Tax planning: Tapping Mom's nest egg to help with Alzheimer's care

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Judy O'Connor
Dear Tax Talk,
I'm writing to you to find out if you know where I could go or who I could consult with regarding how the IRS would interpret a particular capital gains issue. I act as power of attorney for my mother, who has late-stage Alzheimer's. She is income-poor and holds a considerable amount in stocks with a very low cost basis. I'm hoping I can sell these stocks and generate cash to take care of her without incurring a big tax liability. Thank you for your consideration.
-- Dane

Dear Dane,
You should consider seeking out a certified public accountant, or CPA, who can help you figure out the most tax-efficient way to get the funds you need for your mother's care.

If you have never used a CPA before, you could ask for referrals from family, friends and even the stockbroker who handles your mother's stocks, if that is the case. Additionally, many CPAs are members of their local chamber of commerce, and you can use that as a resource.

Finding a CPA for tax-planning purposes:

  • Ask family and friends for referrals.
  • Check with other financial professionals you do business with, such as bankers and attorneys.
  • Consult your local chamber of commerce.
  • Make sure the individual is licensed to practice in your state by checking the relevant board of accountancy.
  • Search at the website of the American Institute of Certified Public Accountants for a CPA Personal Financial Specialist.
  • Make sure the person you hire is someone you can talk to and trust.

You should be prepared to discuss your mother's entire financial picture, including not only her income sources such as Social Security, stock dividends and interest, but also all of her financial requirements for the care she needs at this time of her life. You will also need to know what other assets she owns besides the stocks, such as her home.

Working with you and possibly the broker, the CPA will be able to prepare "what if" tax projections for you so you know what to expect tax-wise. Some of the expenses for the care of your mother may be deductible as medical expenses, and that will also need to be factored into the equation.

Thanks for the great question and all the best to you and your mother.

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