Medicaid: Caregiver Agreements

As parents or grandparents become elderly and begin to need assistance with daily living, usually it is a family member that steps in to provide these services. Generally, the family member assumes the responsibility of taking care of the aging parent or grandparent out of love or a sense familial responsibility. As such, generally no financial arrangement is in place and the adult child or family member provides these services for free.


Personal Services Contract (Caregiver Agreement)

The Deficit Reduction Act of 2005 changed the Medicaid “look back” on all gifts from 3 years to 5 years. As a result of this change and individuals being concerned about Medicaid eligibility; personal service contracts where a “caregiver” charges for the services provided to their elderly family member have grown in popularity.

Payments to family members for services provided are not considered gifts subject to a transfer penalty in determining Medicaid eligibility. Services provided can be, but are not limited to:

  • paying bills

  • shopping

  • preparing meals

  • making sure the proper medication is taken at the appropriate time

  • arranging doctors visits

  • transportation

  • household chores


Services to be Performed and Fair Market Labor Rate Must be Clearly Stated

In order for a Personal Services Contract to be respected by the local Medicaid office it must include certain safeguards:

  • Fair Market Compensation must be charged and stated in the contract. In order for Medicaid to confirm what services were provided, credible documentation must be kept. The service provider should keep a log of dates, times and services provided. The service provider is also directed to the U.S. Department of Labor, Bureau of Labor Statistics, Occupational Outlook Handbook to assist them in determining the fair market value of services provided. The latest edition can be found online at http://www.bls.gov/oco/ . Personal care services can range from $18-$22 an hour and geriatric-care management services from $60-$150 an hour.

  • The service provider can either be paid (1) in a lump sum transfer in exchange for services to be provided to the family member for the lifetime of the applicant, or (2) on an hourly or weekly salary rate.

  • If the personal services contract is paid by lump sum in advance, the contract must have a provision that provides for the return of any prepaid monies if the caregiver becomes unable to perform the specified duties or the elderly individual passes away prior to the calculated life expectancy in arriving at the lump sum amount.

  • The personal services contract cannot state services will be provided on an “as needed basis” because there is no way to validate the fair market value of such services. As stated previously, the services to be provided should be clearly identified, and the amount of days and hours clearly stated.

  • No services can be provided while the individual is under the care of a nursing home. Additionally, there can be no duplication of services should a home health aide or other care provider be hired.


Income to the Service Provider

Caregivers will be required to pay applicable federal, state and employment taxes on the income earned.


Conclusion

Personal Service Contracts can be a valuable tool in minimizing an aging family member’s estate. Strict formalities must be met, and the service contract cannot be for past services already rendered. A detailed written agreement must be in place before the services start. For assistance in drafting a caregiver agreement and determining a fair market rate of services either weekly or lump sum, please contact this office.



This Memorandum is based on current law and is for informational purposes only. It is important that you discuss all legal options and consequences with a qualified elder law attorney prior to any action. Should you wish to discuss your situation with us, please call (631) 424-2800 for a consultation. For additional Memoranda, please call or visit our website at www.elderlaw.pro.