Four financial considerations when Mom or Dad moves in

Allen Wastler

By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Jun 8, 2020

Maybe it’s a desire to avoid nursing homes, address some sort of financial problem, or just maintain familial relationships for as long as possible, but many families in these times are opting to have an aging parent or parents move in with them.

“It’s been a hot topic,” said Jeffrey Rotman, principal of wealth management firm Rotman & Associates in Fort Lauderdale, Florida. “Many of our clients are part of the baby boomer generation and have parents in their 80s or so. They are looking at this with some urgency and considering the affordability and economic implications. It’s a challenge, as many don’t fully consider the indirect costs of the social burdens.”

Indeed, there will likely be a variety of impacts to a family’s living situation with an elder moving in. Exactly what those effects will be and how much they will cost, directly and indirectly, will differ depending on individual resources and circumstances.

There will likely be:

“The financial considerations will differ based on the reasons why the parents are moving in,” said J. Todd Gentry, a financial professional with Synergy Wealth Solutions in Chesterfield, Missouri. “It could be anything from the aging parents themselves being in financial distress or needing care to the adult children being in financial distress and needing help with home costs. Or, with the work-from-home trend, they may need someone to watch the kids during conference calls. But whatever the reasons, it will drive the financial framework.”

Here is a closer look at some general areas every family should probably examine.

New expenses, both direct and indirect

Initially, there may be some one-time expenses that need to be considered. First will be ones arising from getting the parent(s) out of their current living situation, moving and storage costs.

Then, there may be additonal costs for moving a parent in. For instance, does some remodeling need to take place to accommodate the needs of an aging parent? Such adjustments can range from relatively minor projects — installing a handheld shower head — to more elaborate undertakings — such as building ramps to doors or constructing a whole new in-law suite. (Related: Your budget and a major new expense)

Beyond one-time expenses, there likely will be some direct out-of-pocket expenses associated with Mom or Dad (or both) moving in. Some of these will add to the regular family budget. Perhaps the utility bill goes up because the elderly parent needs it a little warmer. Or they have special diet considerations that add to the food bill.

And, probably the biggest concern for some, there may be caregiving expenses. These can be quite significant. For example, the average cost for a home health aide was $4,385 per month in 2019, according to Genworth's cost of care survey. Such costs vary by location and the extent of services needed.

Some families opt to take over caregiving duties themselves. And this is often where the concept of indirect costs comes in. While it may seem that helping out Mom or Dad yourself allows you to avoid a direct bill from a home health provider, there are still costs in addition to the ones of just having an added family member under the roof. Perhaps special health care equipment has to be acquired or installed, for example. (Related: Keeping caregiver costs contained)

Probably the most significant indirect cost for most people is that time spent caring for a loved one means time not spent at a job. One study estimated that 70 percent of caregivers missed some time at work. This lost time can range from having to take time off to drive an elderly parent to medical appointments to forgoing an entire career in order to provide at-home care.

This can be compounded if the adult child is in a “sandwich generation” situation, having to care for children as well as parents. Scheduling and logistics challenges can take on an additional level of complexity. (Related: How to survive in the ‘sandwich generation’)

“This is part of the social burden that many people don’t consider at first,” said Rotman. “Things like missed career opportunities, canceled vacations, lost business opportunities — they are all things that often didn’t go into the initial consideration about what it means to take care of an elderly parent.”

Parent’s income and other help

An elderly parent moving in will likely have some sort of income. Will that money be used to help defray costs? Is that the reason the parent is moving in?

That will require a discussion, upfront and direct. Depending on personalities and family history, such conversations can be easy or problematic. Every family’s situation will likely be different. Issues can range from an adult child’s need for immediate rent money versus who already paid to get someone through school.

Whatever the motivations and needs, the talk needs to take place, financial experts agree. And there are various tactics that can be taken to help facilitate it, ranging from talking about your own money situation as an ice breaker to using a financial professional or some sort of counselor as a mediator. (Related: How to talk money with an aging parent)

In the end, the discussion needs to make clear how much the parent can contribute to the overall household. This can also include pitching in on various duties, depending on abilities, like watching the kids or household chores.

“A decision should be made about whether or not to charge some sort of rent or fee, because there will be cost increases for things like heat, water, wear and tear,” said Gentry. “Furthermore, a decision might need to be made as to whether or not to put that money in a side account, to cover a large expense in the future, like a medical situation, or to eventually help your parents move back out. That can be challenging if they moved in because of financial distress because — well, I know of a specific example where once the parents moved in, their mail began to come. Many of the solicitations were from the local casino, which in hindsight was the reason for the financial distress.”

