Becoming a caregiver for an aging relative is a profound expression of love. You may find that you will begin to take on many of the responsibilities they might have had while raising you. Like raising a family, being a caretaker can be physically, emotionally and financially challenging but it is also extremely rewarding. It's a responsibility that millions of people take on each year out of love for their families.
There's a lot to consider as the caretaker for a loved one and finances can play a major role in many of those decisions. A 2014 Caring.com survey found that 46 percent of caregivers spend $5,000 or more annually in caregiving costs. According to the 2015 Caregiving in the U.S. report from the AARP and National Alliance for Caregiving (NAC), about one in five caregivers report experiencing financial strain as a result of providing care, while higher-hour caregivers are more likely to indicate they experience financial strain than lower-hour caregivers.
The AARP and NAC report also estimates over 43 million adults in the U.S. provided unpaid caregiving services in the prior 12 months with about half of them helping a parent or parent-in-law. Caregiving can extend beyond parents, including providing care for spouses, grandparents or siblings. Whether you are preparing to care for a parent or another relative, understanding and preparing for the financial implications can help you provide the best care possible.
Start the discussion with your family
Whether you think you'll provide direct care, decide to hire a caregiver, or both, you can work with your family members, including the relative in question, to create a plan. This may be an uncomfortable topic for your family, but it's an important discussion to have. Starting the conversation early can help you all reach conclusions while your parents are in good health, and there isn't pressure to make a quick decision.
You may want to cover the different types of care that are available and learn which your parent prefers. For example, does he or she want to stay at home for as long as possible or prefer to live in an assisted-living home or elderly community?
You should discuss who'll be responsible for managing personal, financial and medical affairs if your parent can't handle those responsibilities anymore. Beyond making a verbal agreement, a parent can give someone legal authority by signing durable power of attorney agreements, which keep the delegation of decision-making authority intact even if your parent becomes incapacitated. There are two durable powers of attorneys, one for medical-related decisions, and a second for legal, personal and financial decisions.
Your parents might also want to execute a living will, also known as an advance directive. It has instructions for the medical treatments they want, or don't want, if they are unable to communicate.
Determine what resources are available to your parent
Your financial situation may depend in part on your parent's finances and the assistance that's available to him or her from outside sources. Creating a list of these resources ahead of time can help you all plan for the future.
• Your parent's finances. Together with your parent, and possibly with the assistance of a financial planner, you can create a list of your parent's current financial assets and future income. You can include all savings, retirement accounts, insurance policies, pensions, Social Security benefits and tangible assets, such as a home or car.
• Government programs. Medicare and Veteran Affairs benefits may be available for those that are 65 or older. There's also Medicaid, a joint federal and state program that often provides more benefits than Medicare. But, Medicare is only available to those with limited income and benefits may vary depending on where you live.
• Non-profit programs. There are also non-profit organizations that provide helpful services. Meals on Wheels delivers meals with a sliding-scale fee and the AARP has a volunteer companionship program.
• Family assistance. Whether it's unpaid care or financial assistance, also take into account the family's contribution to your parent's care. Call a family meeting with your parent, siblings and even aunts and uncles to discuss how you'll work together to take care of each other.
• Professional support. If you still feel overwhelmed or if you just feel that an expert would be helpful, there are resources available. The Association for Financial Counseling and Planning Education is a good example, and a quick internet search may turn up other organizations in your area that specialize in helping you work with elderly family members to plan for the future.
After gathering this information, you'll have a better understanding of where the caregiving funds will come from and how you or your parent can use them in the future. You may also discover gaps in coverage that you may want to fill in on your own. Consider these expenses as you create your budget.
Look for tax savings while paying for care
As an adult child and caregiver, there may be ways to structure an arrangement to improve your parent's, and your own, financial situation.
For example, if you pay more than 50 percent of your parent's support costs, and they have a gross income (not counting social security) below the personal exemption--$4,050 in 2016--you may be able to claim your parent as a dependent on your tax return. You might also be able to claim medical expenses you paid on behalf of your parent, which could include supplies and at-home caretaking, as an itemized deduction.
Working with a tax professional, you may find there are ways to use the tax laws to maximize your parent's money. For example, if your mother has gifted you money, you could then use it to pay for her medical expenses. If you're able to claim the expenses as a deduction, you could put your tax savings back into her "medical care" fund.
Find the best services you can afford
There are many different types of programs available, and someone might move back and forth from one facility or service to another as their health and preferences change.
• Home care. Non-healthcare related assistance, such as buying groceries, preparing meals, cleaning the home, helping with bathing and other day-to-day tasks.
• Home health care. At-home health-related support, including services from a physical therapist, nurse or doctor.
• Assisted living. Assisted living homes are non-healthcare providing facilities that may provide supervision, a social environment and personal care services.
• Skilled nursing home. A care facility designed to deliver nursing or rehabilitation services.
Finances can sometimes dictate the quality and availability of different types of caretaking. Medicare doesn't cover non-medical home care for instance, but it might pay for home health care or a nursing facility.
Your parent's location can also impact which option makes the most sense. If you'll be living with your parent, or nearby, you may be able to share responsibilities with a part-time caretaker or home health care provider. If you live several states away, that likely won't be an option.
Research the potential benefits of moving to a different state and discuss the pros and cons with your parent and family. Some states have Medicaid waiver programs that allow Medicaid recipients to receive care at their home or in their community rather than in a nursing home or long-term care facility. Understanding the differences between states could play an important role in the decision.
Bottom line: As you prepare to take care of aging parents, work with them to understand their wishes, needs and financial situation. Together you can explore the family's ability to provide physical and financial support and learn about the help available from government, non-profit or other programs. Discussing which options fulfill their needs will help you feel confident about giving your loved ones the best care possible.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.