Ensure you loved one receives care

When a parent ages and begins to need assistance with daily living, a child often voluntarily steps in to provide these services.  Typically, the child assumes the responsibility of taking care of the aging parent out of love or a sense of familial responsibility and without any promise of compensation.  However, some children may not be able to afford to stay at home and care for an aging parent.  Or the parent may insist on paying the child so as not to feel a burden to the child.  As such, a growing number of families are setting up caregiver contracts, in which family members are formally hired to take care of the aging parent.

A caregiver contract outlines the responsibilities of the caregiver and specifies the payment he or she will receive for their services.   Such a contract can both protect and benefit the parent and child.   It compensates the child for his or her time, money and effort spent on caring for the aging parent.  It can also help avoid any potential conflict between family members by making sure the work performed is fairly compensated.  A caregiver contract is often a better alternative than the parent deferring compensation for the child’s services until after death by leaving the caregiver child a disproportionately larger share of the parent’s estate.   There is a risk of unfairness with such a deferral, to the extent that the value of the child’s share may be significantly more or less than the value of the services performed.  Also, such a contract can alleviate claims by the other children that the caregiver took advantage of the parent.

For the parent, a caregiver contract can enable them to be cared for at home instead of in a facility. In addition, a caregiver agreement can be a key part of Medicaid planning.  A properly drafted caregiver agreement will protect assets from nursing home care costs and reduce the parent’s estate, which in turn will accelerate his or her eligibility for Medicaid long term care nursing home coverage.  Since the payments by definition are made in exchange for services rendered, they are not treated as gifts for Medicaid purposes in determining eligibility.  However, if the child provides services with no caregiver contract in place, Medicaid considers the services gratuitous.    If the parent compensates the caregiving child for services provided, Medicaid will impose a period of ineligibility.

Important Considerations for Caregiver Contracts

If the parent and child agree that the child will be compensated for services performed on behalf of the parent, the agreement must be in writing and executed by the parties before the services are rendered.    Informal, unwritten understandings between parent and child are common.  However, any monies passing from the parent to the child under such informal agreements are often viewed by Medicaid as gift from the parent to the child.  A gift disqualifies a person from receiving Medicaid benefits.   A properly drafted caregiver contract can prevent Medicaid from disregarding the value of the child’s services.

You should not attempt to write your own caregiver agreement.  It should be drafted by an attorney who specializes in elder law and who can tailor the contract terms to your unique situation.  These contracts are often scrutinized by Medicaid, Social Security and the IRS.  By working with an elder law attorney, you increase your chances of having the agreement approved by Medicaid without jeopardizing benefits.  An elder law attorney also will be able to help you comply with Social Security laws, income tax regulations and employment laws.

A good caregiver contract should clearly specify the rights and obligations of both parties, including what services are to be provided, the hours to be worked by the caregiver and the costs that will be incurred. The care that is provided may include driving to doctor’s appointments, grocery shopping, preparing meals, housecleaning, help paying bills and assisting with personal care.  Services can range from part time to round the clock care and supervision.   The contract should not state that services will be provided on an “as needed basis” because the fair market value of such services cannot be validated.  The length of time of the contract is usually for the parent’s lifetime.  In addition, the contract should define the duties of the caregiver during any period when the parent is residing in an assisted living or nursing care facility.

It is important that the terms of the contract are reasonable and fair.   A caregiver’s compensation rate should be comparable to what a third party would receive for the same services in your geographic area.  Excessive pay could be viewed as a gift for Medicaid eligibility purposes.   Any out of pocket expenses which will be reimbursed should be specified.  In order for Medicaid to confirm what services were provided, the caregiver should keep a daily log of the date services were provided, the actual services rendered and the amount of hours worked.

Payment to the caregiver can either be made with a lump-sum payment or in weekly or monthly installments.  If the caregiver contract is paid by lump sum in advance, the lump sum payment must be calculated by multiplying the caregiver’s hourly wage by the number of hours he is she is expected to work over the parent’s life expectancy.  The contract must also have a provision that provides for the return of any prepaid monies if the caregiver becomes unable to perform the specified duties.  Upon the death of the parent, any unearned amounts must be paid to Medicaid.

A caregiver contract may result in certain tax responsibilities to both parties. All income paid to the caregiver is subject to federal, state and employment taxes on the income earned.  In addition, the parent may need to withhold funds for federal and state employment-related benefits, such as worker’s compensation and unemployment. However, the parent may be allowed to deduct some of their caregiver expenses on their individual tax return as a medical expense. In some instances long-term care insurance may actually cover the costs of caregiver services.

Caregiver contracts are a valuable planning tool for aging parents who need help with their daily activities and have a child or other family member willing to provide the care.  They can ensure that the aging parent receives the care they need in the comfort of their home, compensate the child for providing the needed care to the parent, preserve family harmony, and minimize the aging parent’s estate without resulting in a penalty for Medicaid purposes.  In order for a caregiver contract to pass muster, it has to follow strict formalities.   The contract should be written as soon as possible and specify what duties the caretaker is expected to perform.  Compensation should be reasonable and the contract cannot be for past services already rendered.  Finally, the caregiver must comply with the contractual arrangement including paying appropriate taxes.

For assistance in drafting a caregiver agreement or for more information, please contact the Massachusetts Elder and Estate Planning professional Attorney Stephanie Konarski.

 

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