(MONEY Magazine) – FIVE YEARS AGO, STAN AND BETTY HIROTA OF OREGON CITY, ORE. got the phone call everyone with aging parents dreads. A cousin who lived near Stan's parents in Honolulu told Stan that his father, Eijiro, seemed to be buckling under the strain of caring for his diabetic wife, Shizuka, who had been debilitated by a series of strokes. As the elder son of a Japanese-American family, Stan, 64, knew what was expected of him: He and Betty, 61, moved his parents, then in their eighties, into their three-bedroom, English-cottage-style home.

About a year before Shizuka died in 1994, Stan took early retirement as a data processor for the Portland Police Bureau to take care of his parents full time. Betty, meanwhile, continues to work as a $30,000-a-year loan officer at the Oregon Department of Veterans Affairs. Every morning, Stan wakes his father, who at 92 is fragile but mentally alert. Then he bathes, shaves and dresses him and serves him his meals. "It's stressful and very trying sometimes," Stan says, "but somebody has to do it."

The care giving also has its rewards. "When my father came to live with us, he weighed only 130 pounds, but now he's up to 152," Stan says proudly. "I'm glad Betty and I took my parents in. If we didn't, we'd be sorry for the rest of our lives."

Chances are increasing that you too will someday care for an aging parent. There are now 10 people 85 and older for every 100 who are 50 to 64, up from three for every 100 in 1950. Indeed, the 3.7 million Americans 85 and older are the fastest-growing portion of the population, expanding at 3% a year, and half of them need assistance with one or more of what gerontologists define as the six essential activities of daily living--bathing, dressing, eating, using the toilet, walking and getting in and out of a bed or a chair. About a third of those who need help live with their children.

Unfortunately, if your parent already needs such assistance, two options are closed to him or her. First, continuing-care retirement communities, which sell or rent apartments to healthy seniors with the promise of lifetime nursing care when they need it, won't accept people who can't look after themselves. Moreover, your parent won't be able to buy long-term-care insurance, which partially covers nursing-home costs that can run to $100 to $200 a day and, in some cases, the expense of hiring someone to provide care at home. That can cost as much as $50 an hour.

As a result, the burden of caring for a parent who isn't financially and physically self-sufficient will most likely fall on you. But don't lie awake nights despairing that you might go broke. That is unlikely unless your parent enters a nursing home, runs out of money and refuses to apply for Medicaid, leaving you to pay the bills. In more usual circumstances, there are many options available to help your parents age gracefully at home--either theirs or yours--and help them avoid nursing homes as long as possible. This article will introduce you to a wide range of services, from Meals on Wheels to adult day-care centers. We'll also tell you how to find assistance without draining your parents' or your own savings. Finally, we'll explain the tax implications of having a parent as a financial dependent, and what to do if a nursing home becomes inevitable. (For helpful publications, see the box on page 133.)

You and your parent--probably your mother, since women outlive men by seven years on average--must first grapple with the issue of whether she will remain in her own home or move into yours. Assuming you can coexist peacefully, moving Mom into your home makes sense for practical and financial reasons.

For Anna Schiefer, 41, and her husband John, 38, the decision to bring Anna's mother Karen Farrar, 78, into their North Potomac, Md. home four years ago was a no-brainer. Says Anna: "My mother realized that having to take care of her big house in Potomac was a burden for us even though she lived just eight miles away. Also, she was very attracted to living with us so she could be around our children all of the time." Farrar, who has early-stage Alzheimer's disease, enjoys reading to her granddaughters Katrina, 7, and Bridgette, 5, and playing simple games with them.

