The holidays have a way of making us see our parents with fresh eyes. Maybe you noticed Dad struggling a bit more with the stairs, or Mom repeating the same story at dinner. Perhaps the mail is piling up, bills aren't getting paid on time, or the house isn't as well-kept as it used to be. These moments can be jarring—but they're also valuable prompts to help your parents get their affairs in order while they're still able to make decisions.
This guide walks through what needs attention, starting with the most urgent items and moving toward longer-term tax planning strategies. While we can't advise on legal documents (that's your attorney's job), we can help you understand what pieces need to be in place and how they connect to tax planning.
First Priority: The Essential Documents
Before discussing tax strategies, make sure the foundational documents are in place. Without these, a health crisis can create chaos—and expensive court proceedings.
Financial Power of Attorney
A financial power of attorney (POA) authorizes an "agent" to handle financial matters on your parents' behalf—paying bills, managing accounts, filing taxes, handling investments, and selling property.
The critical distinction: a "durable" power of attorney remains in effect even if your parent becomes incapacitated. A standard POA terminates upon incapacity, which defeats the purpose.
Without a financial POA, if your parent has a stroke or develops dementia, no one can access their accounts. The family would need to petition a court for guardianship—a process that takes months and costs thousands.
Healthcare Power of Attorney
A healthcare power of attorney (or healthcare proxy) authorizes someone to make medical decisions when your parent cannot—consenting to treatments, choosing facilities, accessing records, and making end-of-life decisions. This serves a completely different purpose than the financial POA; many families name the same person for both, but you can split these responsibilities.
Living Will
While a healthcare POA names who
makes decisions, a living will specifies what
decisions should be made—particularly for end-of-life situations like life-sustaining treatment, resuscitation, and comfort care. This guides the healthcare proxy and prevents family disagreements about what your parent "would have wanted."
Wills, Trusts, and Other Documents
Your parents also need a will directing how assets should be distributed and naming an executor. Many families benefit from a revocable living trust, which avoids probate, provides for asset management during incapacity, and keeps matters private. Whether a trust makes sense depends on the estate's size and complexity—an estate planning attorney can advise.
Other potentially relevant documents include HIPAA authorizations, burial instructions, and documentation of digital assets and passwords.
Choosing the Right Agent
Naming an agent is one of your parents' most important decisions. Key factors: trustworthiness(financial exploitation by family members is common), availability(someone across the country may struggle with hands-on tasks), capability(the financial agent should be comfortable managing money; the healthcare agent needs emotional resilience for difficult decisions), and willingness to serve. Consider family dynamics—naming one child over another can create resentment. Your parents should also name successor agents as backups.
Timing Matters
These documents require mental competency to execute. If your parent already has significant cognitive decline, it may be too late. Don't wait—if these documents don't exist, an estate planning attorney should be the first call.
And while you're helping your parents, review your own planning. When did you last update your documents? Are guardian designations and beneficiaries still appropriate after life changes?
Why This Matters: Long-Term Care Is Harder Than Death
From a planning perspective, a sudden death is often easier to manage than a prolonged decline. When a parent develops dementia but remains physically healthy, someone must manage their finances for years—potentially decades—while they progress through care levels costing $6,000-$10,000+ monthly.
Without a durable financial POA, who pays the bills when Mom can't? Without a healthcare POA, who decides when Dad needs more care—especially if he insists he's fine? Without clear guidance, these decisions lead to family conflict, court intervention, or both.
Second Priority: Understanding What's Already in Place
Once the essential documents exist, understand what your parents actually have. Work with them to create a list of bank and investment accounts, retirement accounts, real estate, life insurance, annuities, and business interests. Note how each account is titled and where it's held.
Equally important: review beneficiary designations. These override what's written in a will. We've seen cases where someone updated their will after a divorce but forgot to change the beneficiary on their 401(k)—and the ex-spouse inherited everything. Check designations on all retirement accounts, life insurance, annuities, and any transfer-on-death accounts. Make sure primary and contingent beneficiaries are current.
