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Planning For Your Parents' Old Age

Nearly one in four Americans will provide care for elderly parents and, more than likely, the cost will put a serious dent in the family funds. But planning ahead can prevent devastating financial repercussions, Personal Finance Adviser Ray Martin reports on The Saturday Early Show.

Typically, adult children care for their parents. Although anyone can become a caregiver, family caregivers tend to be women age 55 to 60, and 80 percent do so on an unpaid basis.

However, as families become geographically dispersed and more women enter the work force, more families are turning towards formal services such as assisted living facilities, continuing care retirement communities and nursing homes.

Planning starts with talking to your parents about financial needs, medical needs, and housing options. Remember to consider how these needs will change as they grow older.

It's not easy to do, but get your parents to discuss several issues - their fears, needs, priorities, and financial wishes. Ask if they have an up-to-date will, and if they have arranged a durable power of attorney. This gives you or someone else the power to handle your parents' finances and make housing decisions for them if, for some reason, they cannot do this for themselves.

Find out what you should know about their health in case you have to make decisions for them one day. And ask them where they might want to live if they are unable to remain in their home.

If discussing these things with your parents is too difficult, try hiring a geriatric care manager to assess their needs and make recommendations. More information may be obtained at the Web site for the National Association of Professional Geriatric Care Managers.

The cost will vary depending on the care needs, but can cost up to $3,500 per month for custodial care, and up to $6,000 per month for skilled care.

Financial Options:

  • Medicare/Medicaid: Medicare is the federal health insurance program for people over the age of 65. To be eligible for this coverage, you must meet income and resource limits. These limits are specifically set by the state of residence and generally based on income and resources. Needless to say, this program is considered an "if-all-else-fails" safety net for many.
  • Use of home equity: The equity in the home (the value in excess of the mortgage) provides a potential resource. Often, this is ideal, because the decision for care often involves changing the living location at some point.

    Many elderly homeowners find themselves "house rich but cash poor" and find it difficult to pay for care in the home. One strategy is to enter into a reverse mortgage where the lender actually makes payments to the homeowner for life in exchange for an increasing debt on the home. The debt is eventually paid off when the home is sold.

    The ideal candidate for this strategy s someone who wants to stay in his or her home but needs additional income to pay for needed care. The payments from a reverse loan are nontaxable and the gain on the eventual sale on the home, to a certain extent, is tax-free.

  • Private insurance: If you are concerned with the cost of long-term care and you have some assets to protect, private insurance is worth considering. This coverage comes with many features - and potential glitches.
  • Private financial resources: If you can afford it, this is the option recommended by many financial advisers, given the uncertainty that this expense will present itself.
Money and degree of illness often determine housing needs. Don't assume that one simply slips quietly into a nursing home. Over the last several years, housing options have expanded.

Housing options:

  • Care in the home: Typically, care in the home is provided by family members or through support services and skilled caregivers.

    Home caregivers, who visit the home, are available through hospitals, public health agencies, or private agencies. Home care also can be provided on an occasional basis, giving relief from the continuous responsibility of the family.

    There are two financial issues that must be addressed with this option: paying the cost and determining if the caregiver will be an employee or a contractor.

    The cost is a matter of affordability, but the employee issue can be a problem. If the caregiver is an employee, you would be required to withhold Social Security taxes, unemployment or workers compensation insurance, and make these payments to the appropriate agencies. A caregiver would be considered an employee if the work schedule is primarily controlled by your needs, and if you are the primary employer. Caregivers hired from an agency are generally not employees.

    Since so many families offer care to their family members while managing their own lives, the need for occasional or frequent relief is surging. Respite care services offer a source of temporary help in the form of a care professional who visits the home on a regular basis to perform duties such as bathing, cleaning, and running errands.

  • House sharing: The advantages are cost sharing and social contact. Before entering into such an arrangement, have a clear understanding of expectations, payment of bills, household duties, meal preparation and so on. Any money, goods or services paid in exchange for rent is taxable as rental income, is taxable to the extent it exceeds expenses and must be reported on Schedule E of the income tax return.
  • Elder Cottage Housing Opportunity (ECHO) offers housing in small, portable, self-contained units that can be placed near a single-family home so that the elder is near family or friends. Consider financing an in-law apartment or an ECHO home by using a home equity loan. The advantage is privacy. A special use permit is required, so check wit your local zoning laws first.
  • Assisted living: Those who need occasional help with things like medications and meals may only need what is called "custodial care." Facilities that provide these features are typically called Assisted Living Facilities. Assisted Living Facilities (ALFs) typically are state-regulated living facilities designed to provide living arrangements among a community of individuals with similar needs, and with some supervision.

    Often, ALFs promote the concept of "aging in place," inferring that one can stay and receive a lifetime of care. But be careful. Either through misstatements or misunderstanding, some people are surprised to be discharged from their ALF upon escalation of their care needs.

  • Retirement communities: Some facilities offer a blend of custodial and skilled care services in what is sometimes called a Continuing Care Retirement Community (CCRC). These facilities claim to offer assisted living to provide for present care needs and offer a transition to a skilled facility (either located on premises or nearby) when care needs escalate. This provides the resident the comfort of familiar surroundings in the event there is a change in their care needs.
  • Nursing homes: For medical care and daily assistance with bathing, toileting, eating, dressing and mobility (the so-called "activities of daily living" or ADLs), skilled care is recommended. This care is provided by a licensed nursing home that is staffed by nurses and other care professionals. These facilities are regulated by federal and state laws, and provide a wider array of long-term care services not offered by ALFs.

    Again, costs vary. Carefully review any contracts with your attorney before you make a decision. (Do not use an attorney referred by the nursing home.)

    Nursing home expenses are allowable as deductible medical expenses in certain instances.

    If you, your spouse, or your dependent is in a nursing home or home for the aged, and the primary reason for being there is for medical care, the entire cost (including meals and lodging) is a tax-deductible medical expense.

    If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.

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