Dana could also send her share of the financial responsibility directly to her aunt, who would in turn pay the bills. Doing this would enable her aunt to deduct medical expenses to the extent that they exceed 7.5% of her adjustable gross income. Dana has given money to her mother in the past so she could purchase medication, but the additional funds disqualified her mother for government assistance.
— Establish durable power of attorney. In the event that either Dana or Julius is incapacitated, and in the absence of a durable power of attorney, the other spouse or another family member would have to petition the court to serve in any capacity, says Johnson. To avoid the legal and emotional drama, Dana and Julius should establish a durable power of attorney, a living will, and a healthcare power of attorney.
–Secure the future. Currently, Dana is putting about $200 into her 401(k) and Julius more than $600 a month. They are each contributing enough to take advantage of their employers’ match. Johnson advises them not to reduce their 401(k) contributions since cash flow won’t be an issue once they get control of their debt. BE Ivory Johnson, director of financial planning at Annapolis, Maryland-based Scarborough Capital Management, evaluated the couple’s situation. First and foremost, says Johnson, they are to be commended for stepping in and taking care of Dana’s mother. However, they have helped family members to the detriment of their own financial health. Johnson offers the following suggestions:
Financial Snapshot: Williams Family, San Marcos, TX
HOUSEHOLD INCOME
Gross Income $118,000
ASSETS
Market value of home $315,000
Julius’ 401(k) 8,000
Dana’s 401(k) 2,100
2002 Chevy Trailblazer* 7,205
2003 Ford Escape* 7,540
Julius’ stocks 4,178
Total $344,023
LIABILITIES
Mortgage $300,000
Credit cards 14,000
2003 Ford Escape 4,000
Dana’s student loans 3,000
Total $321,000
NET WORTH $23,023
*According to the Kelley Blue Book
This story originally appeared in the July 2008 issue of Black Enterprise magazine.