The Benefits (And Risks) of a Multi-Generational Household

Throughout history, the multi-generational household has always had its place in our society. At times the multi-generational family has been common and plentiful, at other times rare and seen only on the fringes of society. In the past few years, for reasons of both economy and practicality, the percentage of Americans living in multi-generational households has been steadily rising. In fact, a recent article in the Wall Street Journal states that “In 2008, a record 49 million Americans, or 16.1% of the population, lived in households with at least two adult generations or a grandparent plus one other generation, according to the nonprofit Pew Research Center in Washington. That is up 17% from 2000.”

Although multi-generational living had fallen out of fashion in the decades prior to this, there are a number of reasons why inviting elderly parents to live with you can benefit the entire family. “By living together, families say they are better able to meet one another’s needs for child and elder care. Moreover, money saved on rent can help finance a graduate degree, a job search or a down payment on a house, or offset the costs of long-term care.”

But setting up housekeeping with your parents (or your kids) isn’t as simple as merely moving furniture, often there are financial—or even legal—details to be worked out. Here are some of the things you should discuss before you build the “in-law extension” in your home:

Will the situation be permanent or temporary? Whether your kids are moving back in until they find that dream job, or your parents are coming to live with you until they find the right retirement community, it’s important to discuss these goals and practical steps that will be taken to reach them. “Those who prefer a temporary arrangement should work out an exit strategy—for example, by estimating how long it will take a person experiencing financial problems to regain his or her footing.”

Will the “new tenants” pay rent, or make any other contribution to household expenses? If so, it is absolutely imperative to work out a rental agreement before hand. Also, the “landlord” will need to ascertain whether the rent they collect should be reported to the IRS as income. “Some landlords simply aim to cover the extra expenses they incur. In that case, they owe no taxes on the payments they receive.”

If two generations are looking to purchase a new property together, there are completely different details to be considered. “When generations join forces to purchase or modify a property, each should retain an advisor to review the tax and estate-planning consequences and protect their investment in the event the union dissolves.” Additionally, “joint ownership can pose problems for those who may need to rely on Medicaid to cover future nursing-home costs.” It is a good idea to consult with an elder law attorney before signing any contracts.

There are many benefits to living in a multi-generational household, but even with all these benefits it is hardly an agreement to be entered into lightly. Families considering taking this step should discuss it not only with the entire family, but with their financial and legal advisors.

A Caregiver Agreement Provides Benefits for All

A recent article in the VOA brought to our attention the fact that while many adult children are serving as caretakers for their aging parents, very few may be receiving monetary reimbursement for their time or trouble. Our firm is not surprised by this at all. Many children and grandchildren feel that helping their aging relative is a privilege, or perhaps a responsibility, and not something that they would ever dream of taking money for. What these families don’t realize is that creating a caretaking agreement between relatives is something that benefits both the caretaker and the elderly relative.

The reaction of David Fowler, the subject of the article mentioned above, when his brother suggested David get paid for caring for their mother, reflects the views of many adult children who have elderly parents to care for. “At first [I was] kind of uncomfortable with what he was talking about because… I don’t want to make a profit off of my mother,” said David. “That’s just not in our way of thinking.”

But a financial arrangement between a caretaker and elderly relative can actually be “a way to protect the older person. There may come a time when they have to go into a nursing home, have very little money left, and should qualify for Medicaid, the government’s medical assistance program for poor Americans.”

The catch is that this financial arrangement must be an official one. Any money given to a caretaker outside of the legal caretaker agreement could be construed as simply a gift. “The monies you paid to the family caregiver absent an agreement in writing will be deemed to have been gifted by you to the family caregiver… causing a period of delay wherein which you will not qualify for the Medicaid benefit.” A caretaker agreement could easily prevent this disqualification or delay.

Although you may feel that you would gladly care for your mother or father for free, consider the benefits of a caregiver agreement and talk to your attorney about whether a contract of this kind could be useful to your family.

A Way to Help Parents and Grandparents in Financial Need

Estate planning is often about how people can pass wealth on to their children or grandchildren, but what if a child wants to give financial gifts to a parent or grandparent? This article from Bloomberg discusses just that: how GRATs Let Children Pass Millions to Mom or Granny Free of U.S. Gift Taxes.

