How to Prepare Financially for Your Parents or in-Laws to Move

Life can take unexpected turns. Most of us envision a certain trajectory for our lives: you grow up, you move, you get a job, and from then on you live independently. The reality is often a little different, and we have to get creative with our finances and life situation. When we hear the phrase “multi-generational life” or “living together”, we usually think of adult children moving back in with their parents to save money. But increasingly, the opposite is true : parents move in with their children because they can’t afford to live on their own.

Moving your parents (or your spouse’s parents) to live with you is often a good decision when their physical or financial health is not very good, and living in a multi-generation family can bring great emotional rewards. But you need to plan for the financial implications of having your elderly parents live with you, even if they are generally healthy. Here’s how to make sure you’re ready.

Make a budget

The first step in any financial plan is the budget. You need to know both your income and expenses right now, and how they will change when your parents move.

• Income. Will your parents be able to contribute to the family budget? You need to know what they receive from social security and retirement accounts, if any.
• Expenses. Having one or two more people living in your home will at the very least increase your utility bills and groceries. If you are already struggling to cover these expenses for your family, your parents may have to contribute more. And if your parents need home care, those costs can be significant, even if they have health insurance — the average cost of ongoing home care for seniors is about $5,000 a month . It may be helpful here to consider setting up a formal rent that your parents will pay you, as opposed to the more ad hoc request for contributions as needed. It may seem inconvenient to charge your parents rent, but the benefit of a predictable and reliable addition to your income is well worth it.

In addition to your current day-to-day budget issues, you may also need one-off expenses:

• Moving and storage. Moving your parents out of their current home can be a significant expense, and if they haven’t been diligent about downsizing, you may have to bear some storage costs for a while.
• Remodeling. Depending on the health of your parents, you may need to put some money into your home to make it more livable for them. This could include installing grab bars in the bathroom, something more substantial like installing ramps, or buying furniture for a spare bedroom or mother-in-law’s apartment. If you need to create a set for your parents, be aware that the average cost of such a supplement is around $83,000 . Keep in mind that while couples’ apartments, also known as assisted living units (ADUs), tend to sell for higher prices, it’s usually hard to get a good return on that investment .

Look into programs

If you’re working on a family budget left over from your parents and your eyes are watering, your next step is to explore the programs and assistance that you may have available. Although your parents live with you, they are separate financial institutions. If their income is low enough, they may be eligible for SNAP benefits , which can reduce the extra grocery bills associated with having more people in your home. You can also find out if they qualify for Extra Help Medicare , which covers Medicare Part D premiums and other costs, which can lower their prescription drug costs, leaving more money for the family budget.

Consider their tax status

Another thing to consider is that a parent living with you can be considered an income tax dependent if they meet the following basic requirements:

• They are a US citizen or permanent resident.
• They do not pay taxes jointly, and their non-Social Security income does not exceed $4,400.
• Your support costs are at least $1 more than their income.

You can also get a dependency care loan if you pay for daily care and you should look into this before your parents move in. If your living-in-home parent’s health care costs are more than 10% of your income, you can also claim those costs for your taxes. If you’re unsure of your status in these categories, it’s probably worth talking to a tax professional.

Consider insurance issues

If your parents bring valuables with them, you should probably consider how much home and other insurance you have. If you have created a separate housing unit for them, you may need additional coverage specifically for that structure, especially if your property did not have one before. Listing your parents as dependents can also affect the premiums you pay for home insurance, so it’s best to talk to your agent to make sure you’re actually covered.

Look to the future

And the last tip: remember that your situation will not be static. If your parents are relatively healthy and active when they move and are able to contribute financially and otherwise to the household (such as childcare or other chores), that’s great, but they may not be able to keep it going forever. You will need to plan ahead for future costs associated with reduced mobility (such as making your home wheelchair accessible or swapping bedrooms with them so they can be on the first floor) or a reduction in their income (due to, for example, reduced retirement accounts) . Just because you decide to reschedule them today doesn’t mean your plan will work in a year, and the sooner you start thinking about what you might need to do in months or years, the better.