Aging Parents Living With Children

When considering whether it makes sense to have aging parents live with adult children, consider the following:

Create a “caregiving budget.” Make a list of estimated expenses and determine how much the aging parent, the caregiver, and/or siblings will contribute. Review and revise the budget as needed. Sometimes, an aging parent will have sufficient resources (possibly following the sale of their home) to pay the full cost of their care. For example, if they become part of a five-person household with $2,500 of monthly expenses, they might contribute one-fifth ($500).
If aging parents cannot pay for their care in a child’s home, siblings should arrange a payment plan. The child who takes a parent in may want to keep a running tab of caregiving expenses to send periodically to the others with a request for payment. If other siblings can’t or won’t pay their fair share, the child providing care may be able to recoup his or her expenses from the parent’s estate before it is divided among heirs.
Know the income tax breaks available to caregivers. A major one is the ability to claim a parent as a dependent if the caregiver provided more than half of his or her total support for the calendar year and the parent had a gross annual income less than the exemption amount ($3,100 in 2004). The tax savings that result from exemptions are significant. For example, in the 25 percent and 28 percent tax brackets, a caregiver would save $775 and $868 in taxes, respectively, from a $3,100 exemption deduction taken in 2004.
To calculate if a caregiver provided more than half of a parent’s support, he or she must first determine the total support provided for the parent, including the value of housing and food, pension payments spent on support, and out-of-pocket medical expenses. Social Security payments are generally not included in the gross income calculation.
If two parents are being cared for together, the support test must be applied separately to each parent. In situations where several siblings provide support to an aging parent, but none provides more than half, only one can claim an exemption. Form 2120, Multiple Support Declaration, is used for this purpose.
For additional details on tax exemptions, consult a tax professional or visit www.irs.gov. Caregivers should also find out if their employer offers tax-advantaged flexible savings accounts (FSAs) for dependent care expenses.
Get help when needed. For example, if a caregiver is employed, there may be a need for adult day care or transportation to congregate meal sites. A good place to inquire about community services for the elderly is a city or county Office on Aging (also known as a Department of Senior Services). To find the office located near an aging parent, contact the Eldercare Location Service of the U.S. Department of Health and Human Services at www.eldercare.gov.
Another helpful resource for caregivers is a geriatric care manager (GCM) who can arrange ongoing care for frail elders, particularly when caregivers are employed or live far away from an aging parent. For the names of local GCMs, visit www.caremanager.org. GCMs generally charge by the hour and may work for a home health agency or a hospital, or work as private practitioners.