If you’re like most people, you probably have parents. And like most people, your parents are probably going to get old at some point. This suggests you might be in charge of helping with their finances. If you find yourself in this position, there are a few things you might consider.
1) Do some tax research. If your parent is your dependent, you might be able to claim a credit on your federal income taxes. There might also be state tax breaks you should consider. For example, Montana, Arkansas, Delaware, the District of Colombia and other states all offer a credit on your state income tax that is a fraction of your federal credit. It pays to look into this because these credits could have a substantial impact on your tax bill.
2) Check your employee benefit plan. Some plans allow you to pay for elder care with pre-tax dollars. If you can effectively plan your expenses ahead of time, this makes a lot of sense. Every dollar you take off your taxable income reduces your income tax bill. Also, since some states offer tax credits to companies that provide dependent care assistance, you should look into this option too. The main point here is that employee benefit plans are available. If you’re going to take care of your parent, you might as well take advantage of these programs.
3) If you need to, get your parents finances in order. If your involvement in your parent’s finances is warranted, there are some things you should do. First, get durable power of attorney so you can take care of your parent’s business. Second, identify and deal with your parent’s debts. Third, consider reorganizing your parent’s investments into something low risk, such as utility stocks or blue chip bonds. Fourth, have all the bills sent to your address. Fifth, get your parent an up-to-date will. But be careful. When getting the will set up, think hard about who should be the executor of the estate. Probably an attorney or someone neutral is a better bet than a family member. End of life issues can get emotionally complicated so its better to have a disinterested neutral party involved.
4) Protect Your Relative Against Fraud. The elderly are at increased risk of being a victim of crime. This is because many senior citizens live alone, are reliant on one caregiver or may be ignorant of local laws. You should definitely keep an eye out for thieves or people who want to take advantage of your relative.
5) Deal with the bureaucracy. Jane Bryant Quinn, the inspiration for this post* says this. Specifically, if you take charge of dealing with medicare you’ll be doing your relative a huge favor. Medicare combines the worse inefficiencies of a bureaucracy with the innate stubbornness of an insurance company. Taking over dealing with it would be the true test of love for your relative. Often medicare bills are denied or bureaucratic inefficiencies can frustrate even young and vibrant people.
I know from personal experience how valuable this is. When my grandmother was dying, her good friend Kitty took over dealing with her health insurance. Since my grandmother had numerous operations before she passed away, the billing and insurance paperwork was substantial. Needless to say, my father and I were both very grateful that Kitty was there to help.
Of course, the financial issues surrounding caring for an elderly relative are more complicated then what we’ve written about here, but this posting is a good place to get started. If you want more information, check out smart money’s page on elder care.
*Making the Most of Your Money, p. 129.