Are your parents in shape financially?
Assuring the well-being of your folks is tough when they don't have an adequate nest egg.
June 13, 2002: 3:32 PM EDT
By Jeanne Sahadi, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Not everyone's parents can be financial wizards, but it sure is a relief when your folks enter retirement on firm financial footing. Then, at least, you don't worry about them having enough money as they grow old.

Unfortunately, that worry is front and center for some adult children. Their parents may be living paycheck to paycheck, or it may be that they simply failed to plan well for retirement. Either way, the kids see the writing on the wall and the message is clear: "Financial crisis ahead." They wonder how they'll handle the burden if their parents run low on money.

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If you're among them, there are steps you can take now to mitigate future financial troubles.

Getting past 'We're fine'

Talking to your parents is a good first move. Without question, the best time to talk money with your parents is when they're healthy and independent. But don't expect an easy ride if your parents' motto has always been, "We're fine. Don't worry."

"If you've got parents who've always had control and never relied on their kids, that's tough," said certified financial planner Joan Gruber of Dallas. Gruber, who specializes in elder care issues, had a relative who never wanted to discuss the financial aspects of being incapacitated. She finally yielded when her health failed. But even then, she waited until she was being wheeled into surgery to sign over power of attorney to her children.

That's far from ideal. The longer you wait, the fewer choices you'll have and the greater the potential for costly administrative hassles and emotional stress.

If your parents brush you off as alarmist, try this argument: Should anything happen to them, the burden of managing their health care and their finances will likely fall to you and your siblings. Since you want to follow their wishes and make them as comfortable as possible, it would be a gift to you if they minimized your burden by being open about their situation now.

Make sure basics are in order

At the very least, encourage your parents to create or update their estate planning documents. These documents include a will, a living will, power of attorney authorizing another person to handle their business affairs if they're incapacitated, and a health-care proxy naming someone to make health-care decisions for them should they become unable to do so.

Area Agencies on Aging
Children of Aging Parents
National Alliance for Caregiving

Gruber recommends using an elder law attorney to customize these documents since "all are not created equal." Elder law attorneys have test-driven enough of them to know what will work best based on your parents' needs and resources, she said.

For example, a standard durable power of attorney won't necessarily grant authority to deal with government agencies on your parents' behalf, said Stuart D. Zimring, secretary of the National Academy of Elder Law Attorneys. And the more specifically the document refers to a parent's accounts -- e.g. "any and all IRAs at Merrill Lynch and Charles Schwab" versus simply "my IRA" -- the easier it will be to gain access. "Otherwise, it's going to be extra hoops," Zimring noted.

Strategies to consider

Beyond that, one of the best ways to avert financial trouble is to know your options.

Take Medicaid. Eligibility requirements differ from state to state, as they do when it comes to community-based assistance (CBA), which can cover charges Medicare approves but doesn't pay for, as well as prescription costs and eye care, said Chris Cooper, a financial planner who runs a geriatric care management firm in Toledo, Ohio. To find out what your state's and community's requirements are, check with your local Area Agency on Aging or a local elder law attorney.

Find a planner specializing in elder care
Find an elder care attorney
Find a geriatric care manager

If your parents are healthy and have some assets -- too many to qualify them for Medicaid but not enough to sustain them through a prolonged medical crisis -- you might consider getting them long-term care insurance. If they can't afford the policy, you might offer to pay the premiums. (To help decide if long-term care insurance is a good idea for your family, click here.)

Or, Gruber suggested, you might consider buying them a life insurance policy that offers long-term care benefits. That way if it turns out your parents don't get sick, you can receive the policy's death benefit.

If your parent has a pre-existing condition that requires long-term care but disqualifies them for long-term care insurance, you might consult with a locally based geriatric care manager to find out what services are available to provide them with affordable care.

To help maximize your parents' assets and strategize how best to use them, you also might consult a fee-only certified financial planner who has experience working with low-to-middle-income elderly.

Gruber, for instance, had a client whose father had a long-term care insurance policy without an inflation rider, a degenerative disease, and a younger, healthy spouse who needed money to live on. By his second year in a nursing home, the father's coverage didn't cover the total bill and his family had to draw from his rapidly decreasing assets to pay the difference. A few years into his stay, his daughter asked Gruber what would need to be done so her father could qualify for Medicaid when his policy ran out. Gruber told her, "Why wait?" She converted his assets to provide an income stream that would qualify him for Medicaid but left enough for his wife to live on. Medicaid started to pay the difference in his nursing home bill and will cover the full amount when his insurance policy expires.

Before you start paying anyone fees, however, do some research to get a sense of the terrain. Children of Aging Parents and the National Alliance for Caregiving are two good resources for advice and referrals.

Give yourself a break

Find out, too, what kinds of financial breaks you and your parents may be entitled to.

Playing the odds on long-term care
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Deducting Mom or Dad

Say you give your parents money to pay for long-term care insurance. That money is considered a tax-free gift up to $11,000 a year. Your parents may be able to deduct a portion of those premiums on their federal return if they itemize and if their medical expenses exceed 7.5 percent of their adjusted gross income.

Some states also allow people to deduct a certain portion of their premiums on their state returns even if they don't itemize, said tax expert Frank Degen. For example, in New York state last year, if you were over 61 but not yet 70 you could deduct up to $2,290 in long-term care premiums.

You also may be able to deduct a parent as a dependent even if he or she doesn't live with you, providing your situation meets various criteria. You must, for instance, pay at least 50 percent of a parent's expenses and your parent must be a U.S. citizen. And his or her gross income may not exceed $3,000 in 2002, not including money from Social Security, gifts or tax-exempt income.

Less pain, more gain

Anyone who has been through it can attest to the fact that caring for aging parents, especially those in very poor health, can be complicated and emotionally wrenching. And that's in addition to any money concerns they might have had.

As difficult as it may be to broach the topic of worst-case financial scenarios with your parents, the alternative is worse. On top of all the concerns you may face, "it sure will cost you time and money if your parents don't have their financial house in order," Gruber said.

But by arming yourself with good information, experienced advisers and, hopefully, the cooperation of your parents while they're well, you can do a lot to minimize stress and financial strain.  Top of page