Most adult children feel some responsibility for taking care of their aging parents if they become physically and/or mentally incapable of looking after themselves. This care is considered to be done out of love and affection, and no money changes hands or is expected to do so unless a legal agreement is drawn up.
Family caregivers are often unpaid, which seems fine initially, but this role can last for many years. Problems can arise down the road if family members are no longer capable of providing adequate care for their loved ones but find that professional care is unaffordable. If a senior has more than a very limited amount of assets ($2,000 for a single person is the rule of thumb), they will not qualify for assistance with long-term care costs through Medicaid until they have spent down or otherwise reduced their excess assets.
“But what about all the time I spent over the last five years taking care of Mom?” you ask. “Can’t I get reimbursed for that now to reduce her excess assets for Medicaid eligibility?” Unfortunately, any retroactive payment a care recipient makes to their caregiver for services that have already been rendered will be considered a monetary gift. Medicaid does not allow any gifting within the five-year look-back period prior to a person’s application date.
If Mom reimburses you for the care you provided over the past few years and then applies for Medicaid, she will face a long penalty period during which she will be ineligible for Medicaid assistance. In fact, unless there is an explicit written agreement that sets forth terms of compensation, state Medicaid programs will consider even current payments made to a caregiver to be gifts as well.
It may seem like it isn’t possible for caregivers to get paid for the assistance they provide without jeopardizing their aging loved ones’ Medicaid eligibility, but there is a way. It is called a personal care agreement, and setting one up only requires open communication between caregiver and care recipient, some forethought, and, in some cases, a meeting with an elder law attorney.
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Pointers for Personal Care Agreements
A personal care agreement (also known as a personal services contract) is an agreement between a person who needs care and another person who is willing to provide these services for compensation. Parent-child care agreements are the most common, but agreements can be drawn up between other family members, friends, private caregivers, etc. Personal care agreements typically must include the following components to avoid the transfer of money being deemed a gift by Medicaid:
- The agreement must be put in writing prior to the delivery of the personal care services.
- The agreement must detail which services are included and which are excluded for the purposes of compensation (e.g. non-medical care only, meal preparation, light housekeeping, assistance with activities of daily living, transportation).
- It must be signed by both the care recipient and the person agreeing to perform the services. (If the recipient is unable to sign due to mental incapacity, their power of attorney may sign on their behalf.)
- All signatures on the contractual agreement must be notarized at the time of signing.
- The agreement must have a contract date.
- It must specify rates for services that are comparable to the rates charged by commercial care providers located in the same general area.
It is extremely important for the caregiver to keep an accurate log of which services they provide and when, as well as a log of any payments they receive. This documentation is especially important if the care recipient ever needs to file a Medicaid application. It proves that they have, in fact, given this money in exchange for necessary care services and not simply given it away to obtain financial eligibility for long-term care covered by Medicaid.
The contract requirements explained above are for payment on a weekly or other pay-as-you-go basis, but some states permit lump sum payments to cover future care for the remainder of a care recipient’s lifetime. Because the latter arrangement can involve a large amount of money, it must be done carefully to avoid it backfiring as a gift. For this reason, it may be wise to consult a reputable elder law attorney or legal professional with Medicaid planning expertise.
Use this personal care agreement template for guidance when creating a custom caregiver contract: Sample Personal Care Agreement (pdf)