I have a couple questions I hope you can help me with. My situation is that I no longer have a relationship with my parents. We had a falling out about five years ago. My brother, who I do have a relationship with, recently asked if I would be willing to help financially with my parents’ care. They are moving into an adult care facility and will need help financially. My first question to you is, do I have any legal liability to assist my parents? My second question is, if I decide to help my parents, is there any way I can write it off my taxes?
Whether a child is responsible for an elderly parent’s long-term care cost is first dependent on the state that you reside in. Over 25 states have what are known as filial responsibility laws. Basically, these laws can hold adult children responsible for their parents’ medical care if the parents can’t pay. The extent of the responsibility and how it is enforced does vary from state to state. In fact, in many of these states nursing homes and other long-term care facilities can use these laws as a way to seek reimbursement from adult children for the unpaid bills. That being said, the State of Michigan does not have filial responsibility laws and thus, you would not be held responsible for any of your parents’ long-term care costs.
Filial responsibility laws are rarely enforced, and most low and middle-class families typically do not have to concern themselves with these laws, as long as their parents apply and qualify for Medicaid. If the parents do not qualify for Medicaid, adult children in states with filial responsibilities laws can potentially have financial responsibility.
Even though children are rarely held responsible for their parents’ long-term care costs, adult children may find that they are paying for their parents’ long-term care costs through Medicaid estate recovery laws. When Medicaid pays for people’s long-term care, Medicaid has the right to recoup funds from their parents’ estate through the Medicaid estate recovery process. Through the Medicaid estate recovery process, it is possible that repayment to Medicaid may come from the proceeds of the sale of your parents’ home. Thus, you may not be liable to repay Medicaid, however, it is possible that your inheritance can be reduced.
Even though Michigan does not have filial responsibility laws, children can be held responsible for their parents’ long-term care costs if the child personally guarantees the obligation of their parents. Therefore, if your parents go into an adult living facility and you sign as a co-signer, personal guarantor and or responsible party, you can be held responsible for any unpaid bills. Therefore, you have to be cautious about signing any document when your parents move into a long-term care facility. If your parents are not in the position to sign, it’s important that when you sign the document on their behalf, you have a durable power of attorney and sign the document as agent for your parents. By doing this you won’t assume any personal responsibility.
If you choose to financially help your parents, more likely than not, you would not qualify for a deduction. Your parents would not be a dependent of yours for tax purposes and thus, you would not be able to deduct any monies used for their care.
For those of you with elder parents, it is important that you help your parents get their legal and financial affairs in order. By having their affairs in order, including having the proper powers of attorney, it can help handle a very emotional and difficult family situation. For those of you who end up having to assist parents, and do not have the right legal documents, you may find that handling your parents’ affairs can be more difficult and expensive. Therefore, for those of you lucky enough to have elderly parents, it important that before a crisis develops you help them get their affairs in order to make things as easy as possible for them and ultimately for you.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org