The Gifting Question: Why Old Advice May Not Apply
For decades, advisors recommended giving away assets during life to reduce estate taxes. That made sense when exemptions were lower. Today, the federal exemption is $13.99 million per person ($15 million starting 2026)—$30 million for couples. For most families, estate taxes aren't a concern, and lifetime gifting can actually create unnecessary taxes.
The step-up in basis:
When someone inherits an asset, its tax basis "steps up" to fair market value at death. Example: Your parents bought stock for $50,000 that's now worth $500,000. Gift it during life, and you inherit their $50,000 basis—sell it, and you'll owe tax on $450,000 of gain. Inherit it after they pass, and your basis becomes $500,000—sell it for that amount, and you owe nothing.
The exception:
Medicaid planning. If your parents may need long-term care and could require Medicaid, strategic gifting beyond the five-year lookback period can help preserve assets—but this requires an elder law attorney.
For most families, holding appreciated assets until death and letting the step-up work is the better strategy.
Tax Planning Opportunities
Roth Conversions in Lower-Income Years
Many retirees are in a lower tax bracket between retirement and when RMDs begin at age 73. A Roth conversion moves money from a traditional IRA (taxed on withdrawal) to a Roth IRA (tax-free withdrawals). You pay tax now, but future growth and withdrawals are tax-free.
This benefits parents in lower brackets—they pay less tax than they or their heirs might pay later. It also reduces future RMDs and provides tax-free inheritance. That last point matters: most non-spouse beneficiaries must now empty an inherited IRA within 10 years, and inherited traditional IRA withdrawals are fully taxable. Inherited Roth IRAs face the same 10-year rule, but the withdrawals are tax-free.
The common approach is converting "up to the top of the bracket" without spilling into the next one. Caution: larger conversions can trigger Medicare premium surcharges (IRMAA) and increase Social Security taxation. The math needs to be done carefully.
Exiting Rental Properties Without the Tax Hit
If your parents own rental property, you've heard the complaints: tenant issues, maintenance calls, property management headaches. As people age, active management becomes burdensome. And do you or your siblings even want to inherit rental properties?
A 1031 exchange offers a solution. Rather than selling and paying taxes, your parents can exchange their property for a more passive investment—like a Delaware Statutory Trust (DST) or triple-net property. The exchange defers capital gains while allowing them to step back from management. For details, see our Complete Guide to 1031 Exchanges.
Even better: if they hold the replacement property until death, the step-up in basis eliminates the deferred gains entirely.
Coordinating the Pieces
Effective planning requires coordination between the estate planning attorney, CPA, and any financial advisors. What often falls through the cracks is communication—we've seen estate plans drafted without considering tax implications and Roth conversions done without considering Medicare impacts. Encourage your parents' advisors to talk to each other.
Having the Conversation
Talking to parents about this isn't easy. Frame it as helping them:"I want to make sure we can take care of things if something happens." Start practical:"Do you have important documents in one place?" Bring your own planning into it:"I'm working on my own documents and realized I should ask about yours." Be patient
—these conversations often happen over multiple visits.
Taking Action
Confirm essential documents exist.
No financial POA, healthcare POA, or living will? An estate planning attorney should be the first call.
Gather information.
Create a list of accounts and assets; review beneficiary designations.
Identify the planning team.
Attorney, CPA, financial advisors—get contact information and encourage communication.
Schedule a review.
In my own family, when reviewing my grandmother's documents just months before her passing, we discovered they didn't say what she thought. Thankfully, she was still competent and able to update them—but it was close. Don't assume existing documents are correct or current.
For the tax planning aspects, we're here to help. At Desert Rose Tax & Accounting, we work with families navigating these transitions—evaluating Roth conversions, analyzing property sale implications, and coordinating with other advisors.
Give us a call at (520) 747-4964 or visit www.desertrosetax.com
to schedule a consultation.
Edward Ethington, CPA, CFP®, MBA
Desert Rose Tax & Accounting
Helping Families Plan with Clarity
(520) 747-4964
www.desertrosetax.com
This blog provides general information about tax and planning considerations and should not be construed as legal, investment, or personal tax advice. Estate planning documents should be prepared by qualified attorneys. Investment decisions should be made with appropriate licensed professionals. Tax laws are complex and change frequently. Please consult with the appropriate professionals for guidance specific to your situation.
