As life expectancies increase along with nursing home costs, many retirees face the terrifying prospect of outliving their money. The American Association for Long-Term Care Insurance estimates that only about 8 million of 313 million Americans have long-term care insurance policies. And even those who have a policy may find that its benefits fall short due to inflation or policy limitations.
This can put their children, members of the "sandwich generation," into an awkward position as they strive to support their own children and save for retirement while making sure their parents get the care they need.
Just ask Janet Perry of Northern California. Perry discovered that her mother had run out of money when her mother's checks started bouncing last summer. Fortunately, her mother had already moved into a nonprofit facility in Pennsylvania that guarantees care for life, and she received a grant that allows her to continue living there. When Perry, her brother or the grown-up grandkids visit, they check her mail for unpaid bills.
But Perry has friends whose parents had to move out of a facility when they ran out of money or needed more care than the facility could provide. "It's not good to be surprised by things like this," she says.
Given America's aging population, experts predict that the issue of whom pays mom or dad's nursing home bill could become more contentious. Just over half of U.S. states have filial responsibility laws on the books dating back to the 19th century, before Medicare or Medicaid existed. The laws vary by state, but generally say that adult children can be held financially responsible for the care of an indigent parent or vice versa.
These laws are seldom enforced -- aside from a 2012 case in Pennsylvania where a nursing home sued a son for $93,000 for his mother's unpaid medical bills. But Jamie Hopkins, an associate director of the New York Life Center for Retirement Income, predicts that may change in the future. "Paying for nursing homes is a worsening problem," he says. "Care has become more expensive, and the number of family caregivers is decreasing as families get smaller." He anticipates that more facilities may pursue this option in court over the next several months.
Barbara Kate Repa, a lawyer and author of several books on estate planning and retirement issues, doesn't see that happening. "A lot of these things get solved outside of court," she says. "Another reality is that nursing homes and insurers are very good bill collectors. They're also pretty good at negotiating with Medicare."
Even when filial responsibility issues come up in court, adult children won't automatically have to cough up the cash. "Judges will look at the reality of the situation," Repa says. "Does that kid have other financial obligations of her own? Did the parent ignore or abandon the child during their lifetime?" You can consult an elder care law attorney if you're unsure how filial laws might apply to you.
Here's a look at other strategies for adult children faced with a parent who needs financial help.
Discuss responsibilities with siblings. The financial and emotional toll of caring for an elderly parent can create tension between relatives. "Many families break up when mom and dad get sick and eventually pass away," points Dave Richmond, founder of Richmond Brothers Inc., a wealth management firm in Jackson, Michigan.
Discuss finances before things come to a head so siblings know what each person is willing or able to contribute. Richmond says if one child wants to help with a parent's monthly expenses, he or she should decide if that money is a gift or if they expect to get it back. For instance, one of his Richmond's clients documented the money paid for a parent's monthly expenses and created an itemized list of expenses that needed to be reimbursed after the parent's house sold.
Keep in mind that money isn't the only way to help a parent. A child taking leave from work to care for a parent may be making a greater financial sacrifice than a sibling who pays for out-of-pocket medical costs. Repa stresses that if one sibling doesn't have the financial resources to cut a check, he or she could contribute in other ways. "Maybe one is a good caregiver and one is a good handyperson," she says. In Perry's case, her brother earns less money but lives closer to their mother, so he can deal with day-to-day issues that would be harder for Perry to handle from 3,000 miles away.
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Avoid signing financial responsibility. When a parent moves to a nursing home or other facility, the facility may ask the child to sign forms accepting financial responsibility if the parent is unable to pay for care. Repa says this is a common situation that can create financial headaches for adult children. But, she adds, "you can refuse to sign it, and you should refuse to sign off on that."
Talk to the facility about other options, such as if a parent qualifies for Medicare or Medicaid, rather than blindly accepting responsibility for a bill that could ultimately reach six figures. Genworth's 2014 Cost of Care Survey found that the national median monthly rate for an assisted living facility is $3,500 (or $42,000 per year). The median cost of a private room in a nursing home was more than double that cost. "Most people have their head in the sand," Repa says. "People let too much time go by, so get the facts before things go horribly wrong." Repa says every state has an ombudsman program that can help answer questions around Medicaid requirements or other payment options if the facility can't.
Understand the tax implications of supporting a parent. If you are in a position to help a parent financially, there may be tax implications for doing so. In some cases, if you're caring for elderly parents who cannot care for themselves and providing more than half of their financial support, you may be able to claim him or her as a dependent for tax purposes. Even if your parent doesn't meet income requirements to qualify as a dependent, you may be able to deduct medical expenses that exceed 10 percent of your adjusted gross income if you're under age 65.
If the parent does not qualify as a dependent and you're writing him or her a check each month to cover expenses, that could trigger gift taxes if the amount exceeds the Internal Revenue Service's annual gift exclusion of $14,000 per individual or $28,000 per couple. If you're covering health care costs, "a sensible thing to do is to always make the payments directly to the medical provider as much as possible because those things are not counted in gift taxes," Repa says.
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