Ann Tuscic's Blog Post:
Making Room for Mom and Dad in your home!
How would you feel if Mom or Dad became your roommates?
For some families, it's a reality as they give shelter to financially struggling parents or ill parents who can no longer care for themselves. But as much as you may want to repay your parents for their care of you, you have to look at the financial and emotional ramifications of taking them in. "Parents are in the habit of taking care of their children," says Rick Salmeron, certified financial planner at the Salmeron Financial Network. "The flow of wealth from older to younger generation feels natural to many." But changing demographics is making the reverse more common. "We are living so much longer now," Salmeron says. The older generation may be running out of savings, or may be mentally or physically unable to tend for themselves. The younger generation might want to think about possible new roommates- their parents.
Here are some areas to look at:
The Costs
There are direct and indirect costs involved. Direct costs include groceries, household supplies and dining out. Indirect costs include increased utility bills, higher auto insurance rates if the parent is still driving, and more laundry, hobby or activity costs of the parent. According to US census figures, adding one person to a home with two will increase these variable expenses by an average of 23 percent. Having both parents live with you increases costs by about 42 percent.
Sharing the Burden
Parents may want to contribute to the household. Discussing arrangements to help with utilities or other costs helps facilitate this.
Impact on Benefits
Having your parents move in with you won't affect their Medicare of Social Security benefits. However, other benefits, such as Supplemental Security Income, could be affected. SSI is a federal income supplement program that helps low income aged, blind and disabled people pay for basic needs. Unless the parent is paying rent, if that parent is getting SSI benefits, those benefits will be reduced. That's because SSI treats free room and board as in-kind support and maintenance, which reduces the SSI benefit.
Tax Implications
"Under certain limited circumstances, you may be able to claim your parents as dependents on your tax return," says James Smith, CPA at Smith, Jackson, Boyer and Bovard. You may be able to deduct medical expenses that you paid for your parents. If you charge your parents rent, you would have to recognize the rent as income in your tax return, but then you could claim a depreciation deduction for a portion of the cost of your home, as well as a portion of the utilities and any general repairs to the property. If you don't charge your parents rent, the free room and board would be treated as a gift, but because the total rent value probably would not exceed the annual gift exclusion- $14K in 2013- you wouldn't have to report the gift to the IRS, says Smith.
Document Check
Are your parents' estate planning documents in order? This includes more than just a will.
As parents age, adult children may need to take on the role of making medical or financial decisions.
Having an up-to-date general durable power of attorney will facilitate managing a parent's affairs with their financial institutions. For medical issues, having a current medical directive, medical power of attorney and HIPAA release (to allow sharing of your health insurance) is important.
"Having access to your parents' main bank account also might be a good idea," says Jean Keener, certified financial planner at Keener Financial Planning. "Depending on the parent's ability to manage their financial affairs and the relationship between parent and adult child, it can sometimes be really helpful to make the child a joint signer on the primary bill paying checking account," she says.
Emotional Response
Are you prepared to deal with the emotional aspects? "Be prepared to adjust your expectations of what they remember and what they don't remember," says Deb Sears. Sears moved her elderly parents in with her in 1995. "Don't get mad because they forget things; just be patient."
