In recent years, drafting a caregiver agreement has become an essential step in Medicaid planning.
When a loved one gets older, it is not uncommon for family members to step in and provide needed care. And while this care is usually provided without any consideration of compensation, a growing number of caregivers are entering into what are known as caregiver agreements with their relatives. The person providing care for a loved one may make a significant sacrifice: giving up a job and employment benefits. A formal agreement among family members can provide a way to compensate a person providing care if he or she is no longer able to hold other employment. Even though most family members want to help and feel a sense of duty to care for a loved one, it is a job with heavy time commitments and responsibilities. One way of protecting the caregiver as well as the person receiving care is by putting the care relationship in writing. Not only does this type of agreement ensure that the family member providing care is fairly compensated for his or her efforts, they also have significant Medicaid planning benefits, as well. In the properly drafted agreement, the money paid to the relative is NOT considered a gift because it is a payment for services rendered. This may be an excellent tool to preserve a portion (perhaps substantial) portion of the elder persons assets.
Caregiver agreements are simple in concept: they are legally binding contacts, usually between adult children and their aging parents, stating that the caregiver will perform certain duties in exchange for compensation. Generally, caregiver agreements should be in writing, should describe care to be provided in the future in detail and should provide for reasonable compensation. This last point is particularly important for Medicaid planning purposes: if compensation is seen to be unreasonable – that is, an amount far and above what the person receiving care would pay to a third party for the same services – then it could be seen as a gift, which could impact eligibility for Medicaid.
Indeed, Medicaid planning is one of the primary advantages of caregiver agreements. For purposes of Medicaid eligibility, the Deficit Reduction Act of 2005 allows the government to “look back” at a person’s spending for up to five years. A caregiver agreement allows the care recipient to demonstrate that expenditures to family members were legitimate living expenses and not a gift or penalized transfer.
Caregiver agreements also offer several other important advantages. First, they allow a means for elderly family members to begin transferring their assets to their heirs. This has been a particularly important point in recent years, as many families are still struggling to make ends meet. Second, they can help reduce the stress that many family members feel while providing care for their parents or grandparents because they know that they are being compensated fairly for their efforts. Finally, caregiver agreements provide families with an opportunity to think about, discuss and present solutions to issues related to providing care later in life, which many families avoid until it is too late.
The first step in drafting an effective caregiver agreement is to meet with an experienced estate planning attorney. An estate planning attorney can explain more about these agreements, what information should be included and how to make them an essential part of the Medicaid planning process. Speak to an estate planning attorney today to learn more.
Keywords: Estate planning, Medicaid planning
