You could rent out a room, but that proposition seems iffy at best. Really, who wants a stranger rummaging around in the refrigerator for a midnight snack?

The solution for many boomers who are 10 years or less away from retirement might be simple: downsize, especially if you have considerable equity in your home.

Less is more

Moving into a smaller house whether it’s in retirement hot spots such as Florida or Arizona or even your childhood hometown can be beneficial to your bottom line in many ways.

For one, a smaller home likely means smaller utility bills. It’s much cheaper to heat and cool a two-bedroom bungalow than it is a five-bedroom, two-story mansion, notes Ben Garson in writing for Realtor.com (http://tinyurl.com/aobkrzf).

But it isn’t just utilities where you will save. A smaller house means a smaller tax burden and a lower insurance bill. With the housing market still weak in huge swaths of the country and interest rates at all-time lows, you will most likely have a favorable mortgage – that is, if you don’t buy the house outright.

Live long, and prosper

With economists and financial planners in recent years warning of “financial death” – retirees outliving their retirement benefits – going smaller can stave off this possibility as you reach your 70’s and 80’s. If you downsize you might have to live on less than the industry advises because if you’re like the rest of the country their 401(k) plans took a beating when the economy tanked in 2008. Unless you work or worked in an industry with a strong retirement plan – say, railroads or maybe a teacher’s union – you probably don’t have a pension to help support yourself.

If you stave off applying for Social Security benefits at age 62 and instead work longer, it will also help your bottom line when you do decide to kick back.

For every silver lining, there’s a dark cloud

The soft real estate market is a double-edged sword, says The Wall Street Journal (http://tinyurl.com/akepzt9).

Although it’s true you won’t likely pay a premium for a new house, it’s also true you might have a hard time getting a good price for your old home. And if you want to live in a retirement hot spot, you’re going to find the prices higher than in your hometown.

Besides the economic considerations, there’s the emotional side to take into account. Pulling up stakes and selling off most of your worldly possessions is easy in theory – “Do we really need that seashell?” – but actually going through with it is a much tougher proposition – “We got it on our honeymoon.”

Then there are your grown children to consider. Many will resist their parents selling the house they grew up in, and often the kids are more emotionally attached to all that “stuff’ than you are.

Downsizing, obviously, can be a boon for some people, but it’s easier if you’re on sound financial footing before taking that big step.

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As reported by Bloomberg, this means that taxpayers will be able to leave an extra $130,000 to their heirs free of estate taxes this year under cost-of-living adjustments announced by the Internal Revenue Service (http://tinyurl.com/cgh27ch). The estate-tax exemption for 2013 will be $5.25 million for individuals, up from $5.12 million in 2012, the IRS said. For married couples, the combined threshold is $10.5 million.

Passing the law also affected gift taxes, and it raised the top tax rate after the exclusions from 35 percent to 40 percent, according to Forbes (http://tinyurl.com/aeeyadl).

Gift taxes, too

The gift tax exclusion under the new law keeps in place the $5 million amount (also adjusted to $5.25 million) allowed for each American, and it makes permanent the unification of gift tax and estate tax exclusion amounts.

What unification means is this: Each person can make lifetime gifts of up to $5.25 million without triggering taxes. But, gifts that use a portion of the gift tax exclusion count against your estate tax exclusion available at death. For example, if you gave a gift of $1 million to your child, your estate tax exclusion at death drops to $4.25 million, Forbes says.

The lifetime gift tax exclusion does not alter the annual tax-free gift exclusion, which is currently $14,000 per person or $28,000 for a married couple. The annual tax-free gift does not count against the lifetime exclusion unless the gift is for more than $14,000.

Marriage an asset

Under the new law, spouses continue to reap benefits when they inherit assets from each other. For estate and gift taxes, you get unlimited deductions that postpone the tax owed on those assets until your spouse dies. The marital deduction applies only if the spouse inheriting the assets is a U S citizen, Forbes reports.

Spouses also retain the portability benefit. Your surviving spouse is allowed to add any unused gift or estate tax exclusion of the spouse who died to their own. In practical terms, this means the surviving spouse could wind up with $10.5 million tax-free. This benefit is not automatic, however. The estate’s executor must transfer the unused exclusion to the survivor, who then must file an estate tax return within nine months, even if no taxes are owed. The surviving spouse then can make lifetime gifts or pass money and assets through his or her estate.

The fine print

Income taxes on the wealthiest Americans – now defined as those who make more than $400,000 individually or $450,000 as a family – have increased from 35 to 39.6 percent, CNN reports, (http://tinyurl.com/am4dc42).

You can use the annual exclusion, $14,000, to set up a Section 529 education savings plan for children or grandchildren, helping offset college costs.