As the elderly population of the U.S. increases, and as the effects of the economic downturn hit, more and more adult children find that their parents or grandparents are not doing as well financially as they had hoped. Many need help paying for medical expenses, home care expenses, mortgage or rent payments, etc. Adult children would like to be able to help, and a properly executed GRAT can be the perfect vehicle for wealthy children to give financial aid to their parents or grandparents without taking away from their lifetime gift-tax exemptions.

“With a GRAT, a child sets up a trust with a term of at least two years and funds the trust with stock or other investments. The trust pays the principal plus interest back to the child over its term as if it were an annuity, based on an interest rate set by the Internal Revenue Service. Any appreciation of the underlying investments above this ‘hurdle’ rate passes on to the GRAT’s beneficiary, in this case the parents, without being considered a gift for tax purposes.”

However, this opportunity may not be around forever. The Obama administration has recommended imposing a 10 year minimum term on GRATs, an act which would make the GRAT strategy significantly less useful for many families. Adult children who would like to use a GRAT to pass wealth up to their parents or grandparents should consult with a financial or estate planning advisor sooner rather than later.

If you do miss out on the GRAT window, however, there are other options for helping elderly relatives, including paying medical expenses for the loved one (so long as payments are made to the service provider directly, rather than to the relative.) Contact our office for other options and more information about helping elderly parents and grandparents.

Coming in 2012: Change for Retirees

Last month the Obama administration released their budget for the 2012 fiscal year, and included in that budget were a few things that retirees (or those close to retiring) will want to be aware of. If you own a business you may want to keep reading as well, as some of the proposals within the budget would affect not only retirees, but also small business owners. This article in the US News and World Report describes some of the proposals included in the budget, including:

Automatic workplace pensions. This would require employers (with the exception of very small businesses) that do not currently offer a retirement plan to enroll their employees in a direct-deposit IRA account. Employees would have the ability to opt-out if desired.

Tax incentives to create retirement plans. This proposal would increase the value of the tax credit to small businesses that start new retirement plans. The current maximum credit is $500/year for up to 3 years, the new proposal would increase that to $1000/year.

More Social-Security funding. Obama’s budget would allocate $12.5 billion to the Social Security Administration, up $1 billion since 2010. The primary aim of this increase would be to “reduce the backlog of disability claims and decrease Social Security fraud.”

But not all of the proposals included in the budget are beneficial to retirees. Here are a few things you may want to watch out for:

Pension insurance premium increases. “The budget proposes giving the Pension Benefit Guaranty Corporation… the authority to adjust premiums and take into account a company’s financial condition when setting premiums.” Although this is certain to result in premium increases, the increases would be gradually phased in.

Senior Community Service Employment Program funding cut. The proposed budget would reduce funding for the Senior Community Service Employment Program by 45 percent, and would transfer the program from the Department of Labor to the Department of Health and Human Services. Seniors who hope to retrain for new jobs in their retirement years may find this more difficult to do than they expected.

Long-Term Care; Be Prepared in an Area of Uncertain Options

It’s flu season again, and the strain going around this year has been a difficult one, mainly because of how long it keeps its victims out of commission. So the article we recently found on about Long-Term Care seems particularly timely and relevant, if only because this year’s flu could be seen as an omen of what’s to come as Baby Boomers age into their golden years.

According to the article, “A huge wave of baby boomers may need long-term care in their golden years — and yet fewer than half have taken steps to prepare for it… two-thirds of Americans believe it’s important to plan for long-term care, but only 44% have taken steps to protect themselves.” Part of the reason for this lack of preparedness is that Baby Boomers underestimate the likelihood that they’ll need long-term care, or they overestimate the likelihood that their children or families will be able (or willing) to provide that care.

But there’s another reason why Baby Boomers are statistically unprepared for the crisis of old age; to put it simply, there aren’t any clear avenues to solid and reliable financial preparedness. “While it’s clear that not enough people are thinking about preparing for their long-term-care needs, it’s not at all clear what, if any, the best solutions are.”

Some think that extra savings in the bank will cover the cost of long-term care; others believe that government programs such as Medicaid or Medicare will take care of them. Unfortunately, both of these beliefs are mistaken. “The average cost of a nursing home ranges from $85,000 to $120,000 a year, while hiring an aide to spend six hours a day on average in the home starts around $40,000 a year… Medicare, meanwhile, only covers up to 100 days of long-term care and often involves co-payments. Medicaid will cover long-term nursing-home care but only after the person has drained his or her savings account.”

