I Manage my Mother-In-Law's Finances. Should I be paid?

This Week's Quote:

“You can never let anyone tell you what you can or cannot do.”

                                  -Chris Norton

If we live long enough, we will most likely become caregivers.  “Caregiving in the U.S. 2020” as published by the National Alliance for Caregiving and AARP, stated about 1 in 6 Americans currently care for someone aged 50 or over.  More than half of these caregivers are themselves aged 50 or over and 20% are aged 65 or older.  According to AARP, 42% of caregivers have experienced a financial impact from this role. 
    
The article by Glenn Ruffenach as found in the WSJ on Monday, October 10, 2022 continues this discussion including other payments for caregivers including roles as executors and/or trustees.

Please find this article reprinted below for your reading.
 
-Mark Bradstreet

For a number of years, I have been managing my mother-in-law’s finances: investments, taxes, bills, setting up a trust, etc. This involves a great amount of time. My mother-in-law has named her adult children as her beneficiaries. If my wife predeceases my mother-in-law, I won’t benefit from the estate. My question: Am I allowed some/any compensation for my past, current and future efforts managing these affairs? Note: My wife and I are trustees on the trust and co-executors on the will.

I’ll tackle the particulars in a moment. (The short answer: Yes and no.) But there’s a larger issue here, which is the potential financial strain on caregivers of all stripes.

A few numbers: About 1 in 6 Americans currently provide care to someone age 50 or older, according to “Caregiving in the U.S. 2020,” a report published by the National Alliance for Caregiving and AARP. That equates to 42 million caregivers who are helping older adults. Among this group, more than half (56%) are themselves 50 or older; 20% are 65 or older.

Yes, caregiving frequently involves helping an individual with (as health professionals put it) “activities of daily living,” such as bathing, dressing and eating. Equally important, though, are “instrumental activities of daily living,” or the more complex tasks that allow people to live independently.

In these instances, a caregiver might assist with transportation (say, driving a person to medical appointments), shopping (helping the same person with, say, their grocery trips) or, as in your case, managing a person’s finances.

The point: All of these duties, in the long run, can be financially draining, more so than many caregivers realize. The National Alliance for Caregiving and AARP found that 42% of individuals who help care for an adult age 50-plus “have experienced a financial impact due to their role as a caregiver.” More specific, 32% say caregiving has eroded their savings, in some form; 20% have taken on debt; and 13% have borrowed money from family or friends.
 
As such, all caregivers should ask and try to answer the same questions that, in effect, this reader is asking: Can I quantify how much my caregiving efforts are costing me? And are these costs putting my financial security at risk? Yes, we always hear that caregivers also must care for themselves, for their physical and emotional well-being. That care should extend to one’s financial health, as well.

As for your questions, absent some type of contract—say, a Personal Care Agreement, which some families use to reimburse caregivers—you likely aren’t entitled to compensation for past work. It isn’t too late, though, to discuss with family members your current and future efforts, a conversation that, admittedly, might be difficult. (Many parents and adult children loathe talking about money.)

As noted in an earlier column, this is a situation where a family mediator might prove useful. See, for instance, the Academy of Professional Family Mediators or the National Care Planning Council.

Looking ahead, there are state rules and statutes that, at some point, could result in compensation. Consider:

An executor’s duties. As an executor you would be entitled to “reasonable compensation” for administering your mother-in-law’s estate after she dies, says Jessica Estes, an elder-law and estate-planning attorney in Annapolis, Md. Typically, the probate court in the jurisdiction where the deceased lived will determine what’s “reasonable.”

There is some wiggle room here, Ms. Estes adds. “If there’s a reason to deviate from the standard rate—for example, if the estate is far more complicated than a typical estate—the probate court might allow a higher fee,” she says.

Two notes: First, some states tie an executor’s fee to the value of the estate. You can get a ballpark figure for fees in a particular state at EstateExec.com, an online tool that includes an interactive map and compensation calculator. (Scroll to the bottom of the home page, click on “Guide” and search for: Compensation.) Second, any compensation you receive as an executor is considered taxable income. (More on this in a moment.)

Where there’s a will… I’m assuming that, currently, your mother-in-law’s will doesn’t include language that allows compensation for you as an executor. (Perhaps she and other family members simply aren’t aware of how much work can be involved.) She could, of course, amend her will to do so.

She also could help ease the tax bite on your fees.

Again, an executor’s compensation is taxable. An inheritance, on the other hand, generally isn’t. With that in mind, your mother-in-law might be open to including a bequest for you in her will—one that, in effect, would compensate you for your services. For example, the “bequest could be stated as a percentage of the estate, not to exceed a certain dollar amount,” Ms. Estes says.

Ideally, your mother-in-law should consult a lawyer, Ms. Estes adds, who could help her determine which approach—a bequest or a provision allowing for compensation—might work best.

Trusts and trustees. You mention that you set up a trust for your mother-in-law and that you and your wife are the trustees. As such, you could be entitled to compensation as a trustee.

To start, the trust’s language might spell out if you’re eligible to be reimbursed for your work. “If the trust is silent on the matter, usually the trustee would be entitled to reasonable compensation in accordance with state laws,” Ms. Estes says. Again, these fees would be considered taxable income.

A caveat: The issue of trusts and compensation can get complicated quickly, depending on several factors. They include whether your mother-in-law has transferred her assets to the trust; whether she’s competent to amend the trust (if she wishes to do so); who has power of attorney; and the language used in creating the power of attorney.

All of which argues, again, for discussing your role as financial caregiver with your family as a whole. I would like to think they value your efforts.

Credit goes to Glenn Ruffenach, Published October 10, 2022 on the Wall Street Journal
 
Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.
 
This Week’s Author, Mark Bradstreet