Raising kids and caring for parents simultaneously can be a time-consuming and costly endeavor. According to the American Association of Retired Persons, there are an estimated 44.4 million unpaid caregivers in the United States who care for another adult age 18 or older. Most of these caregivers are employed, and most have had to make adjustments to their work schedule to accommodate their personal responsibilities. Meanwhile, college costs continue to rise at about double the pace of overall inflation. The College Board reports that the average cost of one year at a four-year public university totaled $15,566 for the 2005-2006 school year; for private colleges and universities, that figure jumps to $31,916.

Ideally, savings and investments will cover the costs of college, and the assets of aging parents will offset the financial burdens of paying for their professional care and medical attention. But unfortunately, that is a best-case scenario, and even for affluent families life is seldom so simple.

One of the first and easiest steps any homeowner can take to ensure that liquidity needs will not go unmet is to establish a home equity line of credit. A home equity line can allow you to tap into the equity in your home with the simplicity of writing a check to cover tuition, health care costs or other pressing expenses. Interest on home equity lines is generally tax-deductible, as opposed to the interest on credit card debt, auto loans or most other forms of personal credit.

Even if it is just to bridge cash-flow gaps, establishing a home equity line of credit can be a useful tool. Because it generally is inexpensive to set up, it is best to establish one before you need it. However, you should always consider your ability to pay off a line of credit before you establish one.

If you are still carrying a mortgage on your home or an investment property, another solution for managing cash-flow needs is to give yourself some latitude in your monthly mortgage payments. One way is to obtain a mortgage that only requires you to pay interest each month. There are interest-only mortgages available with rates that are fixed-a potentially attractive feature in today’s rising-rate environment. You can make fully amortizing payments including principal, or you can just pay interest, which provides you with some financial leeway when cash is tight.

Depending on the health and other physical circumstances of a parent, it may be necessary to make some major changes to living arrangements. Elderly parents may need to move into an assisted living facility or a nursing home for access to around-the-clock care, or they may simply need occasional visits from a home health care provider. Some parents are even moving in with their adult children.

Assuming your parents have a home with substantial equity, there are a number of options to consider when faced with the need to make major expenditures for their long-term care. Although it may be a delicate issue, one option is to sell their home and either downsize to a home more appropriately sized for their needs or use the proceeds to pay for long-term care and/or residence in an assisted living or nursing care environment. Depending on the value of the home and the level of parental assets, there could be estate tax implications you will want to discuss with tax and financial professionals.

In the event you decide to have your parents live with you, you may want to build an addition on your home; or if you have a large piece of property, to build an additional house. Both of these objectives can be accomplished using your home equity as collateral for a construction loan that later converts into a fully amortizing loan.

Children may also turn to their parents for help in buying a home, especially in today’s real estate market. Some mortgage products allow for 100 percent financing and do not require mortgage insurance premiums.

Innovative mortgage products can help provide the flexibility necessary to meet the dual financial burdens of caring for children and parents at the same time. Building some flexibility into your budget can help you remain on course for attaining your long-term financial goals.

Note: Merrill Lynch does not provide tax advice. Consult your tax advisor regarding the deductibility of mortgage interest. Interest expense may not be deductible for all taxpayers.

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