Critter Corner: Should I Have a Caregiver Contract?

Dear Angel,

I will be quitting my job to care for my father next month. He will be paying me, since I have no other income to support myself.  My dad used to have a caregiver through an agency, and the agency had a written contract. But as an individual, I’ve never had a contract for any job I’ve ever had. So in this situation, do you think we should have a contract between me and my dad?

Thanks for your input!

Kahn Tract

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Dear Kahn,

If you regularly provide paid care to a parent or other family member, it’s essential to have a properly-written caregiver agreement setting out the exact terms of your arrangement.  This agreement (also known by other names, such as a personal care contract or a family care contract), must set out your duties as caregiver and the exact terms of your compensation.

However, you can’t just have your father pay you any amount you want. The amount you get paid, and the hours you work, and the type of care you provide must be approved in advance by a professional skilled in assessing the care needs of older adults, such as a Geriatric Care Manager / Aging Life Specialist. This contract is also not something that you should do on your own, or you risk running afoul of Medicaid and IRS rules. Rather, this type of agreement should only be done as part of a comprehensive Asset Protection Plan prepared and supervised by an experienced Elder Law Attorney.

The following are reasons to have a properly-drafted caregiver agreement:

◾It is important for Medicaid eligibility: The money a parent pays to a family caregiver, absent a properly-drafted caregiver agreement, will be deemed a gift by Medicaid, causing a period of ineligibility during which the parent will not qualify for Medicaid. How? At the time of a parent’s Medicaid application, Medicaid will total all the payments made to a family caregiver, along with all other gifts, in the past 60 months and divide that total by the relevant “penalty divisor.” The quotient is the penalty period, which equals the number of months Medicaid will not pay for nursing-home care. In Northern Virginia the penalty divisor is $8,367, and in the rest of Virginia it’s $5,933.  In DC, it’s $10,333, and in Maryland it’s $7,940.  As an example of how this works, let’s say a parent pays a family caregiver $60,000 over the course of three years and then applies for Medicaid. Without a proper caregiver contract in place, Medicaid would deem those payments as gifts, causing a penalty period of over 7 months in Northern Virginia ($60,000 divided by $8,367), over 10 months anywhere else in Virginia ($60,000 divided by $5,933), 7.5 months in Maryland, and 5.8 months in DC.

◾It sets boundaries: A detailed caregiver agreement makes clear the extent of the services being provided by a family caregiver and the amount of money the caregiver is getting paid. A caregiver contract sets the understanding about the requirements and limits of the relationship.

◾It explain tax ramifications: A well-drafted caregiver agreement makes clear the tax ramifications of the agreement, such as the fact that the child must be treated as an employee and the parent must be treated as a household employer and must withhold income taxes and payroll taxes.

◾It helps avoid misunderstandings with other family members about the care being provided and the money changing hands. If the agreement doesn’t solve a particular disagreement with family members, you may be able to add something to the document, or change its terms, to address the problem.

◾It offers security and peace of mind: A caregiver contract can offer family caregivers security that they will not suffer undue financial consequences. At the same time, the agreement can also offer the care recipient peace of mind that she or he has a caring advocate to manage care needs.

Paying a Family Caregiver is One Medicaid Asset Protection Strategy

Even though most family caregivers want to help, and feel a sense of duty to care for a loved one without pay, the fact is that it is a job – and a very difficult job with heavy time commitments and heavy physical and emotional responsibilities. If there is money with which to pay, family caregivers deserve to be paid (and to have their Social Security funded as household employees), but the payment arrangements must be done through a properly-drafted caregiver agreement that only an experienced Elder Law firm, such as ours, can prepare.  When done properly, a Family Caregiver Agreement can be a very good Medicaid Asset Protection Strategy – one of over two dozen different Medicaid Asset Protection Strategies available.

Caregiver Contracts at the Farr Law Firm

At the Farr Law Firm, we prepare caregiver contracts frequently as part of our Level 4 Planning / Life Care Planning / Medicaid Planning, and the contract is always supported by an independent evaluation that we obtain from a professional Geriatric Care Manager / Aging Life Specialist.  But just because family care is being provided does not mean that a Caregiver Agreement is always the best strategy to use. For example, sometimes it’s better for a child to provide the care for free and have the parent make a gift to the child in lieu of paying the child.  Which combination of asset protection strategies is best for each family depends on numerous factors, which is why a Caregiver Agreement should only be done as part of a comprehensive Asset Protection Plan.

Hope this is helpful,

Angel