Family Caregiver Agreements – Part 1

A family caregiver agreement, sometimes referred to as a personal care contract or personal service contract, is a written contract between a parent and child (or some other family member) in which the child agrees to care for an elderly parent for a specified amount of money.

For an aging parent, the idea of being cared for at home by a family member may be attractive. For adult children who have time to devote to Mom or Dad, such contracts can provide a source of income.

Many children care for their parents out of the goodness of their hearts for years without any compensation. Caring for a parent can be a full-time job. Many adult children have to give up their jobs in order to care for parents. Unfortunately, this type of care-giving is usually unpaid work. In instances where the parent eventually needs nursing care, the senior must spend down essentially all of his or her assets. The end result is that they leave their family members no inheritance.

With a caregiver agreement, the child can be compensated for doing the work of caring for Mom and Dad. This can help family relations so the caregiver child does not feel unduly burdened compared to siblings who may live far away or are otherwise unable to help. The contract provides assurances to other family members about the cost and quality of care being delivered and sees that caregivers are compensated for the long hours they put in.

A family caregiver agreement can work better than leaving the caregiver child a larger portion of the estate. When children are not treated equally in an estate plan, whether there is a valid reason behind it or not, there are often allegations of undue influence and accusations that the caregiver child took advantage of Mom and Dad. The caregiver agreement is separate from the will where the children can still be treated equally. Caregiver agreements can also be a part of planning for Medicaid eligibility, helping to spend down assets so that the parent might more easily be able to qualify for Medicaid long-term care coverage, if necessary. Any Medicaid planning should be done only with the help of an attorney.

Payment to a caregiver must be considered as well. Payments to the caregiver are taxable income. If the caregiver is an employee (which is most likely), social security and other payroll taxes need to be withheld. A payroll service can take care of this. Even if the payments are for qualified long-term care expenses, payments to a spouse, lineal descendant, brother or sister cannot be deducted as medical expenses by the payor.

If the parent cannot afford care, there may be other sources of funds. For example, some long-term care insurance policies will pay a family member to provide covered services in the home. Some caregivers may qualify to be paid for their work through benefits from the Veterans’ Administration.

If a parent doesn’t have cash to compensate a child, the parent may transfer the parent’s house to the caregiver child. The parent can transfer the house outright and retain a life estate for him- or herself, or the parent could make the child a co-owner of the house. If the caregiver child has lived with the parent for at least two years, there can be Medicaid planning advantages to transferring the home. Transferring a house can have serious tax and other consequences. Always consult an attorney before undertaking this.

Another option for compensating a caregiver is to take out a life insurance policy or name the child as beneficiary on an existing life insurance policy.

In part 2 we will give drafting suggestions for family caregiver agreements.