Family members as caregivers overwhelmingly provide for elderly and disabled loved ones at home. Although a labor of love, taking care of ailing loved ones also has a market value, meaning that caretakers may be paid as a way to protect assets.
Through the use of a Caregiver Agreement, also known as a Personal Services Contract, the disabled or elderly person may transfer money to family members as compensation rather than as a gift. Gifts to family members made in the last five years before applying for Medicaid to pay for nursing home costs disqualify the applicant from receiving Medicaid for a certain period of time, known as a “penalty period.”
For example, mom depends on daughter Janice for her care. If mom gifts $100,000 to Janice, then goes into a nursing home in the next five years and applies for Medicaid, the gift to Janice will result in about a ten month penalty period. Janice will have to give the $100,000 back to mom to pay nursing home costs during the penalty period, or mom will have to use other resources to pay.
Instead, using a Caregiver Agreement, mom pays Janice $2,500 per month for caregiving services. If mom moves to the nursing home in the next five years, the payments to Janice are compensation, not gifts.
Caregiver Agreements must follow strict rules, so should be drafted by an experienced elder law attorney.
The Caregiver Agreement must detail the services to be performed and the obligations of the parties. The payment is based on the going rate of caretaking in that county. Compensation is clearly delineated with hourly and yearly calculations for 24-hour personal care.
Janice must actually give the care and document her caretaking duties. Mom must actually need the care, which should be documented with a doctor’s note.
To protect family relationships, it’s recommended that all family members agree with the arrangement even if they are not parties to the agreement.
Janice’s compensation has tax consequences. She reports the payments as ordinary income on her income tax return and pays income taxes on the amount received. In some cases, mom may be able to deduct the payments as a medical expense.
A proper Caregiver Agreement arrangement may be a valuable elder law estate planning tool in the right circumstances.