In November 2009, the National Alliance for Caregiving, an independent nonprofit coalition based in Bethesda, Md., conducted a study of caregiving in the U.S. The survey, conducted in collaboration with AARP and funded by the MetLife Foundation, found that the number of Americans who look after a disabled person age 50 or older had jumped 28% since 2004 to 43.5 million.
That's about 14.5% of the U.S. population, or almost one in every seven.
It's not surprising, perhaps, given the aging population. Yet this may be only the cusp of a swelling tide that some dub a crisis.
"America's 78 million baby boomers will begin turning 65 next year at a rate of one every 10 seconds, [or] 3 million to 4 million per year," says Claudia Fine, the chief professional officer at SeniorBridge, a national geriatric-care manager headquartered in New York City. "These are the best-educated, richest and healthiest seniors the country has ever seen, but they're still aging."
Anecdotal evidence suggests an increasing number of family caregivers are getting paid for their efforts-which is natural given the aging population and the high unemployment rate. And as most financial advisors know, when you mix money with family dependency, things can get tangled.
"There's always been a segment of the population that voluntarily cared for a parent or loved one without compensation," says Angela Crandall, an elder law and estate planning attorney at Tripp Scott, in Fort Lauderdale, Fla. "Often, these individuals were also employed outside of the home and cared for a loved one in addition to holding down a full-time job."
But now, she says, "more and more people are making the care of a loved one their full-time job and getting compensated for doing so. Also, as the cost of nursing homes, home health care and assisted-living facilities rise, more and more families find themselves unable to cover the cost of care for a loved one and must instead provide the care themselves."
This is not necessarily bad financial news, though. "If you're paying heirs out of your estate, you're lowering their potential tax liability," says David Keator, a financial advisor who specializes in retirement and estate planning at the Keator Group, in Lenox, Mass. "Chances are it's income for the caregiver at a lower rate"-assuming the caregiver's income tax rate is lower than the estate tax whenever he or she inherits-"while at the same time, it may be a medical deduction for the caregiving recipient." (Medical expenses are deductible if they exceed 7.5% of adjusted gross income.)
To maximize these benefits and avoid running afoul of the law, experts caution that it's essential to report all transactions. That may not seem easy or desirable at first, but there's really no good reason not to. "Many caregivers who come into the home want to be paid in cash," Keator acknowledges. "That's not just illegal, but a liability problem. If the caregiver gets hurt on the job and becomes disabled, they'll be unable to collect government benefits if there's no record of employment."
For the same reason, it's always a good idea-and in many states legally required-to carry insurance for any full-time employee who works in the home.
To keep track of all this, Keator recommends hiring a payroll service to cut checks, withhold appropriate employee taxes, file employer taxes and perform other back-office tasks. "It might be a little more expensive, but it means clients don't have to worry about the details, and it creates plenty of opportunities for savings down the road," he says.
Even if the caregiver is living in the same house, and room and board is considered partial payment, the value should be quantified and documented along with whatever salary is paid. "I would never encourage the bartering of caregiving in exchange for room and board," cautions Fine. Such arrangements, though common, can "blur boundaries and confuse expectations," she says.