How to help your aging parents
By The editors of Kiplinger’s Personal Finance
Are you among the growing number of Americans who count themselves reluctant members of Generation S? The “S” stands for sandwich, and to qualify you must be feeling sandwiched between the financial demands of raising children and the growing financial needs of your aging parents — to say nothing of your own financial needs. “Squeezed” might be a better word for it.
Aging parents are often the first to notice that they could use some help tending to their finances. Sometimes their children notice the telltale signs: bills that go unpaid, confusion about financial and other matters where there used to be alertness, growing anxiety about medical and other expenses.
You may have to act like a detective to get to the bottom of the problem and gather the information you need to help them. Where to begin? Start with the basics.
Your Parents’ Income and Assets
Find out as much as you can about their sources of income, their assets and their debts. Do they have enough income to do what they want to do? Are they making the most of their assets, or might they benefit from a visit to a financial planner who could suggest ways to deploy their resources to better advantage?
Locate your parents’ important documents. Find out where they keep their wills, insurance policies, pension and Social Security records, and tax returns. Make sure each knows where to find these records in an emergency. Ask for copies to keep yourself. Suggest that they review their wills with a lawyer if they haven’t done so within the past five years or if they have moved from one state to another since the document was drawn up. For more information, see What You Should Know About Your Parents’ Finances.
Insurance coverage for aging parents. Your parents should be covered by a Medigap policy, which picks up the deductible and payments not reimbursed by Medicare.
Long-term-care insurance should also be considered because Medicare generally won’t pay nursing-home bills or the cost of in-home nursing care. See The Ins and Outs of Long-Term-Care Insurance.
If Your Parents Become Incapacitated
Make sure your parents have these three documents: a living will, a durable power of attorney, and some form of health care proxy. These give them an opportunity to clarify their choices if they become incapacitated and to appoint someone they trust to make those choices for them when they no longer can. You should consider drawing up your own set of these documents at the same time.
Living wills spell out a person’s wishes regarding the use of procedures that might be used to prolong life in the event of a terminal illness or accident. You can get state-specific documents for writing a living will on your own free of charge from The National Hospice and Palliative Care Organization. Have a lawyer review the documents and make sure that the doctors agree to be guided by the document and that the hospitals will honor it. Most states allow doctors to follow the instructions in a living will, but they are not legally obligated to do so.
A health care proxy should accompany a living will. It grants the person you appoint the power to make health care decisions if you can’t. This includes choosing or dismissing doctors, consenting to surgery, and representing your wishes regarding life-support options. All states recognize these proxies, but there may be some restrictions regarding withholding or withdrawing artificial nutrition and hydration or honoring the directive if the patient is pregnant.
A durable power of attorney gives someone you choose the authority to make legal, financial, and medical decisions on your behalf. A limited power of attorney grants a designated “attorney-in-fact” the power to make only certain decisions on your behalf — to pay bills from your checking account, for example. A springing durable power of attorney, recognized in many states, does not take effect until you are declared incompetent to make such decisions yourself.
Get a lawyer to draw up your durable power of attorney. Make separate ones for finances and health care. Sign several originals because some banks, hospitals, and brokerage houses want to have an original on file. You should also spread copies of the document around, making sure that family members, doctors, and financial advisers are aware of what it says. Anyone who lives in more than one state-wintering in Florida, for instance, and summering in Maine-should make sure to have powers of attorney that conform to both states’ laws. Elderly people who travel should take a copy with them.
What if you change your mind? A durable power of attorney can be revoked at any time as long as you are mentally competent. Simply put the revocation in writing, have it witnessed and notarized, and give copies to all parties concerned.
Where Will Your Parents Live?
Most older Americans don’t want to move. Fortunately, the growth of home services for the elderly has made aging in place possible for those who can afford it. For those who can’t, or think they can’t, some creative financial thinking could help to make the difference.
If your parents’ mortgage is paid off but they are still straining to make ends meet, they might consider a reverse mortgage or a sale-leaseback to ease their financial burden.