The only other obvious solution is long-term care insurance; but even with long-term care insurance, nothing is clear cut, and too many people have found themselves paying into a policy and ending up with no return on their investment. This isn’t to say that long-term care insurance shouldn’t be an option, only that it’s one to be well-researched. Long-term care insurance is still one of the best options out there, but “There have been horror stories of people paying premiums on long-term-care insurance policies for years, only to find the benefits won’t cover their needs 20 or 30 years down the road when health care and long-term-care costs are significantly higher.”

The best advice we can give is to do your research and ask for the help of an advisor with experience in elder law, elder care, and senior financial planning. Whatever you do, don’t throw the baby out with the bathwater—we may have no clear and easy answers yet, but that’s no excuse to remain completely unprepared.

Knowledge and Communication is Key to Avoiding Family Fights

Do your adult children know which of them will be your power of attorney if something happens to you? Most people don’t want to think about Alzheimer’s, dementia, or getting old; and those who have thought about it often choose to keep their wishes secret, their documents held under lock and key until the time comes when they are needed. But according to a recent article in Reuters, one of the most critical steps a parent can take toward preventing sibling fights is to state early and openly which adult child is their choice for power of attorney.

“In order to avoid conflict, parents [should] sit down with their children and spell out who has been appointed and why… It’s something that really has to be thought out in advance, hopefully before a crisis has arisen and while the parent is still able to express their goals.”

Open communication can go a long way toward smoothing relationships between family members, but if that by itself isn’t enough to keep the fights to a minimum, the advice of a trusted advisor can often dispel suspicions that may be brewing just beneath the surface. But don’t wait until arguments have already exploded, the best course of action is to consult with your advisor before intervention is necessary. Asking your advisor to sit down with yourself and your family members gives each child a chance to ask questions and voice their concerns; it also gives them a chance to hear from your own lips what you’re planning and why you’re planning it.

Making Plans for Aging at Home

There used to be very few options for seniors who began to have trouble living on their own. In many cases the only options available were to move in with family or move into a nursing home. Now, however, that doesn’t have to be the case. With new advancements in technology, the help of family and local aging services, and with some planning and forethought, many seniors will be able to live at home and on their own for many years. Here are a few things to consider right now if you want to age at home in the future:

Support System- Do you have family or friends nearby who can check on you regularly and help when home maintenance issues crop up? Having someone close to you who can provide you with transportation is helpful as well, although many cities have public transportation services that may be an option.

Home Renovations- Is your home senior or handicap friendly? Are doorways and hallways wide enough to accommodate a wheelchair? Could you easily add ramps or lifts in place of stairs, if necessary? Do your kitchen and bathrooms facilitate easy maneuverability with as little reaching or bending over as possible?

Security or Medical Alert System- Having a security or medical alert system in place can provide immeasurable comfort to an elderly homeowner and his or her family. The technology for this is improving by leaps and bounds, and there are a number of different options available.

In-Home Care Services- The length of time you can remain in your home can be greatly increased if you have the financial means for (and access to) quality in-home care services. Someone to do basic cleaning and cooking, and help with daily activities, can prolong your time spent at home… but you have to plan for it.

Getting older shouldn’t mean you have to give up your home, your friends and neighbors, or your independence. For more information about what you may need to stay in your home as you age check out the website for the National Aging In Place Council.

Adult Children and Elderly Parents: Caring for Each Other

The idea of adult children caring for aging parents or grandparents is not a new one. In fact, with the aging Baby-Boomer population, adult children giving up free time or extra hours at work to care for relatives is a growing trend. But recently families have begun creating “caregiver compensation agreements,” something which can end up benefiting both parties in a number of ways.

According to a recent article in the Wall Street Journal, “the high unemployment rate, the rising cost of nursing-home care, an aging population, and a 2006 change in Medicaid law that makes it harder for people who wish to qualify to give away assets” are all contributing factors to the growing trend of these compensation agreements among family members.

How can it help you?

