Most adult children feel some responsibility or duty to take care of aging parents who become physically and/or mentally incapable of looking after themselves. Under state law, this care is considered to be done "for love and affection," and no money changes hands or is expected to do so, unless a personal care agreement is drawn up.
Problems can arise if, down the road, the child is no longer able adequately to care for their parent and round-the-clock care is unaffordable. At such a time, the parent usually has to go into a nursing home where such 24-hour care is available. If the parent has more than a very limited amount of assets ($2,000 for a single person), they will not qualify for Medicaid assistance with their nursing home bills 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? Can't I get reimbursed for that, now? That would really reduce Mom's excess assets!" you say. Unfortunately, any payment a parent makes to their child caregiver for care provided in the past will be considered a gift from the parent to the caregiving child, which could result in a long penalty period.
Indeed, unless there is an explicit written agreement setting forth the payment terms, the state will consider even current payments made to a caregiving child to be gifts. Yet there is a way out, and one that will permit the parent to compensate their child for care without it being deemed a gift.
Pointers for personal care agreements
The "personal care agreement" or "personal services contract" is an agreement between the parent who needs care and another person (who need not necessarily be the parent's child). Personal care agreements typically must include the following to avoid the transfer of money being deemed a gift:
- Be in writing prior to the delivery of the personal care services
- Detail which services are included and which are excluded for the purposes of compensation (e.g., non-medical care only; cooking meals; light housekeeping; assistance with activities of daily living)
- Be signed by both the parent and the person agreeing to perform the services (if the parent is unable to sign due to mental incapacity, have the agent under a durable power of attorney sign on the parent's behalf)
- Have all signatures notarized at the time of signing
- Have a contract date
- Charge a rate that is comparable to locally available equivalent commercial rates
It is extremely important for the caregiver to keep an accurate log of which services were provided and when, as well as any payments they received. This will prove necessary should the parent ever need to file an application for Medicaid.
The above arrangement contemplates payment on a weekly or other pay-as-you-go frequency. (Note that some states permit payment of a lump sum to cover future care for the remainder of the parent's lifetime. Because that can involve a lot of money, and must be done carefully to avoid it backfiring as a gift—causing a long Medicaid penalty period—that topic will be explored in a future article.)
Set-up a personal care agreement between the caregiver and an elderly family member:
Sample Personal Care Agreement (PDF).