A reverse mortgage can allow a homeowner to borrow against a portion of the equity in the home without having to pay back any principal or interest until the home is sold, possibly after the owner’s death. Borrowers can take the money as a monthly income stream, a lump sum, or even a line of credit to be tapped as needed.
Sale-leasebacks typically involve parent and child, but an outsider can also be part of the deal. You buy the home directly from your parents (they act as the lender, taking back a mortgage), then you lease it back to them. Your down payment gives them an immediate infusion of cash and your mortgage payments provide a monthly income. In turn, your parents write you a check each month for the rent. Any difference between the mortgage payment they get and the rent they pay can be additional income for them.
Should your parents live with you? Don’t be surprised if your aging, widowed mother doesn’t want to move in with you. According to surveys, most seniors would rather move into a facility that offers some assistance than move in with a relative or friend. Message: They don’t want to be a burden.
To allay that feeling, perhaps your parents would want to pay rent. However, if you know this living arrangement won’t work out, consider these alternatives:
Independent-living communities offer healthy seniors a sense of security in addition to some basic services, such as housekeeping, meals, alarm systems, and a nurse or health clinic on-site. Housing options range from apartments to townhouses to single-family homes.
Assisted-living facilities provide round-the-clock assistance for residents who can’t manage completely on their own. However, they are not nursing homes. Residents live in apartments or rooms, either alone or with another resident. Some long-term-care policies cover a portion of the costs. Contact the local Area Agency on Aging (it’s in the phone book as part of the local-government listings) and Ask for a list of assisted-living homes in the area.
Continuing-care retirement communities, or CCRCs, offer a range of living options, from independent living to assisted living and a skilled-nursing home in the same development. Along with the range of housing, there is a range of fees at such facilities, including entry fees and monthly service fees. At some facilities you can buy your residence or a “membership” in the CCRC, then contract separately for the service and health care portion. Check the Commission on Accreditation of Rehabilitation Facilities’ Web site for CCRCs in your state.
A skilled-nursing facility provides a high degree of care with a registered nurse on staff 24 hours a day and doctors and clergy on call. If someone needs special medicines or therapy but not round-the-clock care, then an intermediate-care facility may be sufficient. Although registered nurses are on staff, they may not be available 24 hours a day. Some nursing homes offer a combination of care levels, with separate wings for skilled-nursing and intermediate care. For names of nursing homes in your area, contact your state’s Area Agency on Aging, as well as the Eldercare Locator.
When Your Parents Need Financial Help
Your parents may reach a point when they’re unable to live alone without financial assistance from you. Some of the expenses you incur to help support your parents may generate tax benefits.
More from Kiplinger: 10 Things You Must Know About Social Security
If you provide most of a parent’s support, you can deduct some of the cost on your tax return, provided the parent qualifies as your dependent. That means their taxable income must not exceed a certain amount and you must pay for more than half of the parent’s living expenses. If you also pay for medical expenses, you can add the cost to the amount you paid for the rest of the family and deduct the amount that exceeds 7.5% of your adjusted gross income.
If you pay for care for your parents, you can claim a federal tax credit depending on your income and how much you spent on care during the year. To qualify for this credit, you must pay for over half of your parent’s expenses, but there is no limit to the income your parent can earn.
Or you can pay for dependent care with pretax dollars, up to $5,000, if you participate in your employer’s flexible spending plan. Your employer deducts the money from your paycheck before taxes are applied, then as you submit vouchers for qualified dependent care expenses, you get your money back.
You can set aside money for dependent-care expenses in a flexible-spending account and you can also claim expenses for the dependent-care credit, but you cannot use the same expenses for both tax breaks. Most families who have access to dependent-care flexible spending accounts are better off running their child-care expenses through the FSA.
If you share the costs of caring for your parent with your siblings and together you contribute more than half of your parent’s total support, then one of you can claim a dependency deduction, provided the income test is met. Each sibling must pay for more than 10% of the parent’s support, and each must sign IRS Form 2120 (Multiple Support Declaration), which you submit with your 1040.