Kayla’s father, Bob, is in the early stages of dementia. She has hired paid caregivers who have come and gone because Bob has tendencies towards anger and violent outbursts. Kayla has decided that the time has come to quit her job to care for her father. Although she didn’t want to at first, she will be accepting payment from him because she truly needs the money.
Previously, when Bob had a caregiver through an agency, the agency had a written contract. However, as an individual caring for her father, Kayla wasn’t sure whether she needed to have a legal agreement. It turns out, for many reasons that I will describe below, that she certainly does.
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.
What the Caregiver Agreement Should Include
A caregiver agreement 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 such as myself.
Some of the provisions a caregiver agreement should include are:
Caregiver’s duties: The contract should spell 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.
Length of contract: 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. However, in some states (including Virginia) the contract cannot continue when the elder enters a nursing home if an application for Medicaid is anticipated.
Payment: Payment to the caregiver must be hourly in somestates (such as Virginia). Other states allow a lump-sum payment. 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. The amount you get paid, the hours you work, and the type of care you provide should 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.
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. The Veterans Aid and Attendance benefit also will allow payment to a family caregiver. Also, there may be state or federal government programs that compensate family caregivers. Check with your local Agency on Aging to get more information.
Reasons to Have a Caregiver Agreement
Having a caregiver agreement has many benefits. It rewards the family member doing the work. It can also help alleviate tension between family members by making sure the work is fairly compensated. The following are additional 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 “off-contract” 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 explains 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 agreement 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.
November is National Family Caregivers Month. If you are a caregiver and your loved one has not done Medicaid Planning, please call us as soon as possible for an initial consultation:
Fairfax Medicaid Planning: 703-691-1888
Fredericksburg Medicaid Planning: 540-479-1435
Rockville Medicaid Planning: 301-519-8041
DC Medicaid Planning: 202-587-2797
About Evan H Farr, CELA, CAP