The best advice for you: Take advantage of the act’s provisions now. If anything is certain in Washington, “permanent” laws are anything but.

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That is especially true if there are no trusted family members living nearby.

But there are resources to help. Whether it’s balancing the checkbook, paying bills, managing charity donations or filing insurance claims, a daily money manager can take care of a senior person’s day-to-day business.

Not just for the rich

The wealthy have used money managers for generations, but the service has grown to include people from all walks of life, the Chicago Tribute reports (http://tinyurl.com/b8t5hcy).

Because they’re not financial planners, The Wall Street Journal says, daily money managers generally do bookkeeping services during house calls, including devising budgets, organizing tax records and filing medical claims and appeals (http://tinyurl.com/a4242k9).

This service could be a perfect fit for snowbird people. Making sure bills are paid on time helps protect a person’s nest egg and eliminates the need for people to keep on top of them while wintering south.

For a non-profit option, there’s the National Association of Professional Geriatric Care Managers. Although it can help people with referrals to professionals in the care giving field, about 20 percent of its geriatric care managers also offer daily money management services.

There are free services through the AARP Foundation’s Money Management Program (http://aarpmmp.org) that works with 127 non-profits and government agencies.

Due diligence

Unless expressly specified legally, daily money managers do not have power of attorney. But because the field is currently unregulated, make sure you do your homework before hiring a money manager.

Among the things you should do is hire someone with credentials that are verifiable and real, and ask if the manager is a member of an organization with a code of ethics. Get references from friends and professionals alike. Make sure you sign with someone who is bonded or has liability insurance and find out the amounts of coverage they carry. Finally, be clear about fees; does the manager charge a flat fee, or are expenses included?

And, of course, someone trusted should periodically double-check the money manager’s work to ensure its accuracy.

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The Wall Street Journal (http://tinyurl.com/cy3xval) recently listed several ways that you can take advantage of the current gift tax limits:

• Forgiving loans to family members;
• Equalizing cumulative financial gift amounts to children and grandchildren now, so they can avoid arguments and estate taxes later;
• Spreading financial ownership of a family business amongst beneficiaries;
• Creating irrevocable trusts that ensure peace of mind for you and your beneficiaries.

Loan Forgiveness

If you have loaned money in previous years to family members, this is a good time to turn that loan into a tax-exempt gift. However, you must be careful when using gifts in this way to avoid back tax penalties or audits for yourself or family members.

According to the IRS, those previous loans can be brought into question without a proper paper trail to prove that they were not actually gifts at the time they were made. To avoid questions from the IRS about the validity of the previous loans, you can give family members money which can be used to pay off the loan. You must keep documented proof of this loan repayment in order to avoid penalties.

Equal Division of Assets

Wills and trusts often call for the equalization of gifts to children and grandchildren for weddings, education, homes, or other needs. To prevent squabbling among family members about fairness, you can take advantage of the higher gift limits by making that equalization now rather than later, ensuring the equal distribution of financial gifts to all beneficiaries.

Continuing the Family Legacy

Under current law, current gift tax-exemptions and valuation discounts for minority stakes in a business allow you to spread out ownership of the family business among beneficiaries. By gifting stakes in a business, you can avoid future estate taxes and maintain continuity of ownership. These valuation discounts may be taken away, so now is the time for you to make those gifts.

Peace of Mind

Irrevocable trusts are the tried and true way to safeguard wealth. Spousal limited-access trusts (SLATs) can ensure that you take advantage of gift-tax limits without giving away too much too soon.

The time has never been better for making those tax-exempt gifts, so take advantage of it now before the law changes.

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You should understand the importance of having these documents in place before they become necessary.

Even movie stars known for playing attorneys can find their families in such an unnecessary dilemma.

‘Elle Woods’ Representing

In May, “Legally Blonde” actress Reese Witherspoon found herself in a real life court in her home state of Tennessee, alongside her mother, Betty, as they petitioned for joint conservatorship over Reese’s father, Dr. John Witherspoon. Reese’s parents are separated, but not divorced.

According to court documents, a restraining order was obtained against Tricianne Taylor, a woman who entered into a bigamous marriage with Reese’s father, allegedly in order to borrow hundreds of thousands of dollars while using John’s last name. The order prevents Taylor from using the Witherspoon name or presenting herself as John’s wife.

Betty Witherspoon told the court that her husband has no memory of marrying Taylor and that he suffers from possible dementia along with several other medical conditions. She and Reese asked the court for conservatorship in order to become decision-makers for him due to his health. The case is ongoing.

Pick a Guardian, Put it in Writing

According to the 2012 Alzheimer’s disease facts and figures report (http://tinyurl.com/bs277xn) by the Alzheimer’s Association, “Among people with dementia who live alone, as many as one-third to one-half do not have an identifiable caregiver.”

