Extension

 

For many families, family caregiving begins in an emergency; a parent has a stroke or breaks a hip and is no longer able to live alone. This is one reason why it is essential to be thinking ahead. How can caring for a parent or loved one affect the caregiver’s financial future?

 

Mengya Wang, Oklahoma State University Extension finance specialist, offers caregivers some tips on how to meet the needs of their loved ones while also protecting their own finances.

 

“Many family caregivers underestimate how expensive caregiving can be. Adult children may need to pitch in to help cover expenses for a parent or other family member,” Wang said. “Or, one of the adult children might have to reduce work hours or even step out of the workforce to provide care for an elderly parent or loved one. Consider how the change in income will affect your long- and short-term finances. Reducing work hours or quitting altogether will affect your income and contributions to your retirement accounts.” 

 

Wang suggests creating two separate net worth statements – one for yourself and one for your loved one. This involves listing all assets and liabilities for each person to gain a clear understanding of both financial situations. Knowing each net worth can help determine how much each party can realistically contribute to caregiving expenses.

 

“In addition, developing two monthly spending plans – one for yourself and one for your loved one – can provide insight into the total financial requirements,” she said. “This process will help you assess whether reducing work hours or leaving your job is financially feasible.

 

Price out care options, including in-home help, adult day services, transportation and even home modifications necessary to provide a safe living environment for the care recipient.

 

“If your loved one has limited income or assets, check into Medicaid eligibility. In some cases, if the care recipient qualifies for Medicaid, a family member may be able to get paid for providing care,” she said. “Rules and benefits vary by state. Another option is to see what programs the care recipient is eligible for through the Area Agency for Aging.”

 

Also, a family member paying for care may be able to apply for dependent credit when filing taxes. Wang said the individual will need to show he or she is working. This works in the same manner as working parents who are paying for childcare and qualify for dependent credit. In addition, some medical expenses may be deductible when itemizing taxes.

 

When purchased early in life, long-term care insurance may be a good investment. These policies can offset costs for home care, assisted living or nursing home care, reducing financial pressure on family savings. However, this insurance isn’t for everyone. Wang said premiums can be high and benefits vary, and individuals who would qualify for Medicaid may not benefit.

 

“For those who work, ensure you understand your rights through the Family and Medical Leave Act. You need to know if you qualify for paid or unpaid leave when caring for a family member,” she said.

 

Caregivers making financial decisions for family members must ensure they have the correct legal documents that are signed and notarized, such as a power of attorney. Talk to the care recipient’s bank to discuss what documents are required. Also, keep those finances separate from personal finances.

 

“There is a lot to consider when caring for a loved one. It’s a good idea to talk to an elder law attorney for guidance in putting a plan in place,” Wang said. “While you want to ensure good care for your loved one, you must protect your financial future, too.”