to do this, you may have to get your attorney to recertify the document. Also send copies of the power of attorney to the credit-card and insurance companies at which your parents have accounts and policies so that you will be able to make transactions on their behalf.

Make sure your parents also have a health-care decision-making document, such as a health-care proxy, or living will (different states call it different things). It will give you authority to make medical decisions for them when they can’t. Let your parents’ doctors know you have this document. Your parents might also have to sign a Health Insurance Port-ability and Accountability Act (HIPAA) release form, Silverberg says, to give you access to their medical documents.

Warning signs
If your parents are having trouble handling their finances, don’t expect them to reach out to you for help. “Parents sometimes will go through self impoverishment so they won’t have to be a burden,” Merlino says.

Be on the lookout for signs that your parents are having problems. If a parent talks about the same thing again and again or forgets conversations you recently had, don’t write it off. Investigate. “A lot of times, people are in denial when they start to see their parents forgetting,” says Carlo Panaccione, financial planner and president of the Navigation Group, in Redwood Shores, Cal. But if you start seeing obvious signs that your parents are having difficulty making decisions, you need to get the whole family involved so one person isn’t the bad guy, says Panaccione.

Granted, that can be a little easier said than done, especially if one child is physically or emotionally closer to the parents and would be a natural choice to step in and help. Ask a third party — a doctor, accountant, financial planner or geriatric manager — to suggest that your parents let you lend a hand. They might be more receptive if the advice comes from a professional they trust.

As you start stepping in, do so in a way that preserves your parents’ dignity, says Fodrini-Johnson, who has been providing elder-care services in the San Francisco Bay area since 1989. “You can’t just go in and take over,” she says. Some things you try may not work, so be ready with alternatives. And if your parents balk at your efforts entirely, it’s okay to be sneaky to gather the information you need to help them, she says.

One strategy is to suggest that you take over one of their financial responsibilities, such as preparing their taxes, so that they have more time to do what they enjoy. For each responsibility you take away, suggest replacing it with a pleasurable activity — such as a weekly lunch date — to mitigate the loss, says Fodrini-Johnson. And be sure not to take away all their financial responsibilities at the same time.

The elderly can be easy prey for financial scams. Tell your parents that you want to protect them by helping them go through their mail and monitor their accounts for unusual activity. Help them get copies of their credit reports at Annualcreditreport.com to make sure they aren’t victims of identity theft. And put your parents on do-not-call lists. Most telemarketers will stop calling once a number has been on the National Do Not Call Registry for 31 days. You can register home and cell-phone numbers free at www.donotcall.gov or by calling 888-382-1222.

Offer to help them develop a spending plan (don’t call it a budget). This will give you a chance to see how much money they have coming in and how they’re spending it. If they’re having a lot of trouble managing their finances, you’ll need to limit their access to cash. You can start by setting up automatic payments for regular bills to reduce the number of checks that need to be written. If you have access to your parents’ checking account, limit the amount of money in it by regularly transferring funds to a savings or money-market account. And if spending is out of control, consider giving your parents a secured credit card, which allows them to make a deposit that becomes their credit limit, and taking away other credit cards.

During this process, pay attention to how many checks or credit-card charges are made to charitable organizations and other groups. My mother would say yes to every organization that called or mailed her a donation request and was even writing checks to some groups several times a year. These were groups to which she had no connection and causes I knew she wasn’t passionate about. So I asked her which organizations mattered most to her, and we developed a giving plan that included only those groups. I closely monitor her mail now and toss any solicitations from groups that aren’t on the list.

If you find that your parents have been the victims of a scam or entered into a questionable financial relationship, consider putting them on a cash allowance, Panaccione says. “A lot of people will avoid it because they are afraid of conflict with their parents,” he says. “But what’s the alternative? Let them go until they have nothing left?” Tell your parents that you’re giving them a certain amount each week or month to spend as they please and that you’ll take care of the bills. And be sure to let them know that you’re doing this not because you’re trying to control them, but because you love them.

In the two years since my mom was diagnosed with Alzheimer’s, I have gone from being her “financial adviser” to her full-time money manager. I go through her mail, monitor her checking account and, as holder of her power of attorney, pay all the bills. I give her cash each week for outings with friends. And — to be accountable to my sister, who lives several states away — I keep a record of all of these financial transactions on a spreadsheet.

Initially, I was uncomfortable making financial decisions for my mom. But after someone almost conned her into wiring him several hundred dollars, I knew I had to do everything I could to protect her and her money. She protected me when I was a child and couldn’t take care of myself. Now it’s my turn to take care of her.

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