Boston — An elderly woman was faced with this unhappy choice: She could either spend $2,500 a month to live in a nursing home, or she could pay $5,000 for private home service. To her, the decision was a simple financial one. She chose to stay at home.
``We went through three-fourths of her estate'' in nursing costs, notes financial planner Robert Hewitt of Christopher Weil & Co., Carmel, Calif.
Was there an alternative? Could she have made arrangements that would allow her to stay at home -- which is what she wanted -- and yet cost less?
Financial planners increasingly find themselves analyzing such questions as America's population ages. At the same time, many children -- who are now adults themselves -- find they are taking on the responsibilities of managing their elderly parents' finances, legal guidance, health care, insurance, and other needs.
Many times these ``children'' have to consider care costs for their parents even as they themselves plan for retirement. ``Care-giving'' is the term used by financial planners and other experts in the care field.
``Retirement is [supposed to be] the `time of your life,' and now there's an added dimension, financially and emotionally,'' says Henry M. Wallfesh, president of Retirement Advisors in New York.
His company recently surveyed pre-retirees and found that almost 30 percent had responsibilities to care for parents. These results follow a June 1985 survey done by the Travelers Company in Hartford, Conn. The survey concluded that about 20 percent of its employees over age 30 had care-giving responsibilities.
``There's an increasing awareness of how we're going to take care of ourselves, plus catching up to care for our parents,'' says Mr. Hewitt. ``The children have to divert some of their potential retirement funds.''
Children need to consider many factors in this financial planning process, say Hewitt and other financial advisers and legal counselors.
Where do the parents or other relatives live now? Will they come to live with the family? If the parents require attention, can a nursing home meet those requirements? Can the parent live at home, thereby reducing care expenses and also providing personal involvement and family ties? Are both spouses, the children, working? Would a companion have to be hired? Who will pay for the care? What is the status of the parents' income and assets, including pensions and social security benefits?
Most of these concerns revolve around money.
``It's when you don't have the money to deal with the needs [of elderly parents] that problems arise,'' says Hewitt. ``When you mix emotions and money, you have a highly volatile situation.''
Hewitt recommends earmarking as much money as soon as possible for one's parents and getting the children involved with their parents' financial situation well before the parents are in need of care.
``Many children don't know that much about their parents,'' he says. ``Parents get more conservative as they get older, and they are concerned about running out of money.''
Financial planner Clifford Garnett of the Commonwealth Financial Group in Waltham, Mass., urges grown children and their parents to plan a series of investments so that cash flow covers the costs associated with caring for the parents.
This might range from a portfolio of dividend-producing investments to rearrangement of ownership of financial assets.
The key asset on the balance sheet for most parents is a house, and it can almost always be turned into income. One way to do this is to sell the house to a realty trust that the children control.
``Selling the house frees up assets,'' Mr. Garnett explains. The law allows people over age 55 to receive a preferential capital-gains treatment from the sale of a house.
In the ``sale-lease-back process,'' the children must collect rent, which might seem awkward both to parents and children. ``The major hurdle to be overcome is the concept of renting,'' Garnett says. ``The children have become landlords and the parents are tenants.''
Another tool Garnett recommends is setting up investment accounts for the parents. This allows financial flexibility. ``Plan for these over a number of years, rather than wait for an emergency,'' he advises.
Garnett stresses, however, that the parents' social security identification numbers should be on the investment documents so that dividends, interest, and capital gains are reflected on the parents' account; otherwise, the children could be in for a heavier tax burden.
For most older people who are on a fixed income, perhaps the greatest concern, after running out of money, is being able to afford medical and nursing home care. Most people today generally cannot afford nursing home care, says Ira Salzman, a lawyer. And the tax law that Congress is considering will change the amount deductible for medical expenses, making it more costly to the individual who opts for medical care.
``In care-giving, the child's funds don't have to be managed as much as the person's who needs care,'' says Mr. Salzman, of Salzman & Jaffe in New York.
Medicaid will pay for most nursing home care within the limits of the law, he explains, but the requirement to be eligible for this insurance is a certain level of income.
This level practically requires a person to be ``poor,'' according to Ellice Fatoullah, another New York lawyer. In New York, the income eligibility level is about $4,000. To get the coverage, older people routinely transfer their assets to children at least two years before they can apply for medicaid insurance coverage; if the time element is shorter, the applications can be deemed fraudulent and turned down.
Ms. Fatoullah suggests the parents divest completely by turning all assets over to the children in a trust. ``Private insurance for nursing home care is virtually nonexistent,'' she notes.
Whatever the financial and legal arrangements that are chosen, working them out requires trust among family members.
``There is no reason not to give someone you trust a power of attorney or set up a joint bank account,'' says Salzman. The cost of these arrangements is nominal or nil, he says.
But some families where parent and children are not on the best of terms might consider setting up a trust tailored to concerns of both parties. A trust might, for instance, specifically designate who controls it.
``How soon you should plan depends on the people involved,'' Salzman says. ``Family members must decide to what extent they trust each other,'' because you are giving away financial control.