Caregiver agreements are often used in the Medicaid context so that a family member can be paid for their services to a loved one and the payment would not be considered a gift.
In the Medicaid context, payments to family members are considered to be a gift for love and affection, unless there is a clear agreement written prior to services being rendered, preferably signed by the parent receiving the care as well as the child giving the care.
The caregiver agreement will set forth all of the terms of the transaction, including what services will be provided, where will they be provided, how will they be provided, and other typical contract languages.
The significance of this agreement is that the Department of Human Services (DHS) will look at the transaction as an arms-length transaction between third parties and not among family members.
This means that the payments to the child will not be considered a gift, and, therefore payments will be allowed to be counted as a “for value” transfer as part of a legitimate spend-down and not a gift that will trigger a penalty period for Medicaid purposes.
The biggest question that arises in regards to caregiver agreements is what the parent should pay for services. This is often a very difficult question because there are certainly competing interests at stake. For the parent receiving the care, they genuinely would like to pay full market value and as much as they can without there being a penalty created. This will legitimately reduce the value of their estate, but benefit the child who is providing services for their care on a daily basis.
On the other hand, if there are other children who are not providing the care they often feel slighted or that the other sibling is receiving more than their fair share.
This is very difficult because the children who are not providing the care want the amount to be paid to be the least amount possible to potentially raise the amount that will be left for them and their siblings to share.
However, if the parent does not spend down their assets legitimately, the money can be lost to long-term care costs, and there may not be anything left for anybody.
This inheritance rub is one of the most difficult things involved with a family caregiver because of the potential conflict that it may create among the family members.
At the end of the day, fair market value is generally set in, in this context, by what other professionals and people are charging for similar services. As long as you can stay within the realm of what others are charging for similar services, the Department of Human Services will not raise a red flag. However, that does not mean that other children or other family members may not question the motives of their family member providing the services and the amount of the payment.
We believe it is important to have all parties abreast of the information and informed so that we can potentially avoid unwanted conflict in the future. We always advise the advice of a professional to assist with these potential implications, and ensuring that the agreements are written properly to comply with DHS and Medicaid standards.
If you are looking for advice in regards to estate planning, please call our office at 717-845-5390 or click the link here and we will contact you.