Personal Care Contracts: How It Makes Sense to Pay Your Kids to Take Care of You

Family members usually make the best caregivers, often assisting with personal care that the elderly or disabled may not feel comfortable receiving from strangers, such as bathing, dressing, and toileting. Of course, the responsibility of being a caregiver can become quite difficult, when you consider how hard it can be to balance caregiving responsibilities with job and family responsibilities. After all, family caregivers provide more than 20 hours of care per week across approximately 4.3 years, on average. Some caregivers are forced to reduced their work schedules or even quit their jobs entirely in order to provide the necessary care for a family member.

The personal care contract as a planning tool

The personal care contract (also known as a personal service agreement) is a Medicaid and estate planning tool that can accomplish quite a bit under the right circumstances. First of all, it creates a mechanism for money to go from the care-recipient to the caregiver in a way that avoids having the transfer be deemed a gift or uncompensated transfer. It does so by giving recognition to the value of the care being given -- after all, paying a third party to give the same care would be very costly. By treating the payment to the caregiver as compensation for the specific services provided, this protects the money that passes as a lump sum from the care-recipient to the caregiver in the following way: Without the use of a care contract, if the loved one were to need nursing home care, all of his or her money would be considered an available asset that could be used to pay for care, making the care-recipient ineligible for Medicaid until all of the assets have been depleted, and any amounts transferred to the caregiver would be deemed gifts, which Medicaid would penalize by imposing a period of ineligibility. However, with a care contract in place, the payments to the caregiver will not be considered gifts, and will reduce the care-recipient's assets and count towards the care-recipient's "Medicaid spend down" when the care-recipient applies for benefits. Click for more details. 

This is why more and more families use such formal caregiver contracts in which adult children or other relatives are hired to provide certain services to the loved one for a specified amount of compensation. Services may include such tasks as cooking, cleaning, outdoor maintenance, running errands, transportation, and are often classified as bookkeeping, nursing assistance, and care management. While many people may already be aware that Medicaid allows care contracts for caring for loved ones living at home, they may not be aware that payments made via personal care contracts for providing care services for nursing home residents are also an allowable spend down.

The basic requirements for a care contract

There are three requirements for these types of contracts: (1) the agreement must be in writing, (2) the payment must be prospective -- in other words, for care to be provided in the future, not already provided in the past -- and (3) the compensation for the care must be reasonable, which means it has to be what would be paid to a third party to provide the same care. Local home-care agencies or geriatric care managers can assist in determining the fair market value of those services in a given area.