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Home / Healthy Living / Family Caregiver / Should Relatives Be Paid To Look After Elderly Family Members?

Should Relatives Be Paid To Look After Elderly Family Members?

Caring for a family member is a responsibility many people bear. It can also be a source of income.

So-called “caregiver agreements” — formal contracts under which relatives are hired to care for elderly family members — have been around for a while. But with the economic downturn, more families may be open to entering into such arrangements, some attorneys and caregiver advocates say.

Financial transfers made under a caregiver agreement generally aren’t considered gifts, an important consideration if an elderly person later hopes to qualify for Medicaid, the joint federal/state program that covers nursing-home care. The contracts can also provide assurances to other family members about the cost and quality of care being delivered and reward caregivers for the long hours they put in. The agreements need to be carefully crafted, and there are tax consequences.

To an aging parent, the idea of being cared for by a trusted family member may be appealing. And for those who want to stay in their own homes, or need to because they can’t sell their property to fund entry into a continuing-care retirement community, hiring a relative can be a money-saving strategy.

For adult children who have more time to devote to mom or dad, such arrangements can provide a modest source of income — or at least cover expenses they incur in providing care — at a time when many families are struggling.

“We expect the deteriorating economy to lead to a spike in caregiver agreement work,” based on historical trends, says Thomas D. Begley Jr., an elder and disability law attorney with Begley, Begley & Bookbinder PC, a law firm in Moorestown, N.J.

Caregiver agreements, also known as personal-service or personal-care contracts, can reduce tension among family members. In the absence of such formal arrangements, a parent may decide to bequeath a larger slice of an estate to the primary caregiver, typically one child, which can lead to the will being contested by siblings who feel slighted, says Linda Fodrini-Johnson, president-elect of the National Association of Professional Geriatric Care Managers.

In recent years, caregiver agreements have grown in popularity as a Medicaid planning tool because they can reduce the size of an estate, according to Louis Jay Ulman, a senior principal at Offit Kurman, a law firm with offices in the Baltimore-Washington corridor. That’s because a rule change extended the look-back period for making gifts to family members to five years from three.

If properly set up, transfers made under a caregiver agreement aren’t considered gifts but rather compensation because they are payments made in return for a service, lawyers say. In order to qualify for Medicaid, individuals must pass state-specific means tests for income and assets. In general, an individual may not have more than $2,000 in assets to qualify for Medicaid. Some property is excluded, including the primary residence (within certain limits).

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