A recent article in US News and World Report, Five Ways to Ease the Financial Strain of Caregiving, notes that 43 million Americans provide some form of caregiving to a person over age 50. The challenges that accompany caregiving are not limited to the emotional and physical; they are often financial, too. For example, a child may be forced to trim work hours to attend to a parent, or leave the workforce entirely. The reduced income can impact a caregiver's immediate finances, as well as his/her ability to save for retirement.
It is no surprise, then, that increasing numbers of parents are actually paying their adult children for help. Payment can help cushion a child's financial losses. However, in order to avoid jeopardizing the parent's future eligibility for Medicaid benefits for long-term care, payments must be well documented through a formal personal services agreement. A personal services contract must be structured carefully, conform to Florida Medicaid law, and have complete integrity. The caregiver must actually furnish the specified number of hours and scope of help as required by the contract. The caregiver must declare the income on his income tax return. Self-employment tax must also be paid.
The recent case of Widley David v. Louisiana Department of Health and Hospitals is instructive. Widley David was unmarried and had no children. He entered a nursing home in 2008. For the following three years his nephew and his nephew's wife provided him with substantial assistance, driving him to doctor's appointments, visiting daily, paying his bills, and purchasing food, clothing and other items for him. The assistance was so extensive that the nephew quit his job to better attend to his uncle's needs. To compensate him, Mr. David wrote six checks to his nephew over the three-year period, for a total of $49,100. However, no formal personal services agreement was ever established.
When Mr. Widley applied for Medicaid benefits in 2010, Medicaid deemed the payments to the nephew to be gifts, i.e., transfers for less than fair market value. The case went to court and eventually, Medicaid prevailed. A penalty period of fourteen months was imposed on Mr. Widley, during which time he was ineligible for benefits.
Would-be caregivers should also consider how their own Social Security benefits may be impacted if they receive payment for their assistance. For instance, I was consulted last year by a 51-year-old woman and her elderly father, who asked me about drawing up a personal services contract. They were surprised when I advised them that her Social Security Disability income would be lost if her father paid her. More recently, I spoke with a 62-year-old woman who was contemplating retiring from her job to care full-time for her frail mother. She thought it would be the perfect answer for both of them - until I pointed out that for every two dollars over $15,720 (the 2015 cap) she would earn from caring for her mother, she would lose $1 in Social Security income. (If you have attained full retirement age, there is no limit on your earnings, however.)
Paying a relative for caregiving can ease the financial burden on the caregiver as well as provide the best possible care for a loved one. However, these arrangements always require careful planning and a thorough consideration of all the ramifications. Contact our law office for assistance.