Amazingly, more than 1-out-of-4 American adults provide uncompensated care for their aging or infirm loved ones, including parents, relatives, and friends. This percentage is expected to increase as people live longer because of advances in medical technology.
Family members usually make the best caregivers, often assisting with personal care that the elderly or disabled may not feel comfortable receiving from strangers, such as bathing, dressing, and toileting. Of course, the responsibility of being a caregiver can become quite difficult, when you consider how hard it can be to balance caregiving responsibilities with job and family responsibilities. After all, family caregivers provide more than 20 hours of care per week across approximately 4.3 years, on average. Some caregivers are forced to reduced their work schedules or even quit their jobs entirely in order to provide the necessary care for a family member.
The personal care contract as a planning tool
The personal care contract (also known as a personal service agreement) is a Medicaid and estate planning tool that can accomplish quite a bit under the right circumstances. First of all, it creates a mechanism for money to go from the care-recipient to the caregiver in a way that avoids having the transfer be deemed a gift or uncompensated transfer. It does so by giving recognition to the value of the care being given -- after all, paying a third party to give the same care would be very costly. By treating the payment to the caregiver as compensation for the specific services provided, this protects the money that passes as a lump sum from the care-recipient to the caregiver in the following way: Without the use of a care contract, if the loved one were to need nursing home care, all of his or her money would be considered an available asset that could be used to pay for care, making the care-recipient ineligible for Medicaid until all of the assets have been depleted, and any amounts transferred to the caregiver would be deemed gifts, which Medicaid would penalize by imposing a period of ineligibility. However, with a care contract in place, the payments to the caregiver will not be considered gifts, and will reduce the care-recipient's assets and count towards the care-recipient's "Medicaid spend down" when the care-recipient applies for benefits.
This is why more and more families use such formal caregiver contracts in which adult children or other relatives are hired to provide certain services to the loved one for a specified amount of compensation. Services may include such tasks as cooking, cleaning, outdoor maintenance, running errands, transportation, and are often classified as bookkeeping, nursing assistance, and care management. While many people may already be aware that Medicaid allows care contracts for caring for loved ones living at home, they may not be aware that payments made via personal care contracts for providing care services for nursing home residents are also an allowable spend down.
The basic requirements for a care contract
There are three requirements for these types of contracts: (1) the agreement must be in writing, (2) the payment must be prospective -- in other words, for care to be provided in the future, not already provided in the past -- and (3) the compensation for the care must be reasonable, which means it has to be what would be paid to a third party to provide the same care. Local home-care agencies or geriatric care managers can assist in determining the fair market value of those services in a given area.
A personal care agreement should include the following information: It should specify the start date and the duration of the contract; it should detail the services to be provided by the caregiver; it should contain a formula setting forth the average number of hours per week for each service and the expected duration during which the caregiver will provide the care; the compensation to be paid to the caregiver; and that the agreement can only be modified by a written agreement of the parties.
Let's consider an example
Daughter agrees to provide certain services for Mother, including cooking, cleaning, laundry, errands, bookkeeping, nursing assistant-home health aide services, geriatric management, transportation, and interfacing with health care providers. Daughter enters into a written agreement with Mother to provide such services to Mother for her mother's lifetime, in exchange for a lump sum of $75,000. The duration of the contract is determined by looking up Mother's life expectancy using actuarial tables. The $75,000 is paid by Mother to Daughter at the inception of the agreement, when the contract is signed.
Other potential benefits
Personal care agreements help reduce the size of an individual's estate. They can also be used as an alternative to leaving uneven bequests in a Will by rewarding caregivers for the significant time, effort, and money they spend in providing care for an elderly or disabled relative. In doing so, they may prevent conflicts between siblings and other family members, but to be effective in that regard, it may be wise to discuss the arrangement with other siblings or relatives ahead of time.
Consult with a knowledgeable Elder Law Attorney
Families looking to enter into a personal service contract need to be aware that some states require caregivers to be state-certified home care aides. Also, each locale has its own rules and safe-harbors when it comes to these arrangements. An attorney who is familiar with Elder Law issues should be consulted to discuss whether this type of agreement is appropriate under the circumstances, and assist with the preparation of the contract. While a personal care contract may not be appropriate in every situation, anyone caring for a loved one at home or in a nursing home should consider consulting a knowledgeable Elder Law Attorney to discuss this and other Medicaid and estate planning issues.
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