As parents and children age, the familiar family roles often switch. And for some adult children that can mean helping elderly parents financially.
Sandra Kiely Kolb says her father was obsessed with one wish as he got older. "His mantra was he didn't want to be a burden," says Kolb, 64.
So when Kolb and her three siblings decided their dad's large house was no longer suitable, they sought a solution that would enable him to remain as independent as possible. About a year ago, with the okay of her siblings and father, Kolb and her husband, who are retired and live in Shaker Heights, Ohio, bought a condo for her father in Red Bank, N.J., a few miles from his old house.
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After their dad settled in, the family put the old house up for sale. "We recognized that it would be difficult to sell the house with a 91-year-old living in it, along with two old dogs," Kolb says. Plus, she says, the family didn't want him stressed while the house was on the market.
The proceeds from the sale pay for caregiving and condo expenses. "I feel we're very blessed," Kolb says. "A lot of thought and a lot of consideration went into this."
Kolb and her siblings spoke with their dad often before figuring out what kind of help he needed and wanted. If you think your parents could use support, it's essential to have a frank conversation about finances. "It's a matter of assessing your parents' situation," says Jim Holtzman, a certified financial planner with Legend Financial Advisors, in Pittsburgh.
Ameriprise Financial found in recent research that "all generations do a pretty bad job talking to each other about money," says Suzanna de Baca, vice-president of wealth strategies. Some people worry such conversations will cause tension, she says, while others say they feel like it's just not their business to ask. However, de Baca says, "The earlier you can have a conversation about money, the earlier you can identify parents' needs and identify gaps."
A conversation can get both generations on the same page. In a Fidelity Investments study, 24% of children said they believe they will have to help their parents financially, while 97% of parents said they won't need help. "Both parties make different assumptions because they have different information," says John Sweeney, Fidelity's executive vice-president of retirement income and investment insights.
If your family doesn't talk freely about money, de Baca says you can "leverage current events" to start a discussion without causing tension. "Give Mom or Dad an article about health care and ask, 'What do you think about that?' It's not about their money, but about a financial topic," she says. Perhaps you can discuss a news report about proposed changes to Social Security or Medicare. Or, Sweeney says, ask what your parents think about the low-interest-rate environment.
Siblings need to keep the lines of communication open, too. One sibling could be appointed as the lead, or tasks could be divided up among siblings. While Kolb paid for the condo, her brother who lives near their father handles day-to-day needs.
Financial Assistance Comes in Many Forms
Once you start talking about money, ask your parents if they want you to review their finances. Perhaps you can spot expenses to trim or ways that your parents could create a steady income stream, such as using a line of credit from a reverse mortgage or an immediate annuity.
It may be worth paying for a few hours of assistance from a fee-only certified financial planner. The adviser could help your parents figure out how to improve cash flow. Also, because you need to fund your own retirement and perhaps pay for some of your adult children's expenses, an adviser could suggest ways for you to assist your parents without jeopardizing your financial future.
For some families, it may work best to pay utility, medical or other bills directly. Constance Stone, president of Stepping Stone Financial, in Chagrin Falls, Ohio, says one client decided to pay long-term-care insurance premiums for her mother—which would protect the adult child from catastrophic costs if a parent needs expensive care. "Paying bills directly for parents who don't have enough cash flow saves them from draining assets," says Stone.
For some families, assistance with housing might make sense. If a parent needs to move, such as in the case of Kolb's father, you might consider buying a home for your parent to live in with the parent paying rent. Because you would be serving as a landlord, you could take tax deductions for repairs, insurance premiums and other costs.
Or consider moving a parent into your own home. Frank Erickson's 95-year-old mother lived on her own in a state-subsidized apartment in Ohio until last year. When Erickson and his wife moved from Ohio to The Dalles, Oregon, his mother moved in with them. "She does contribute to rent and cable TV, but she is paying less than when she lived alone," says Erickson, 70. The couple provides his mother meals, takes her shopping and performs other caregiving tasks.
Another option is to provide outright gifts. You can give up to $14,000 to each parent in 2013 without having to file a federal gift-tax return. With the current federal lifetime estate- and gift-tax exemption exceeding $5.2 million, the gift tax may not be a big concern, although your state may have a lower exemption. If you're in danger of exceeding the lifetime threshold, paying medical bills directly, which won't count toward the threshold, may be a smart move.
If you buy property for a parent to live in but don't charge minimal rent, the IRS may consider the house a gift. "Charging rent helps mitigate" that problem, says Holtzman.
Besides direct financial help, you can assist parents by researching federal and state benefits that they may be eligible for. If your parent is a veteran, he may be eligible for long-term care, home loans and disability benefits. Erickson helped his mother with the process of qualifying for her subsidized apartment and other state benefits. Start your research by visiting BenefitsCheckUp.org, a free service by the National Council on Aging that helps seniors identify benefits.
Check with an elder-law attorney to make sure any financial help you provide won't disqualify your parent from receiving certain benefits. Some programs, such as Medicaid-covered nursing-home care and veterans' Aid and Attendance benefits, limit the amount of assets and income a senior can have.
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