A Medicaid Personal Services Contract, also known as a Personal Services Agreement, can be a great strategy that permits an aging person to pay adult children for caregiving, while still preserving the parent's eligibility for long-term care Medicaid benefits. In the absence of a credible Personal Services Agreement, payments made to family caregivers during the look-back period (currently five years prior to application) will be considered "uncompensated transfers," and count against Medicaid eligibility. This is precisely what happened in the case of Widley David v. the Louisiana Department of Health and Hospitals, which I discussed in my prior post here.
But just having a contract is not sufficient. The written contract must have integrity, must be properly structured and must be adhered to. Here are some of the key elements the agreement must contain:
- The nature and extent of the services must be specified.
- There must be proof that the payments are in line with fair market value.
- Documentation must be provided to prove that those services were, in fact, provided.
- The recipient must pay income tax on the income.
- The recipient must pay self-employment tax on the income.
If the contract does not meet these criteria, Medicaid benefits could be denied. A recent case out of New York State is informative:
New York resident David Scott signed a personal services agreement with his daughter and son-in-law. According to the document, Scott was to pay $5,000 monthly to them for caregiver services. However, the exact nature and frequency of the services were not spelled out. Nor was there any mention made of the fair market value of those services. In reality, no payments were made in some months. Other months, Scott's daughter and son-in-law would make withdrawals of varying amounts. Then, the month that Scott entered a long-term care facility, $60,000 was transferred to his daughter and son-in-law.
As you can surmise, New York State deemed the payments to be uncompensated transfers. Mr. Scott was denied Medicaid benefits. He appealed and the case made its way to the the Appellate Division of the New York State Supreme Court. The court upheld the ruling, stating that Mr. Scott "gave no explanation of the services that were provided other than transportation on occasion, did not submit any documentation regarding the services, and offered no proof regarding the fair market value of any services." You can read the court's decision in Scott ex rel Dana v. Zucker here.
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 the ramifications. Contact our law office for assistance.