Yes. This is a must for caregiver compensation and Medicaid planning. While many adult children may feel some responsibility to take care of an aging parent if they become physically or mentally incapable of taking care of themselves, there is the issue of whether the child should receive financial compensation for personal care services. While a child may not initially intend to charge, this role can last for many years. Years into the arrangement, the child may quit their job to become a full-time care giver or make other financial sacrifices. Should the child later wish to receive compensation, without a personal care agreement in effect, that option may not be available due to statute of limitations, fiduciary duty of child to parent, incapacity of the parent, or Medicaid transfer penalty rules. Note, the caregiver agreement should be entered into in addition to any rental agreement, if applicable.
If your parent ever requires any in-home care, assisted living, or skilled nursing, for which they may require the assistance of government benefits programs such as Arizona Long Term Care System (“ALTCS”), the existence of a caregiver agreement will prevent any payments made to the child for caregiving services from being treated as an “uncompensated transfer” subject to penalty by ALTCS. Without a written caregiver agreement in place, the ALTCS program may treat payments made from the parent to the adult child as an uncompensated transfer or gift, and impose a penalty of a certain number of months before ALTCS will begin to pay for the long term care services. For example, if the parent provides $500.00 per month to the child for caregiving services for a period of 2 years without a caregiver agreement, if the parent needs to apply for ALTCS, ALTCS would likely treat all 24 months of payments as a “gift” to the child. The parent would not be eligible for ALTCS until a several month long penalty period expired.
If your parent is a veteran or widow of a veteran with qualifying military experience, establishment of a caregiver agreement will be helpful in the process of applying for Veteran’s Aid & Attendance Pension Benefits (“VA A&A”). Under the VA A&A program, a qualifying veteran or widow may be eligible to receive a pension benefit to compensate the veteran or widow for out of pocket expenses medical expenses he/she currently spends on long term care services. By compensating a family member caregiver pursuant to a written caregiver agreement, the caregiver agreement can serve as helpful proof that can be used to establish unreimbursed medical costs for the VA A&A application.
Additionally, if any other interested parties or family members are concerned about payments being made from the parent to the adult child, the caregiver agreement provides written explanation for the purpose of each payment, and proof that payments are not meant to be considered a gift to the child.
This agreement should be made while the parent is mentally competent to do so, if possible, and for not more than fair market value of care services actually performed. If payments continue into the future when the parent may have diminished capacity, the child will be able to reference the terms of the valid agreement created and entered into while the parent was competent. If there is evidence a parent already suffers from diminished capacity, consult with an elder law attorney who can provide clear advice. You should also consult with your tax advisor. We routinely work with families in establishing custom personal care agreements; they protect both the parent and the child. Call us for help.
-Megan Selvey, Esq.