What income a parent brings to the table will also depend on various circumstances. Typically, there will be a range of possibilities, including investments, retirement savings, pensions, annuities, and Social Security. Additionally, there may be Medicare/Medicaid support available.

Depending on the mix, the situation could be complex. Often, questions about retirement income involve the trade-off between short-term gain versus long-term benefit. For instance, Social Security payments increase the longer you delay filing for benefits, within age limits. Sometimes, during a market downturn for instance, it’s better to avoid tapping market-based investments and using other sources of cash for support instead. And Medicare/Medicaid programs have various restrictions on how they can be used.

Many people seek advice from a financial professional about what might be a wise course of action.

Additionally, contributions from a sibling or other relative should be considered. Depending on proximity, for example, family members could be available to help with caregiving duties. If that isn’t possible, they may still be able to provide financial support or assist with running errands, preparing taxes, or paying bills.

Taxes

A live-in parent can generally be claimed as a dependent on your income taxes, providing some additional financial relief. Of course, certain conditions must be met.

  • Your parent must be a U.S. citizen or permanent resident.
  • The parent isn’t filing jointly with someone else.
  • You pay for half of their total support (food, utilities, reasonable rent cost, etc.).
  • Their income isn’t more than $4,200 for 2019 ($4,300 for 2020).

Additionally, if your parent isn’t able to care for themselves alone, you may be able to qualify for a dependent care credit for what you spend for their daily care, up to $3,000.

Also, you can generally claim medical expenses for your dependent parent, provided they exceed 10 percent of your adjusted gross income. This can include the cost of medication, hospital stays, doctor visits, and health insurance premiums.

There may be state tax deductions, as well, depending on where you live. Many people opt to consult a tax professional to explore opportunities to minimize their tax burden.

Estate planning and recouping costs

The time your parent is living with you is an opportunity to make sure their finances are in order. That includes not only making sure their bills are getting paid, but also ensuring that they have an estate plan in place that clearly defines their intent for distributing assets when the time comes. And financial experts generally agree that the earlier those plans are discussed with the entire family and set in place, perhaps when the decision is made for the parent to move in, the better.

“Estate planning for many people is something that always seems to be on the back burner until it’s too late,” said Rotman. “But while they are living with you is a great time to sort it out. At the very least, have health care surrogate and durable power of attorney forms in place.”

Those forms will help clear the way for actions that may be needed should your parent become mentally or physically incapacitated, so that their end-of-life wishes can be met. Also, amid the emotional impact of the loss of a loved one, you don’t want the added stress of trying to find important documents. (Related: End-of-life planning and what loved ones need to know)

Your parent may also decide in the estate planning process to compensate you for the time and money you spent helping them. Of course, this should be a family conversation as well. For instance, faraway siblings could agree that you should get a greater share of assets, death benefits, or proceeds in exchange for your work. But it’s better to make sure such provisions are in place before a parent passes or loses capacity. (Related: How to make sure heirs don’t fight)

“Let’s say a child housed a parent and put a substantial amount of money into expanding their home or refinishing their basement in the process,” hypothesized Gentry. “Perhaps they put in $50,000 of their own money. At the passing of the parent, the child may feel that they should be paid back. Or, what if the parent paid for the improvements? If there are siblings, they may feel cheated because the other child received the benefit of property improvement. The point is, discuss it as a family ahead of time, ideally at the move in, and make sure all marital and family members are on board.”

Additionally, you may consider purchasing a life insurance policy to cover your parent. Proceeds from such a policy could help offset the lost salary or career opportunity a child might have sacrificed to care for a parent. Or, it could provide funds to cover end-of-life wishes or charitable goals. There are requirements, however, for purchasing such a policy. (Related: Buying life insurance for your parents)

Conclusion

In the end, taking your parent in is often a beneficial decision for both you and them. But it’s one where all the consequences have to be thoroughly considered.

“The living and possibly caretaking role change can bring social, psychological, and financial burdens, noted Rotman. “Without thorough consideration and discussion, it can impact your relationship.”

“I suppose the short version is that there are enormous cost savings opportunities and wonderful positive family dynamic opportunities that come with such a move,” added Gentry. But there are also clear pitfalls regarding family dynamics. So, in the vein of trying to maintain a happy, healthy extended family, concentrate on communication.”

Discover more from MassMutual …

Estate planning: 6 big mistakes you might be making

How to be on a budget: The essentials

What to do when a loved one passes

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.