If living together is not feasible, you can ease the strain of long-distance caregiving by hiring a so-called geriatric-care manager. This specialist, typically a social worker or registered nurse, will evaluate the types of services Mom or Dad needs, recommend specialists who can provide them and monitor the quality of care. The cost, which isn't covered by Medicare or Medicaid: $200 to $350 for an initial evaluation plus $40 to $150 an hour for follow-up services. To find geriatric-care managers near your parent, call home health-care agencies or the local area agency on aging; the latter is usually listed in the Yellow Pages under "Senior Citizens." Alternatively, call the U.S. Administration on Aging's free Eldercare Locator (800-677-1116) for help in tracking down a local area agency. If your parent has been hospitalized, the hospital's discharge planner can refer you to care managers. Or you can send for the National Association of Professional Geriatric Care Managers' 850-member directory ($35; 1604 N. Country Club Rd., Tucson, Ariz. 85716).

Even if you live near your parent, maintaining her in her own home can become prohibitively expensive if she requires extensive nursing care. Consider the case of Frank Block of Clayton, Mo., who died last February at 81 after suffering from diabetes, partial blindness, kidney failure and heart problems. Block's daughter, Elsie B. Wilkens, 53, estimates that her father spent $157,000 to stay in his home during the last year of his life: $87,000 for round-the-clock nurses, $30,000 for a housekeeper and $40,000 for groceries and maintaining his house. By contrast, a year in a nursing home would have cost $36,000 to $72,000, depending on the facility.

If you provide care graciously--and your parent can accept it in the same spirit--you'll find it easier to accomplish the remaining tasks of making her feel comfortable and happy. Here's what you may have to do:

--Retrofit the house. Your No. 1 priority must be to reduce the chance of your infirm parent suffering an accident in your house--or her own. Experts on the elderly recommend installing grab bars ($20 to $130) in hallways and bathrooms, adding a first-floor bathroom ($10,000 and up) and leasing a personal-emergency-response system that will allow Mom to summon the rescue squad by pressing a button on a small device worn on a chain around her neck or wrist. The cost: an initial $25 to $50 to get on the network, plus about $1 a day to rent the entire system from a local hospital or the Red Cross.

Prior to moving his parents into his house, Stan Hirota hired a contractor experienced in construction for the disabled. The contractor installed a first-floor bathroom with a shower large enough to accommodate two people and added a sunroom. With the help of his son Mark, Stan built a deck off the sunroom and converted the dining room into a bedroom for the elderly couple. Total cost: $40,000, which the Hirotas raised by refinancing the mortgage on their $179,000 home.

--Hire in-home help. If your mother needs a hot lunch delivered to her home or assistance with household chores, she may be eligible for such services at no cost under the federal Older Americans Act of 1965. Like many other government programs for the elderly, spending under the act is funneled through 657 area agencies on aging nationwide. In principle, the programs are free to everyone over age 60. However, those who can afford to pay are increasingly being asked for donations pegged to their incomes. For instance, most seniors typically pay 20% of the cost of Meals on Wheels, or $1 to $3 per meal.

Should your parent need more extensive assistance--say, with bathing or taking medication--you'll have to hire a qualified aide through a home health-care agency or a newspaper classified ad. Registered nurses, who can give injections and change dressings, typically charge $30 to $50 an hour, while less skilled aides, who can bathe your mother and do grocery shopping and light housework, cost $5 to $12 an hour.

Medicare will pay the full cost of professional help, but only if your parent is homebound and a physician certifies that she requires part-time or intermittent skilled nursing care or physical or speech therapy. In addition, these services must be provided by a Medicare-certified home health-care agency.

You or Mom will have to pay for non- medical home care out of your own pockets. If your parent does not need nursing services, you can hire an aide yourself. What you're looking for is a person who has a steady work history, solid references and a friendly demeanor. Typical cost: $280 for a 40-hour workweek, or $14,560 a year, plus $2,500 or so for your portion of her Social Security and unemployment taxes. If you place an ad in the newspaper or hire by word of mouth, be sure to do a background search (cost: about $150) to make sure that your candidate doesn't have a criminal record. Says gerontologist D. Helen Susik, author of Hiring Home Caregivers (Impact Publishers, $11.95): "The problem is pervasive, and the potential for fraud and abuse is very great in the isolated privacy of an elderly person's home."

