We’re always looking for ways to help clients and their families protect their resources from the costs of long term care. The Personal Care Agreement, also called a long-term care personal support services agreement, elder care contract, or family care or caregiver contract, while not permitted in every state, can help both you and the caregiver.
If you don’t have long term care insurance, you can spend your entire life savings when entering a nursing home. One way you can protect your assets is to try to qualify for Medicaid. However, Medicaid has strict rules that vary state-by-state as to how much an individual can own.
“Why Can’t I Just Give It Away?”
Many people make gifts to beneficiaries to reduce the size of their own estates and lessen their “death tax” burdens. The gift tax law allows individuals to give away $14,000 a year to another person and allows individuals to give away as much as $5.34 million in their lifetime tax-free.
However, Medicaid views gifts as “uncompensated transfers” and as a way of hiding assets.
For example; If Mom gives each of her children and grandchildren $14,000 to lower her assets below Medicaid’s permitted asset limit of, for example, $2,000, then she just disqualified herself from receiving benefits.
A Contract to Protect Everyone
When family members take care of an elderly relative, it is perfectly appropriate to compensate them. Many are forced to quit jobs or reduce their hours to accommodate their new caregiving responsibilities. It can easily become a financial burden for those who are performing an act of love. This agreement can offer family caregivers security that they will not suffer undue financial consequences. At the same time, the agreement can also offer your loved one peace of mind that she or he has a caring advocate to manage care needs.
Some families pay personal caregivers an hourly wage, but as an estate-planning tactic, you might opt for a “lump-sum payment” to cover services over an extended period via a Personal Care Agreement.
What is a Fair Pay Rate?
A private nurse or a professional elderly care manager could charge between $75 and $130 per hour for care services. If a non-professional family member, such as an adult child, performs these services, we recommend a highly discounted rate and that the caregiver keep time sheets to justify any money received.
In undertaking this strategy, families have to consider the tax consequences for the caregiver, who must report the payments as income.
Rather than issue regular paychecks, some families pay caregivers an upfront lump sum, typically calculated by multiplying the caregiver’s hourly wage by the number of hours he or she is expected to work over a parent’s life expectancy.
With such a move, you can make a one-time lump transfer of assets to a child that Medicaid might otherwise deem available to pay a nursing home.
Caregiver payments can help deplete an elderly person’s savings on paper, so he or she can qualify for Medicaid. This is a binding agreement, and without it, Medicaid could consider all the payments to the caregiver a gift made to hide assets.
To qualify for Medicaid, it is important to have such a contract in place before the services are rendered, for “services to be performed”, and to have it drafted by a qualified estate planning attorney or elder law attorney.
We hope this information is useful to you. If you have a specific case or a question, please don’t hesitate to call our office and schedule a consultation.