If you’re a caregiver the benefits of a caregiver compensation agreement are fairly self explanatory. “Some 37% of caregivers surveyed by the NAC in 2007 said they had quit a job or reduced their hours to accommodate their responsibilities,” some kind of compensation seems only fair. And if you feel uncomfortable taking “wages” from your parents, there are other ways to arrange for compensation. “Attorneys say many families pay an hourly wage. As an estate-planning tactic, others opt for annual gifts or a lump-sum payment designed to cover services over an extended period. Some arrange for the caregiver to receive a larger inheritance.” It will all depend on what works best for your family.

If you’re the one receiving the care, compensation agreements can benefit you as well. Paying a family caregiver can help you deplete your savings and qualify for Medicaid, it can also help you reduce your taxable estate, as well as give a gift of sorts to younger family members who may be in need. Remember that Medicaid rules vary from state to state, so enlist the help of your attorney before signing any contracts.

However you may decide to structure your compensation agreement, disclosure can be of the utmost importance. Make other family members aware of the agreement up front to avoid suspicion or hurt feelings later on.

Talking to Siblings About Caring for Mom and Dad

Many modern families have members living all over the country—and all over the world. Which means that the holiday season provides one of the only times to all get together in person, celebrate, catch up… and talk about caregiving strategies for aging parents. Unfortunately, this kind of conversation can be a difficult one, especially if not all siblings agree about mom or dad’s needs, or if one sibling feels that he or she shoulders an unfair amount of responsibility. In spite of the difficulty, having the conversation can be of the utmost importance.

In this article in Time Magazine author Francine Russo describes the consequences that can follow when lines of communication break down. “It wasn’t until my mom’s funeral, watching my dad and sister cling to each other and weep, that I got a hint of their long ordeal — and how badly I’d screwed up.”

Russo makes the point in her article that much of the tension and disagreement among siblings can come from inaccurate or conflicting information. “Friction often stems from parents giving their children different information about how they’re doing. Mom may put on a good show for the out-of-towner, who then discounts what the local sibling says.” This is all the more reason for siblings to communicate with each other, not just through mom or dad.

If you aren’t sure how to get the conversation started, Paula Spencer, senior editor for wrote this article for Third Age which gives some helpful strategies on how to ease into the difficult topic of caring for aging parents this holiday season.

Estate Planning Through the Ages

Can you remember what you were doing in your early 20s? Can you imagine what kind of life you’ll be living in your 70s or 80s? We experience incredible changes as the decades roll by—not just to ourselves, but in the world at large. With our lives changing so much, our estate planning documents and strategies should hardly remain static. Here is a guide to how your estate plan may or may not evolve through the decades.

In Your 20s: You’re young, just finishing school and starting in your career, unlikely to be married yet… the last thing you’re thinking about is estate planning! At this time of life, who gets your “stuff” may not be as important as who will make your decisions. Choosing your financial and healthcare agents and creating your power of attorney and healthcare directive are the important things to do at this time.

In Your 30s: Marriage, children, home ownership—most of these things happen in your 30s, and your estate plan should reflect that. Now is the time to choose guardians for your young children, decide with your spouse how your joint property will be distributed, and get serious about life insurance.

In Your 40s: This is when your strategy may switch from simple direction of inheritance to more serious asset protection. You’ve worked hard and saved, and you’ll want to think about the best way to maximize your assets with trusts and tax planning.

In Your 50s: As your children start to become independent you may have more freedom with your income. Some people choose to create charitable trusts, some prefer to invest for retirement, and still others decide it’s time to take a risk and start over with a second career. Your estate planner can advise and help with all of these.

In Your 60s: Ah retirement! Making the big change from work to retirement means making changes to your estate plan as well. If you’ve been keeping up with your planning through the decades all that is required now will be some basic maintenance; changes to account for marriages of your children, the birth of grandchildren, and your own relocation to someplace warm and sunny. But beyond the basic maintenance, you may want to start doing some simple Medicaid and long-term care planning—just in case.

In your 70s and Beyond: Health is the key word now. Our life-spans are getting longer, but so are our illnesses, you need to be ready. Tighten up your estate plan, invest in long-term care insurance, and although it may sound morbid, talk to your doctors and family about your end-of-life decisions.

The life alterations that come over a span of decades are difficult enough; you don’t want to have to find a new lawyer every time your circumstances change. Our firm makes it our business to keep up with you at every stage.