As seniors live longer lives, their children often find themselves in the positions of becoming primary caregivers or looking for outside caregivers or services. If you hire a provider, you pay that caregiving professional for his or her hard work. But if the responsibilities of caring for a parent or loved one falls on your shoulders, should you pay yourself?
Notwithstanding your investment of time, resources, and emotions, you may see asking for compensation as greedy, cold, or awkward. But the reality is that seniors who pay their sons, daughters, or other people to provide needed care – even if they would otherwise do so for free – are making an extremely smart estate planning move.
Caregiver Contracts and Medicaid Planning
An increasing number of families are entering into “caregiver contracts” that provide compensation for family members who have assumed the responsibilities of caring for a loved one. Sometimes called personal service agreements or personal care contracts, families often prepare these agreements for their practical benefits rather than financial advantages.
For example, one sibling may assume the primary responsibility for caring for a parent, creating resentment and tension with siblings who don’t provide such support. Compensating the caregiver for his or her out of pocket expenses and time can reduce those negative feelings.
But a caregiver agreement can also be a valuable part of comprehensive Medicaid planning, which involves structuring and “spending down” a senior’s assets in such a way that he or she can exclude them from the calculations involved in determining Medicaid eligibility. By qualifying for Medicaid benefits, seniors can preserve their assets and pass them on to their heirs rather than depleting a life’s worth of earnings for their long-term care needs.
A Business Arrangement, Not a Gift
While “spending down” assets is the key to qualifying for Medicaid, there is a right way to do it and a way that will actually make it harder to get benefits. When it comes to caregiver agreements, the right way means treating the arrangement as a business transaction rather than a family affair.
When a person applies for Medicaid benefits, those who make the decisions to approve such benefits will typically look back five years to see whether the senior simply gave away his or her assets to qualify. If Medicaid reviewers conclude that the senior gave cash gifts or transferred assets far below fair market value during this five-year period, it can result in a period of Medicaid ineligibility.
But assets spent on legitimate needs, goods, or services at market rate won’t harm Medicaid eligibility.
That is why it is critical that a care agreement makes clear that it is a legitimate transaction, not a gift. Generally, the following elements should be present in any caregiver agreement for Medicaid purposes:
- The agreement should be in writing.
- It should clearly set forth the caregiver’s duties and responsibilities, including such things as grocery shopping, scheduling and taking the senior to doctor’s appointments, or assisting him or her with paying bills and managing financial affairs.
- It should lay out the amount and method of compensation, whether it will be paid in a lump-sum or monthly installments.
- Payment should be comparable or less than the market rate for similar caregiving services, as excessive amounts may be viewed as gifts which could hurt the senior’s chances of qualifying for Medicaid benefits.
Consult an Experienced Elder Law and Estate Planning Lawyer
As with any agreement, you should seek the advice of an estate planning and elder law attorney who can help you prepare a caregiver contract. The Medicaid and tax implications of these contracts can be complicated, so make sure you consult with an experienced estate law lawyer before deciding to enter into a caregiver agreement.
If you have questions about care contracts or Medicaid planning generally, please contact us today – we’re here to help.