How to Manage Money When Your Aging Parents Move In

1. Evaluate Debts and Assets

Add up your and your parents' assets and debts for a full financial picture of your new household. This includes:

• Debts such as auto, mortgage and student loans as well as credit card balances
• Your monthly income, which may change if you're quitting your job to care for your parents
• Your parents' income may include:
  • 401(k), 403(b) or other retirement plans
  • Social Security
  • Pensions
  • Traditional and Roth IRAs
  • Savings accounts
  • Investments
  • Passive income such as rental properties, royalties or businesses

2. Consider Home Modification Costs

Your home may require renovations to make it senior-friendly, such as:

• Adding a stairlift
• Installing grab bars or safety rails in bathrooms
• Converting your tub or shower to a walk-in
• Widening doorways or adding ramps for wheelchairs or walkers

On the higher end, you may plan to remodel your basement or attic, add an extension or build an accessory dwelling unit (ADU) for your parents.

Create a list of what's needed, what you can do yourself and what requires a professional. Estimate costs and get quotes. Investigate ways to pay for home renovations. If your parents are selling their home, proceeds from the sale could cover costs such as building an ADU. Many states have programs offering financial assistance for smaller-scale home modifications for seniors.

Other options:

• Introductory 0% annual percentage rate (APR) credit cards allow you to pay for home improvements and repay what you owe over time. Pay the balance before the introductory period ends, and you won't pay interest as you would with a loan.
• Personal loans typically don't require collateral and are available from online lenders, banks and credit unions.
• A home equity line of credit (HELOC) allows you to borrow up to a set credit limit based on home equity. Draw from the HELOC as needed and repay what you borrow over time. Most HELOCs have variable interest rates, so the interest you pay may rise.
• Home equity loans also use home equity as collateral; unlike HELOCs, you receive a lump sum and begin paying it back immediately. Most home equity loans have fixed interest rates and monthly payments.
• In a cash-out refinance, you get a new mortgage to pay off your current mortgage, plus extra money based on your home equity. Because HELOCs, home equity loans and cash-out refis use your home as collateral, you could lose your home if you don't make the payments.

3. Add Up New Household Expenses

List essential household expenses, such as rent or mortgage payments, home insurance, groceries, utilities and home maintenance. Assess how your parents' presence may change these expenses; you'll probably spend more on groceries and utilities, for instance. Also consider:

• Transportation: Driving around your parents for errands, doctors appointments and other outings can mean paying more for gasoline, auto maintenance and possibly insurance.
• Pet care: If your parents have a pet, who will pay for food, vet visits and other costs?
• Streaming services: Your parents may want a certain cable channel or subscription service.

Note average monthly discretionary spending for you and your parents, including entertainment, restaurants, clothing and gifts. Based on everyone's income and expenses, discuss whether your parents should chip in for household expenditures.

4. Evaluate Health Care Expenses

Health care, including health insurance and prescriptions, is a major expense for seniors. Are your parents unable to live independently? Unless someone in your family will provide full-time care, you may need a home health aide, caregiver or adult day care. Home health aides cost an average of $59,488 annually and adult day care cost an average of $78 per day in 2021, according to Genworth. Long-term care insurance (if your parents have it) helps cover these costs.

If you claim your parents as dependents on your taxes, you may be able to pay some expenses using a flexible spending account (FSA) or health savings account (HSA). HSA funds can cover a dependent's qualified medical expenses; dependent care FSAs can cover senior day care.

Parents who would otherwise need nursing-home care may qualify for the Program of All-Inclusive Care for the Elderly (PACE). Available in some states, PACE covers services like adult day care and in-home care.

Military veterans may be eligible for home health care and other services through the Veterans Administration (VA).

5. Enlist Your Siblings

You'll be housing and caring for your parents, so see if your siblings can help in other ways. Can they contribute financially, drive your parents to doctor appointments or help with filing their taxes?

6. Build a Family Budget

Once you've got a firm grasp of your family's income, expenses and financial options, create a budget for your newly enlarged household. If your parents plan to contribute financially, decide who's responsible for which expenses and how. For example, will your parents give you a set amount of money each month, pay certain bills or reimburse you for your spending? Parents who can't contribute financially may be able to help in other ways, such as cooking or caring for grandchildren.

7. Update Your Homeowners Insurance

Planning major home renovations to better accommodate your parents? Contact your insurance carrier to update your home insurance. Revise your home inventory to include your parents' belongings so you're all adequately covered.

8. Explore Tax Breaks

You can typically claim a parent as a dependent if:

• They don't file a joint return with their spouse, unless it is to claim a tax refund
• Their gross income was less than $4,400 for the calendar year
• You paid over half of their support for the calendar year

You may also qualify for potential tax breaks:

• Mortgage interest or points paid on a cash-out refi are tax-deductible, with some limits.
• Home equity loan or HELOC interest can be deducted if the money was used for substantial home improvements.
• A dependent care credit may be available for a percentage of the amount you spend for a parent's care while you work or seek work. For the 2022 tax year, you can claim up to $3,000 of qualifying expenses for one person or $6,000 for two or more.
• Medical expenses you paid for yourself and your dependents may be deductible if you itemize and the amount surpasses 7.5% of your adjusted gross income.

9. Get Professional Advice

Take this time to discuss your parents' future. Should you get medical and financial powers of attorney? Do they have wills, trusts or advance health care directives? If they're forgetting to pay bills or making questionable purchases, it may be time to take over their day-to-day finances.

If your parents own a home, should they sell it, rent it out or transfer ownership to you? How can rental income or proceeds from a home sale best be used? Consult professionals, such as a real estate agent, financial planner or estate planner for guidance that can help you make the right decisions.

10. Monitor Your Own Financial Health

While assessing your parents' finances, don't neglect your own. Even if you're supporting your parents, keep building retirement savings, your emergency fund and your children's college fund. Cut back contributions if absolutely necessary, but don't stop altogether.

The Bottom Line

Discussing finances before your parents move in can help your new household run more harmoniously. You'll have a lot on your plate, so consider setting up free credit monitoring for yourself and your parents. Receive alerts of changes in your credit report, which can help prevent identity theft and provide peace of mind.