Financial Planning for Grandparents Raising
Grandchildren
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Source: The Financial Planning Association. (June 2005). Financial planning
for grandparents raising grandchildren. Retrieved October 31, 2005
from Financial Planning Perspectives (FPP): http://wiseupwomen.tamu.edu/dwn_pdf/FPP_June2005.pdf.
Are you raising a grandchild?
Careful financial planning can help you manage what often
can be a financially challenging time for grandparents. |
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Grandparents raising grandchildren is on the
rise. According to figures compiled by American Association
of Retired Persons (AARP)'s Grandparents Information Center,
6.3 percent of the nation's children under the age of 18 live
in a grandparent-headed household, an increase of 30 percent
from 1990 to 2000.
The causes for this situation are many,
including parents in prison, drug-addicted parents,
divorced parents, death, neglect, abuse, joblessness,
and illness. Grandparents usually assume the responsibility
for their grandchildren out of love. But that doesn't
negate the financial burden that typically falls on
the grandparents. Beyond the additional expenses associated
with raising a child, grandparents may have to quit
jobs to care for grandchildren or come out of retirement
to earn additional money.
Here are several financial tips from Certified
Financial Planner practitioners to minimize the financial
impact. |
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Plan ahead.
You may not have the luxury of time, or you
may not feel you have a choice in the matter. But if it's possible,
know exactly what you're getting into financially before you
take on the responsibility. What are your financial options?
Will the parent or parents be contributing support? Is the
grandchild a problem child who might create liability issues
for the grandparent?
Learn your legal options.
If care of your grandchild will be long term
or permanent, you'll want to look at your legal options. The
legal relationship to your grandchild will affect a host of
financial concerns, including your ability to obtain financial
assistance from government agencies or certain services such
as medical care for your grandchild.
Options include foster care, adoption, and legal
guardianship. Each has its pros and cons, with laws varying
from state to state. For example, adoption may cause you to
lose financial assistance from one program but gain it from
another. Talk to your financial planner and an attorney before
making any permanent decisions.
Arrange for health insurance.
Finding health care for a grandchild can be
challenging. If the grandparents are still working, their employer
likely won't cover the grandchild unless the grandchild is
officially a dependent on the grandparents' tax return-and
even then some employers won't provide coverage. A grandchild
can't be covered under Medicare, either.
If care is going to be short term, an individual
short-term medical policy can be affordable. More permanent
individual coverage will likely be much more expensive, so
you may need to consider government programs for low-income
households such as Medicaid or special state children's health
insurance programs (CHIPs or similar names). With few exceptions,
most states don't consider a grandparent's income when determining
income eligibility for these programs, so a grandchild usually
qualifies.
 Where do you live?
This is often another major challenge that especially
needs to be thought about before the grandparents commit. Retirement
centers, for example, may not allow children. Or the grandparents
may live in an apartment or home that's too small to comfortably
house children. Building an addition to a home can be very
expensive.
Don't sacrifice your retirement.
Most financial planners recommend that parents
not sacrifice saving for their retirement in order to save
for their children's college education. A child can always
work and get financial aid to get through school. The same
advice applies to grandparents who are still working. Those
nearing retirement need to keep saving because financial aid
isn't available for retirement.
Take advantage of tax breaks.
Most grandparents raising dependent grandchildren
under the age of 17 can take the $1,000 child tax credit per
child, unless the grandparents have high income. Working low-income
grandparents may qualify for the federal earned income tax
credit, and some states offer a similar tax credit. If you
pay for childcare, don't forget the childcare tax credit.
Consider
outside help.
See if local agencies for the aged provide help
to grandparents who are caregivers. Low-income grandparents
may qualify for the state-run Temporary Assistance to Needy
Families (TANF) program.
Revamp your will and other financial documents.
You may want to revise your will and name your
grandchildren as beneficiaries on insurance policies, retirement
accounts, and other financial assets, particularly if you become
permanently responsible for them and you don't want assets
going to their parents. Consider the appropriateness of trusts,
such as special needs trusts or a living trust.
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