Boston ? More and more baby boomers are taking care of their parents.

Because people are living longer, an increasing number of adult Americans are faced with caring for an older relative. Twenty-five percent of U.S. workers provide care for someone 65 and older, and individuals older than 85 are the fastest-growing segment of the population, according to Senior Link, an elder-care management company based in Boston.

Caregiving’s effect on a family’s quality of life also can be profound, as many adult caregivers are still employed and still caring for their own children, when the significant needs of their parents arise.

There also are the financial considerations, ranging from how to pay for a parent’s care, how to pay for housing and how to assist in managing their finances.

Adult children can pay for their parent’s care, but when doing this, they need to be aware that any payments can be qualified as gifts. Gifts in excess of $11,000 per person per year are subject to federal and state gift taxes.

One method of avoiding the gift tax when paying for a parent’s caregiving and medical needs is to make payments on behalf of the parent directly to the medical service provider. Such payments are exempt from the gift tax.

Adults whose financial support meets the IRS tests for dependents can claim their parents as a dependent and qualify for an additional personal exemption, which allows them to reduce their adjusted gross income by $3,050. For an explanation of the five dependency tests, see IRS Publication 501.

Also, adults who pay the qualified medical and caregiving needs of parents who qualify as dependents may include those expenses in the total medical expenses allowable for deduction on Schedule A of their federal income-tax return. While only such expenses in excess of 7.5 percent of annual adjusted gross income are deductible, when paying for a parent’s care (even if doing so with assets they gave you), these expenses can quickly add up. See IRS Publication 502 for a list of qualifying expenses.

How to trim costs

Here are some ways to trim a parent’s housing costs, or draw money from their property:

• Reverse mortgage. Qualified lenders, most notably the HomeKeeper mortgage offered by the Federal National Mortgage Assn., provide these programs. Seniors who want to stay in their home can cover housing and medical costs through payments from such a loan, which is paid off when the home is sold, they move or die. For example, according to a calculator on the AARP Web site, an individual born in 1933, with a home valued at $180,000, could receive $374 to $677 per month for life, depending on the reverse mortgage program selected. So far, this option is not widely used, with about 13,000 individuals getting a reverse mortgage last year, but that number is growing.
• Make your parent your tenant. An increasing number of adults are building additions to their homes for their parents or buying larger houses to accommodate their families and their folks. Under this arrangement, it is important to have a formal lease agreement and charge a fair market rent to your tenants, even though they are your parents. The rent they pay is rental income to you and is reported on your tax return on Schedule E along with the related deductions against this source of income. It also is important to inform your homeowners insurance company of this situation to ensure that the proper form of coverage for liability and property damage is in force.
• Elder Cottage Housing Opportunity (ECHO). This option provides a way for parents to live with their children, but not in the same house. An ECHO unit is a separate, small manufactured home installed in the side or back yard of a single-family house. The upside is that when no longer needed, the unit can be removed. Local zoning commissions may not allow ECHO units while others only provide variances for people older than 55. Sometimes a special-use permit can be obtained when this is the case. Another factor to deal with is the reaction from NIMBY (not-in-my-back-yard) neighbors. More information on this option can be found on the Administration on Aging Web site (aoa.gov).

• Accessory apartments. These are created within single-family homes and are complete living units, which include a private kitchen and bath. Often finishing the walkout basement into an accessory apartment can be a practical solution to providing for the housing and care needs of a parent as well as improving the resale value of the home.

Help with finances

Parents also may need help or assistance with managing their financial accounts. One option is to title their accounts jointly with an adult child. This can backfire several ways: Assets titled jointly are subject to the liability of all joint owners, and these assets will pass on only to the surviving joint owners, possibly disinheriting other family members. For these reasons, it’s often advised to seek other arrangements such as:

• Letter of Authorization (LOA). This instruction for a brokerage or bank grants another person access to account information and duplicate statements. That puts adult children in a position to assist their parents without taking over control of the accounts or subjecting them to additional liability.
• Durable Power of Attorney (DPOA). This document gives a person the legal authority to act on another’s behalf. The specific reference in a power of attorney to the survival of the power in the event of incapacity or disability means that it is durable, or remains in effect under these conditions.
• Springing Power of Attorney (SPOA). This power of attorney can include language that limits its effect only upon a certain event, thereby limiting the authorization to be permitted only upon certain circumstances.
• Limited Power of Attorney (LPOA). Like a springing power of attorney, this POA can limit the authority of the attorney-in-fact to certain activities, such as paying utility bills and tax payments only from certain financial accounts.

Regardless of the arrangement chosen, it is advisable to seek the review of competent counsel to ensure these authorizations are valid and properly signed.