That’s 2.7 million people who have no legal provisions for their care!

The Alzheimer’s Association recommends that advance directives be put in place to allow family members to make decisions about an individual’s care while they are still able to make their wishes known, and the earlier, the better. These documents should include a durable power of attorney, a health care power of attorney and a living will.

Illness or injury can happen at any age, but these documents – prepared by an experienced estate planning attorney – can help ensure that your wishes are followed and give family members peace of mind.

If these documents had been in place for John Witherspoon, the stress and legal wrangling his family is now going through to protect his assets and his name likely could have been avoided.

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Making this decision is not as simple as picking a favorite aunt or an eldest child. The choice can be difficult. That’s why we’re sharing some basic advice to use on picking an after-death or disability Trustee.

Role of a Successor Trustee

This person manages the assets in the Trust in the best interests of the beneficiaries (including yours in the event of incapacitation) and makes decisions on how assets are invested or released.

You need assurance that whomever they choose is responsible and will carry out their wishes, make sound judgments and seek professional advice on managing the Trust when necessary.

Typically, this role is often assigned by you to a spouse, relative, close friend, business professional advisor or a corporate fiduciary. Sometimes, co-trustees are chosen from a combination of candidates.

They Can Keep It in the Family

A relative can be a great choice as Successor Trustee if he or she:

1. Is competent to handle finances and will follow the Trust’s instructions;
2. Has time and interest to take on the role;
3. Will avoid family conflict by being unbiased and unemotional when making decisions.

Corporate Fiduciaries as Trustee

Some Revocable Living Trusts are complex or may be designed to benefit heirs for many years to come. Trust companies and banks are regulated by government and can manage assets for decades. Their advantages include:

1. They don’t die or become incapacitated.
2. They act objectively in following the Trust.
3. They keep detailed records and have estate administration, tax and investment expertise.

Considering a Professional Advisor

Sometimes a professional who is familiar with your estate plan is a good choice, providing there is no conflict of interest. This could be a financial advisor, an estate planning attorney, a tax professional, or a combination of these professionals.

Regardless of whom you choose, the basic intents of a good Successor Trustee are the same: integrity, good judgment and objectivity.

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While cash is the most direct way to pass wealth to heirs, you might need that money at some point. If you’ve already given it away, it’s not very easy to get some of it back.

A recent article in the New York Times (http://tinyurl.com/9vhpzyx) highlighted the benefits and risks of leaving heirs investment properties.

Not the Homestead

We’re not talking about someone leaving multiple heirs the family home, which the article points out can be more complex than you might expect.

What if one child has no desire to maintain the family home? What if the adult children squabble over who can use it and when? What if two of them want to sell it for cash, but a third child’s spouse is opposed because the grandchildren haven’t had enough holidays spent in it?

Instead, the article talks about other kinds of properties – farms, ranches, buildings and timberland. These types of property often carry less personal or emotional value for heirs. They produce income, and when placed in a drafted Trust, such legacies can keep a family together for generations.

Important Considerations

Giving away property isn’t as simple as giving cash. There are important questions to review to help you understand that the future isn’t always predictable.

For instance, how can you ensure that the property will be well managed for the next four or five decades? Who will administer the Trust? What if the property operates as a business?

Also, what should be done if a beneficiary wants to sell his stake in a property? A Trust needs to be drafted so that beneficiaries have a clean way out.

Avoiding Conflicts

If there’s income, everyone wants a share. Sibling rivalry can, and often will, rear its ugly head. Think about making distributions fair.

Finally, heirs beget heirs. Over time, there can be smaller ownership stakes as grandchildren and great-grandchildren enter the picture. Think how this can affect the legacy you want to leave behind.

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The parents, ages 65 and 79, eventually moved to Greece to stay with relatives. That’s when the nursing home tried to collect on the debt – not by billing Medicare or mom and dad but their son.

As reported in the Wall Street Journal (http://tinyurl.com/7lj4kf8), a Pennsylvania court initially found the man liable for the debt under a so-called “filial support” or responsibility law. Although rarely used, 29 states have filial support laws, which allow companies to go after adult family members for unpaid medical bills.

Are you protected?

Whether you are a retiree or someone caring for one, you should know the law before signing any paperwork that could burden not only your own estate but your children’s – and grandchildren’s.

U.S. filial laws have been on the books since this country was founded and are based on England’s Poor Act of 1601. Essentially, they maintain that individuals who are “financially able” are responsible for supporting their indigent relatives. In half a dozen states, grandchildren are considered responsible parties as well.

What can happen to families?

AARP magazine wrote (http://tinyurl.com/45cdct5) about a Florida woman sued for $50,000 by her mother’s nursing home. The company threatened to put a lien on her house. An elder law attorney fought the suit, and the charges were dropped. However, many states can impose liens for unpaid care bills.

