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What to Do When You’re Caught in the Middle of Caring for Children and Parents

If you are one of the many millions of Americans who are responsible for your own personal financial needs, as well as supporting and caring for your own children, in addition to your elderly family members, you are part of the Sandwich Generation (SandGen).

Approximately 44% of Americans between ages 45 and 55 are stuck right there in the middle of two generations who are both financially and emotionally dependent for their well-being. According to a recent AARP report, there are nearly 20 million Baby Boomers in this situation. This SandGen must look at planning from many different angles in order to ensure that they can secure their own financial future as well as provide for those they care about.

Common expenses and responsibilities that you may face if you’re a part of the SandGen are college tuition, wedding expenses, helping with housing for your children, caretaker responsibilities, health care costs and cost-of-living expenses for your adult parents, all the while still trying to save for your own retirement. Despite the fact that advanced planning is usually best, attacking the issues at any time will bring more success than a do-nothing approach.

The SandGen parents in this situation must first have an open conversation about the importance of financial planning and solid money-management skills with their children — the younger the better, as this conversation can jump-start planning for future education expenses as well as other major lifetime expenses. Although many parents crack into their retirement nest egg in order to finance college education, children should be encouraged to look into other financial resources that may be available. They may be able to access education savings plans, scholarships, grants, money earned from part-time employment, and student loans in order to offset the financial strain on their parents.

A low-interest loan for a college education seems a better choice than the invasion of principal and the associated taxes and penalties that may result from using retirement savings. If the SandGen continues to deplete assets on college as well as the other caring responsibilities, they will likely extend their working years on average an additional 10 years.

There are also luxury expenses — for example, helping with weddings or assisting with the purchase of homes for their children. Here, the SandGen needs to take into consideration that these financial outlays are going to dramatically affect their retirement and lifestyle. Children need to understand the implications that these requests may have on their parents as well, so the SandGen must find a way to discuss with their children what is necessary and what is luxurious. Those who give in and offset major purchases and expenses for their children may need to adjust their estate plans to account for disproportionate distributions during their lifetime between their children.

An aging parent, grandparent, or other elderly relative who is dependent upon this generation comes with major potential financial needs. Assisted-living facilities that help a relative with the activities of daily living such as bathing, eating, and personal care can cost on an average $48,000 yearly. Nursing-home care costs over $100,000 annually.

The average household is not in a position to absorb these types of extraordinary expenses, and the average household is not equipped to take in an elderly family member or provide at-home care in the family member’s home. The decision to bring an elder family member into one’s home often results in a major home renovation. This can be funded by the elder’s money, but although it is often much less expensive than what an elder would spend on nursing-home or assisted-living care, it still may become cost-prohibitive if the elder requires a level of care greater than family members can provide, as in-home care costs can be daunting. Also, down the road, the elder may require a level of skilled care that cannot accomplished at home.

One way to prevent these types of expenses is through the ownership of a long-term care insurance policy that begins to pay when a policy holder suffers from a chronic condition and needs constant care. The policy can pay for in-home assistance, assisted-living facilities, as well as nursing-home care, depending upon the level of need. The most affordable premiums are quoted to people in their early 50s who are in good health. Although the premiums are often expensive, especially for older applicants, it still is less expensive than the annual costs of privately paying for the care.

Families should discuss sharing these premiums if an elderly person can’t afford the expense alone. Siblings sharing in the cost can dramatically reduce the financial burden to a single household.

In the event that a parent cannot qualify for long-term care insurance, Medicaid, a state’s health care system for individuals who meet a predetermined poverty level, can be accessed. Bear in mind however, that in order to qualify, the applicant must be devoid of nearly all assets and the family will be spending assets on the private-pay costs of care.

Families should consult with an elder law attorney who can advise on the development of an asset-preservation plan that may reduce the cost to the family or benefit them by determining what can be protected from Medicaid recovery and prevented from being spent on care.

A reverse mortgage is another option for individuals who desire to remain in their own home. For many elderly people, this is of paramount concern; however, they may not have the day-to-day resources to afford to remain there. In the absence of assistance from their children to pay the monthly carrying costs of real-estate taxes, hazard insurance, water, sewer, utilities, maintenance, and any debt service, there would be no feasible way for the parent to remain in the home. A reverse mortgage allows the elder to access the equity in their home for expenses for as long as they continue to live in their home. This loan is then paid back upon the death of the elder, or the sale or refinance of the property. A reverse mortgage may deplete the potential inheritance to be received from a elderly family member; however, balanced against the financial security of not having to invade one’s retirement and savings, as well as giving the elder the peace of mind of remaining at home, it seems a win-win option.

During this time of determining housing options, it is a good idea to speak with the elder about the need for a proper estate plan, creating one if no plan exists or updating an outdated existing plan. What may often be a touchy subject among children and parents or elderly relatives may be broached more easily when working together to reach health care, housing, and lifestyle decisions. In any event, a SandGener who is taking on the financial obligations and/or personal care responsibilities of an elderly relative must ensure that the relative has at least a health care proxy, durable power of attorney, and last will and testament in place in order to stave off problems in future decision-making.

All in all, the SandGen is one that still needs to save for themselves in addition to saving for their children’s education and paying to support the expenses of their elder family members. They can’t ignore their own needs while succumbing to the pressure of meeting everyone else’s needs. Proper planning for this generation includes not only their own individual retirement and financial and estate planning, but that for their children and elder relatives as well. This can include, but not be limited to, the use of traditional savings vehicles, life insurance, long-term care insurance, qualified retirement funds, 529(c) plans and other available college savings plans, as well as a good old-fashioned budget and proper estate planning to ensure that everyone’s needs are met. With proper planning, there should be plenty of eggs left in the nest to go around. n

Julie A. Dialessi-Lafley, Esq. is a partner with the law firm Bacon Wilson, P.C. She focuses her practice in business, real estate, estate planning and administration, elder law, and family law; (413) 781-0560;bwlaw.blogs.com/familylawbits;[email protected]

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