Published April 8, 2014

Do you know if your mom filed her tax return?  The American Institute of Certified Public Accountants wrote an article a while back outlining the importance of being aware of our parents’ mental health, more specifically, their financial capacity.

Financial capacity is an individual’s ability to independently manage his or her financial affairs.  Even a seemingly simple shopping trip to the grocery store calls on a wide range of decision-making and other financial skills.

The article goes on to say that financial capacity is an Incidental Activity of Daily Living (IADL) that is needed for an individual to live independently.  It is important for adult children to be aware that, as their parents age, their ability to perform certain tasks diminishes, and children may need to step in to assist or take over responsibilities.

When financial capacity is lost, however, it may not be as apparent as other functions.  Look around their house.  Are papers in disarray?  Do you notice bills piling up, or more than the usual solicitations from charities for gifts?  Many times, individuals who have been charitable all their lives to their church and maybe a couple of other charities find themselves giving to every charity that sends something in the mail.  Many of these types of charities buy and sell mailing lists, prompting more solicitations.

And, of course, back to the first question, have their tax returns been filed?  Before this happens, be sure to find out who prepares your parents’ tax returns, as well as other financial information, such as where they keep their checkbook and other papers, and offer to serve as their Attorney-in-Fact, so that you can easily step in to take over their financial affairs before they are unable to give you that power.  Offer to set up auto drafts for their basic expenses, such as their utilities or house payments, so that they can continue to remain in control and you don’t have to worry.

If your parents are already in this situation, contact their CPA to get information on their tax return filings.  If they are late, the CPA will know what to do to rectify the situation.  Our parents cared for us for many years, now it is our turn to be ready to care for them.

 In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.