In addition to liens, courts can garnish an adult child’s wages and any judgment will appear as an unpaid debt on an individual’s credit report. In some states, there are criminal penalties for family members who don’t pay up.

Legal protection is available

Experts agree the best defense to ensure a family’s financial security is planning. Understanding the laws applicable in your area can empower you make sure your family is protected.

A financial solution is investing in long-term care insurance, which can cover the gap between the cost of care and what the government pays through Medicare. Legal protections are also available. For example, these laws are not applicable in all states.

Finally, most states’ filial support laws are vague and do not define what makes one “financially able” to pay for a family member’s eldercare or what makes a parent “indigent”. This opens the door to legal appeals even if you are asked to pay under the law.

For a complete list of states with filial laws and the applicable statute numbers for your state, visit
http://tinyurl.com/9xyv3j6.

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According to the Alzheimer’s Association, 5.4 million Americans are living with it, and one in eight older Americans is afflicted with the progressive, incurable disease. The association says that the first step when a diagnosis is made is to assess the affected individual’s assets: Social Security and pensions, bank accounts and IRAs, real estate and life insurance policies.

Options exist

When you are no longer able to manage your finances, a relative or other trusted individual should have durable power of attorney to make sure you are properly cared for.

The Alzheimer’s association says (http://tinyurl.com/965uhtl) your caregiver can become a “representative payee” with access to your benefit checks. This option is available from the Social Security Administration, the Department of Veterans Affairs and the Railroad Retirement Board, the group says.

Another option is a joint bank account for you and your caregiver, although this might complicate applying for Medicaid or other benefits. You should consult an attorney who specializes in elder law early on to help make the right decision.

Finally, setting up a living trust might be best, whether revocable or irrevocable. Only irrevocable trusts, the Alzheimer’s Association says, protects your assets in case he needs long-term care.

Loss of Control

In many cases, people have spent a lifetime managing their finances, and giving up that control can be the hardest thing to do. A Reuters story (http://tinyurl.com/9fgd8ae) gives tips on how family members can deal with elderly relatives and their finances.

Basically, they all boil down to being diplomatic and acting before it’s too late to have any legal say in the financial well-being of an affected family member.

In the case of investment accounts, the story says, use even more finesse because the stakes are higher.

In the case of an affected family member, you shouldn’t tell him that you don’t think he is capable of buying and selling responsibly, but rather “tell him you admire his long history of smart investing and would like to learn from” him. You should ask, the story says, to attend meetings with his investment advisor.

Ripe for the Picking

Alzheimer’s disease patients are often easy prey for scam artists – a cursory Internet search brings up dozens of such cases – and without sound financial and legal planning, you could fall victim, too. According to the Reuters story, more elderly people are ripped off by relatives than are scammed by professional advisors.

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During admission, your family’s given stacks of papers – “Just sign here,” they are instructed – and, under stress already, many families’ sign without closely reading the documents. Increasingly, one of the papers nursing homes include binds the families to arbitration if a dispute arises.

Such agreements are commonplace when signing up for a cell phone or credit cards, and they’re increasingly showing up in nursing homes.

But, as highlighted recently by NPR, agreeing to arbitration means you are giving up the right to take a grievance to a court of law, cutting off one avenue of seeking redress from the nursing home (http://tinyurl.com/ax9op72).

Competing interests

If a loved one is severely injured or dies, an arbitrator, not a judge or jury of your peers, would decide if damages are warranted.

The purpose of mandatory arbitration agreements, the AARP notes, is to prevent legal action against a facility should something bad happen, such as serious injury or, less typically, death of a nursing home resident (http://tinyurl.com/bd3yzbk). Although arbitration carries benefits – claims typically are resolved more quickly than in court cases – consumer advocates say signing a binding arbitration pact is generally not in families’ best interests.

For the nursing home, arbitration agreements are good business, but not so for nursing home residents’ and their families.

Kaiser Health News reports that between 2003 and 2011, Aon Global Risk Consulting looked at 1,499 cases involving long-term care providers (http://tinyurl.com/ant5gec).The group found there was no money awarded in 30 percent of claims where a valid arbitration agreement was in place, compared with 19 percent of claims where there was no agreement in place or it was unenforceable.

Aon also found that about 12 percent of claims without arbitration led to awards of $250,000 or more, but only 8.5 percent of claims with an arbitration clause did so.

Just say no

Before sending a loved one to a nursing home, it’s wise to have an attorney review the documents before signing. However, even if such a document has been signed, most have a 30-day “opt-out” provision.

If all else fails, you can seek to have the arbitration agreement invalidated by the courts.

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