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Finances and Your Aging Parents

It can be hard to talk to your parents about their finances for many reasons. Sometimes they may think your concern is an implication that they aren't smart enough to handle their lives without your help. It's important to approach the subject of money with respect and tact because clearing up financial matters before an emergency occurs is essential. Ignoring these potential problems can be disastrous.

Medicare does not pay very much toward nursing home stays


For instance:
  • An elderly parent could become injured or ill and need in-home care. Who will pay for this?
  • Dementia or Alzheimer's could strike, and a nursing home becomes necessary. Again, it has to be paid for.
  • If a parent or parents die leaving no instructions and without having talked to anyone, possessions could be tied up in probate court for years.
  • Your parents could lose their savings to scam artists, many of whom deliberately prey upon elderly people.
AARP studies have shown that longevity has increased and some estimates say that baby boomers will be caring for their parents for a longer period of time than it takes to raise a child.

Something that isn't widely known is that Medicare does not pay very much toward nursing home stays. A nice nursing home, the kind you'd want your parents to live in, can cost close to $100,000 a year in some parts of the country.

It would be great if your parents could remain in their own home until the day of their death, and that may happen, but it would be foolhardy to count on it.

If you don't want to deal with these issues during an emergency, you need to deal with them now. One good way to approach the subject is to get your parents on your side. If they believe they'll help you avoid hassles in the future and that they're making things easier for you, they'll be more willing to open up.

Basic details you need to know

First you need to familiarize yourself with your parents' important papers and documents so that you can help them adequately in an emergency. Here's the shortlist:
  • Insurance policies in all forms: house, car, and health
  • Real estate deeds
  • Investment papers
  • Bank information, including checking and savings account numbers and the name of the bank
  • Interest income information
  • Credit card numbers and information, including contact information
  • Social Security numbers
  • Military records
  • Pension documents
  • Wills
  • Trusts
  • Their attorney's name, address and phone number
  • Organ donation information
  • Living will information
  • Power of Attorney in all the forms they have: health, durable, etc.
  • Any and all loan information
  • Location of safe deposit boxes (and keys)
As well as knowing what papers and documents your parents possess, you need to know where the papers are kept so that you can find them.

During this conversation, you might discover that your parents are unprepared for these emergencies. If so, it's time to encourage and offer to help them set up estate planning. This plan in its briefest form includes four things:
  • A will
  • A durable power of attorney naming someone to handle their money affairs
  • A special healthcare power of attorney naming someone who is allowed to make health-care decisions for them if need be
  • A healthcare directive ("living will")
The best estate planning delves deeply into a person's financial details and sets things up on a personalized basis. It's important to do this right, so using an attorney, one who focuses on estate planning for the elderly, is a very good idea. It may cost several hundred dollars, but if your parents have assets to be taken care of, it may save more than that in the long run.

The last thing you want to see are your parents' savings and possessions floating in limbo for years and disposed of by a court.

An estate planning attorney can also be helpful with informing you about your state's requirements concerning Medicaid and community-based assistance. These organizations can sometimes help cover costs that Medicare does not. Laws vary state-to-state, so it's best to get the professional advice of an attorney.

Excellent plans to explore

Let's say your parents don't come anywhere close to qualifying for Medicaid due to Social Security income and savings, but they also don't have nearly enough to handle a long nursing home stay. Here are some ideas to explore:

Long-term care insurance: These plans can be expensive and pre-existing conditions might limit what you can get. It's important to shop around for the best policy for your needs. You might consider paying the premiums if your parents can't afford it. If you provide them the money to pay for it, a percentage of the money you give can be deemed a "tax-free gift." Ask your attorney or tax specialist to find out how much, because there is a limit. Your parents can turn around and use those premiums as a medical deduction if their medical expenses meet the tax percentage criteria. Some life insurance policies offer long-term care insurance.

Reverse Mortgage: If your parents are over 65 and their home is paid off or nearly so, they can qualify for a reverse mortgage. This will use the equity in their home to pay them a monthly sum of money for as long as they live. When the house is later sold for whatever reason, the parents or heirs of their estate will be given whatever money is in excess of what was advanced, if there is any. More information can be found at the Department of Housing and Urban Development at 1-888-466-3487.

Qualifying for Medicaid: There are ways to qualify for Medicaid, but it's important to set it up through an experienced financial planner because it's complicated and "irrevocable", which is why the plan is called an "irrevocable trust." Your parents' assets are set into a legal entity which then owns them. This makes the assets no longer part of their income. Because of this, your parents might now qualify for Medicaid assistance. Once the assets are put into the irrevocable trust, it can't be changed back. There are legal ways to do this, but if it's done incorrectly, it's illegal and invalid. Use a professional.

A revocable trust: Your parents still own their assets in this case, and the trust can be changed at any time. The helpful aspect of a revocable trust is that someone has been designated to manage your parents' assets: income, finances, etc. This reduces hassle and cost when handling the estate after a death.

Assisted living center: These have sprung up all over the country and are great places for the elderly to live. Your parents will retain autonomy, yet there are people who are available to help with tasks and who keep an eye on things. Meals are generally prepared and your parents will be checked on and will have a group of peers to associate with. Some of the cost may be covered by Medicare, Medicaid or long-term insurance.

Moving in with the kids: This is cheaper, more convenient and a far more pleasant arrangement than a nursing home in most cases. It isn't always possible, but it's something to consider.

Tax breaks: Your parents don't have to live with you for you to receive certain tax breaks. The rule list is long, of course, as we're talking about the IRS, but every detail you need can be found at the IRS website, www.irs.gov.

A few additional points

If your parents are willing, setting up automatic payment of regular monthly bills can obviously prevent problems and lessen hassles during an emergency situation. Using direct deposit of income is a very good way to keep things flowing no matter what happens.

Please use the expert advice of professionals, especially those who work in the field of elder care. These include tax attorneys, financial planners, insurance agents, accountants and social workers. Their advice and knowledge may be invaluable in these complicated matters.

Opportunities and possibilities

This article covers just a few possibilities in the vast arena of elder-care assistance which is expanding more and more as baby boomers take on the care of their parents. Opportunities will only improve as time goes on. But nothing will happen unless you begin the process by initiating frank, candid, loving talks with your parents, just like they did for you when you were young. They're worth it!

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