Caregiver Agreements Become More Popular: Relatives Can Be Paid To Look After Elderly

Caring for a family member is a responsibility many people bear. It can also be a source of income. So-called “caregiver agreements” – which are formal contracts under which relatives are hired to care for elderly family members – have been around for a while. But with the unprecedented economic times we are experiencing, many more families may be open to entering into such arrangements.

Informal financial transfers between family members are considered gifts under current Medicaid laws. However, compensation made under a caregiver agreement, which is established in accordance with Medicaid law, is generally not considered a gift, an important consideration if an elderly person later hopes to qualify for Medicaid. The contracts can also provide assurance to other family members about the cost and quality of care being delivered and reward caregivers for the long hours they put in. The agreements need to be carefully crafted, and there are tax consequences. The payments one receives under a Caregiver agreement is considered income and is taxable.

To an aging parent, the idea of being cared for by a child/trusted family member may be appealing. Furthermore, in many families the value of the home is looked at as a nest egg that could be used for care or fund entry into an assisted living facility when it was needed. However, under current economic real estate conditions, the home is not worth as much and is very difficult to sell, and therefore, out of necessity, aging parents may not have a choice but to remain in their home.

Many times adult children sacrifice their work schedule, which results in a reduction in income, so they have more time to devote to mom or dad. In these cases caregiver agreements can assist in the loss of income or at least cover expenses they incur in providing care – at a time when many families are struggling.

It is has been our experience that Caregiver agreements can reduce tension among family members. In the absence of such formal arrangements, a parent may decide to pass on a larger slice of their estate to the primary caregiver as a reward. However, in many cases this can lead to the parents planning being contested by siblings who feel slighted. It goes without saying that money issues do strange things to families and it is always best to take as many proactive steps as possible to preserve the family, including the establishing of a Caregiver agreement.

We are seeing that Caregiver agreements are growing in popularity as a Medicaid planning tool because they can reduce the size of an estate. One of the reasons is that laws have changed which extended the look-back period for making gifts to family members to five years from three. If properly set up, transfers made under a caregiver agreement aren’t considered gifts but rather compensation because they are payments made in return for a service.

In addition, in order to pass legal muster, caregiver agreements must be arms-length, written contracts that are completed in advance in which the compensation for the services is reasonable as well as supported by a doctor certification. It is critical to understand these agreements can not pay for care services after the fact or for services to be rendered in the future. Payments for care must be paid as the care is delivered.

It’s also wise to solicit input from family members, in order to avoid problems later. Recipients of the care should have a comprehensive estate plan in place, including powers of attorney, to ensure their wishes are respected if they become physically or mentally incapacitated.

Contracts should specify duties the caregiver will be expected to perform, such as monitoring medications, preparing and serving meals, running errands, keeping the house clean and tidy, and paying bills, among other things.

Agreements also need to state the cost of the services. Depending on circumstances, compensation is based on the average hourly rate local agencies would charge for the service or at a discount to the market rate. Charges range widely depending on geographic regions. In Michigan it is not uncommon to be charged $18 to $22 an hour for personal-care services, and $60 to $195 an hour for geriatric-care management.

Many caregivers who enter into such agreements are just looking to be compensated for the expenses they incurred, such as money spent on gas and time spent caring for their loved ones, who want to remain in their own home as long as their health permits.

If you would like additional information on Caregiver agreements, you are welcome to contact the author, Don L. Rosenberg at the The Center for Elder Law.