The Peninsula Center for Estate and Lifelong Planning
Tpc
Williamsburg Estate, Probate, Trust, and Business Attorneys

Call Today
757-969-1900

More Information

Caregiver Agreements
Catherine E. Sears, Esq.

Just as you have the opportunity to choose your own mechanic or your own attorney, a Medicaid applicant has the opportunity to choose who to hire to provide caregiving services. Of course, the applicant may choose to hire a professional in-home caregiving company; however, if certain criteria are met, the applicant may, alternatively, hire a trustworthy family member to serve as a caregiver. The applicant and the family member might understand between themselves that the family member would ordinarily provide such caregiving services out of the goodness of her heart for no cost, and that being part of a family means helping your loved ones without expecting anything in return.

However, by paying a family member to serve as a caregiver, the Medicaid applicant can still spend-down his resources in order to qualify for Medicaid, and, instead of having that money go to a professional company, can keep the money in the family. Additionally, even though this money will now legally belong to the family member and not to the Medicaid applicant, there can be an acknowledgement within the family that these funds are still the applicant’s money because the family member would have been willing to provide assistance free of charge.

Once a senior actually receives long-term Medicaid, all of her income, with the exception of the $40.00 “personal needs allowance,” will go towards paying the cost of her health insurance premiums and the patient-pay responsibility at the long-term care facility. Therefore, any other expenses which go beyond the scope of the cost of the long-term care facility (including new glasses or hearing aids, new clothes if the senior’s clothing size fluctuates due to her medical condition, tasty snacks to supplement the food provided by the long-term care facility, etc.) must be paid from the personal needs allowance or out of the goodness of family members’ hearts. These expenses can add up, and having family members pay for these “supplemental needs” out of their own pockets can have a significant impact on family members’ own finances. However, if a family member had previously been paid for serving as the senior’s caregiver, then that family member can use that “extra” money to pay for these supplemental expenses instead of using her personal assets. Then, if there is any money left over after the senior dies, the remaining funds can be distributed to the senior’s family members to pass some assets on to the next generation.

There are some practical factors to consider in determining whether a caregiver agreement between a parent and a child is an appropriate strategy for your client. First, the caregiver child must be trustworthy to maximize the likelihood that he will, in fact, use these funds for his parent’s supplemental needs. It is wise for the caregiver child to create a separate bank account and deposit the funds into that account instead of commingling the assets into an existing joint account with a spouse. It is also wise for the caregiver child to update his own estate planning documents to say what will happen to the assets in case the caregiver child predeceases his parent. Additionally, because the money from serving as a caregiver will be considered earned income for the caregiver child, he will need to report and pay income taxes on the income. Since the money will legally belong to the caregiver child, there will be gifting ramifications for any money he returns to the parent during the parent’s lifetime and any money he gives to his siblings or other beneficiaries after his parent’s death. Depending on the amount gifted to a particular individual within a calendar year, he may need to file a gift tax return, and any amount gifted could create a penalty period if the caregiver child himself needs long-term care Medicaid within five (5) years of making the gift. If the caregiver child is also serving as Agent under the parent’s durable power of attorney or as Trustee of the parent’s revocable living trust, then it is also important to make sure that the power of attorney and/or trust document give the caregiver child the power to engage in self-dealing.

There are also a number of factors that need to be met to ensure that a caregiver agreement between a parent and a child will be treated as compensation for services and not as an uncompensated transfer which will create a penalty period. The rules that govern these requirements are extremely detailed, so it is important to have an experienced elder law attorney draft a precise, custom-tailored contract for your family to avoid accidentally failing to meet one of Medicaid’s many criteria.

If a family member is providing caregiving services to a Medicaid applicant, this can be an extremely effective way of transferring assets to such family member without creating a penalty to the applicant. However, for this strategy to work correctly and not penalize the Medicaid applicant, it is imperative that all parties treat the arrangement as the formal, legal matter it is and not as an informal arrangement simply because it involves family members.