What do you do when Mom or Dad needs assistance? First, you need to know what, if any, planning they have done. Second, you need to understand the financial impact you may experience.
The more you know about your parents’ planning, the more effective and efficient you can be if your assistance becomes necessary. Knowing what insurance and legal documents they have in place and where these documents are located is a good place to start.
Plan Ahead
It is almost inevitable that aging adults will need assistance in some form. It may start with transportation issues, but can quickly escalate to providing input or making decisions on their behalf. To be prepared for these situations, it is important that you have an understanding of their desires and expectations as they grow older. This would include their living arrangements, i.e. remain in their current residence, purchase a maintenance-free condo or home, or move into a retirement living center. It would also include financial resources to provide for medical care and future custodial care. Reviewing these issues with the parents may allow for better planning now and better outcomes in the future. Issues Concerning Medical Care
Health Insurance.
If your parent is over age 65 and participating in Medicare, does he/she have the appropriate Medicare supplement policy? Supplement policies provide secondary coverage for services not funded by Medicare. You may need to assist parents in filing the claims and tracking the reimbursements, which can be very time consuming.
Legal Documents.
There are two legal documents that are important. The first is a living will which indicates the desires of the parent for life sustaining measures in the event he/she is terminally ill. The second is the appointment of a healthcare representative which names the person(s) who has the ability to make decisions on their behalf in the event that he/she cannot. It is important for you and others to understand your roles as well as the desires of your parents.
Release of Medical Information.
Given the laws regarding privacy, it may be necessary for parents to sign a letter for their physician's file which gives permission to the doctor to discuss their medical situation with you.
Issues Concerning Custodial Care
Their financial situation may dictate the living arrangements for parents once they become dependent on others for daily living needs. Generally remaining in the home with assistance being provided by an adult child, if possible, or by a paid caregiver is the first choice. If the finances are not available to meet this need, the options become moving in with a family member or seeking a custodial care facility.Long Term Care Insurance.
If the parents have purchased a long-term care policy, it is important that you know that it exists and understand the provisions. This policy may provide for home healthcare as well as custodial or nursing home costs.
Medicare Does Not Pay.
It is important to understand that Medicare does not pay for on-going custodial care in a nursing home. A limited amount of nursing home care is provided only as it relates to recovery from a medical condition.
Medicaid Does Pay.
Medicaid is the welfare program provided by the State government. It is meant to provide financial support for those individuals who do not have the resources to meet their living needs. If an individual is in a nursing home and has exhausted all resources to pay for their care and, therefore, qualifies, the Medicaid program will initiate financial assistance.
Impact on the Adult Child's Tax Planning
If you are providing a significant amount of financial support to parents, you may be able to reduce the financial impact through tax deductions and spending pre-tax dollars.Claiming Parent as a Dependent.
If you provide more than one-half of the parent's financial support, you may be able to claim your parent as a dependent on your income tax return. There are several requirements, so discuss this aspect with your tax accountant.
Dependent Care Reimbursement Accounts.
If you are eligible to claim your parent as a dependent and you have access to a Dependent Care Reimbursement account through your employer, you can use it to pay for a limited amount of out-of-pocket expenses on a pre-tax basis.