--Seek suitable adult day care. To get your mother out of the house and socializing with people her own age, encourage her to attend an adult day-care center. Today there are 3,000 nationwide serving about 66,000 frail seniors and nonelderly disabled people each day. To find one in your area, call your local area agency on aging.

Centers typically offer breakfast and lunch, exercise programs and such activities as art classes, current events discussions and outings to parks and museums. Depending on your location and the extensiveness of the programs, a center will cost $25 to $100 a day, with most in the $40 to $70 range. But some centers affiliated with social service organizations charge elders based on their ability to pay. Medicare doesn't cover adult day care, although some Medicare HMOs and a few long-term-care insurance policies do.

If you or your parent can't afford the full cost at a day-care center, ask for a reduced rate. That is what Jean Kapulski, 53, of Houston did when her father Bert Siegel, now 88, came to live with her after his wife died in 1993. Kapulski, who is divorced, earns $25,000 a year as a patient-service representative at the Harris County Psychiatric Center. Siegel, a former high school history teacher with severe osteoporosis, collects $1,700 a month from Social Security and a pension. Since father and daughter together could not afford the full $47.50-a-day cost of the Morris & Frieda Wolfe Adult Day Health Center, Siegel qualified for financial aid that lowered his bill by more than half. Kapulski, who has power of attorney over her father's finances, laughs: "If he knew how much the center costs, he'd object to going there. But it keeps him alive and alert. If I left him in my apartment all day with an aide and my three dogs, he'd go downhill in a week."

Adult day-care centers have some drawbacks, however. States have yet to establish clearinghouses for complaints, and the standards set by the National Adult Day Services Association, a trade organization, are strictly voluntary. Also, though many centers open at 7 a.m. and some offer weekend hours, they often close before 5 p.m., which is inconvenient for working caregivers.

Fortunately, Uncle Sam offers a few tax breaks to adult children who care for their parents. But to qualify, you must meet two tough standards. First, you must provide more than half your parent's support. And her gross income--defined as income that is not exempt from taxes--has to be less than $2,550 a year. You then can claim her as a dependent, which entitles you to take a $2,550 tax exemption and possibly write off her medical expenses to the extent that they--together with your family's other out-of-pocket medical expenses--exceed 7.5% of your adjusted gross income.

In addition, you can claim a federal tax credit of as much as $720 to offset as much as $2,400 of the cost of an aide who cares for your parent in your home or of sending your parent to adult day care while you work. Before taking the tax credit, however, find out whether you can instead use a flexible spending account (FSA) for dependent care; about half the full-time employees at companies with 100 or more workers have access to such accounts. An FSA lets you pay for as much as $5,000 of care a year with pretax dollars. Thus, unless you're in the 15% bracket and your elder-care expenses don't exceed $2,400 a year, you probably will be better off using an FSA than taking the tax credit.

What if you can no longer care for your parent in your home? Then your only option may be a nursing home. Studies show, however, that 67% of men and 48% of women 65 or older will never require nursing homes. But if your parent suffers from a degenerative disease like Alzheimer's or Parkinson's, you will be doing her a service if you scout nursing homes at least a year before you expect that she will need one. Reason: The most desirable institutions have up to two-year waiting lists. To evaluate a nursing home, visit it and check complaints against it with your local health-care ombudsman, whom you can find through your area agency on aging. Medicare pays just 16% of the nation's nursing-home bills--and then only for patients who are hospitalized before moving to a home. Fully 30% of the expense is borne by patients themselves and 44% by Medicaid, for which patients qualify after nearly exhausting their assets.

Does caring for an aging parent sound like an overwhelming burden, even if the cost doesn't deplete your finances? Then remember: When this difficult chapter of your life ends, the sacrifices will pay emotional dividends to you and your children for years to come. Says Jeanne Goldberg, a family therapist in Levittown, Pa.: "By giving loving care to your parents, you set a pattern for the next generation to observe and follow."