Aging Wisely

Caregiver contracts: a smart planning trend

Macrina G. Hjerpe
Posted 7/7/16

Many people are willing to voluntarily care for a parent or loved one without any promise of compensation. Even so, a growing number of people are entering into caregiver contracts (also called …

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Aging Wisely

Caregiver contracts: a smart planning trend

Posted

Many people are willing to voluntarily care for a parent or loved one without any promise of compensation. Even so, a growing number of people are entering into caregiver contracts (also called personal service or personal care agreements) with their family members. Having such a contract has many benefits. It rewards the family member doing the work. It can help alleviate tension between family members by making sure the work is fairly compensated. In addition, it can be a be a key part of Medicaid planning, helping to spend down savings so that the elder might more easily be able to qualify for Medicaid long-term care coverage, if necessary. If caregivers are paid but have no contract, the Rhode Island Medicaid authorities may determine the payments were gifts and not payments for services. These “gifts” may significantly delay access to Medicaid benefits.
The following are some things to keep in mind when drafting a caregiver contract:

• Taxes. Keep in mind that there are tax consequences to hiring an employee. The caregiver will have to pay taxes on the income he or she receives. If the caregiver does not pay taxes, the Medicaid authorities may determine that the payments to the caregiver were gifts, causing Medicaid qualification to be delayed.

• Meet with your attorney. It is important to get your attorney's help in drafting the contract, especially if qualifying for Medicaid is a goal. It is also important to get an accountant’s help in setting up the necessary FICA, income tax and worker’s compensation payments. Figuring what needs to be paid for an employee and when can be difficult to determine without the assistance of a professional familiar with the process.

• Caregiver's duties. The contract should set out the caregiver's duties, which can be anything from driving to doctor's appointments and attending doctor's meetings to grocery shopping to help with paying bills. The length of the term of the contract is usually for the elder's lifetime, so it is important to cover all possibilities, even if they are not currently needed.

• Payment. Payment to the caregiver can be made in weekly or monthly installments. For Medicaid purposes, it is very important that the pay not be excessive. Excessive pay could be viewed as a gift for Medicaid eligibility purposes. The pay should be similar to what other caregivers in the area are making, or less. Lump sum payments for caregiver services are not permitted under the Rhode Island Medicaid rules.

• Other sources of payment. If the elder does not have enough money to pay his or her caregiver, there may be other sources of payment. A long-term care insurance policy may cover family caregivers, for example.

Most of the time, when I tell my clients that the caregiver must pay tax on their earnings, the family will decide not to proceed to draft the Caregiver Agreement. Again, paying a caregiver without a contract in place can be deemed by the Medicaid authorities to be gifts subject to a Medicaid penalty. In this situation, the family will have a $9,000-12,000/month problem because their loved one will not be able to receive Medicaid services for a period of time, calculated based on the amount of money given away. If Medicaid services are unavailable the family is forced to care for their loved one at home (very difficult if the elder is not ambulatory) or private pay for the nursing home. The more money given away, the longer the wait for Medicaid services. I would expect the income, FICA and workers compensation payments to be significantly less than the $9,000-12,000 monthly cost of a nursing home in Rhode Island today.

Attorney Macrina G. Hjerpe is a partner in the Providence law firm Chace Ruttenberg & Freedman. She practices in the areas of Estate Planning, Probate, Estate Administration, Trust Administration, Trust Litigation, Guardianship, Business Succession Planning, Asset Protection Planning, Elder Law and Estate Litigation.

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