As people age there is a tendency to look to those closest to us for their support and assistance. Often, aging parents will look to their adult children to assist them with certain aspects of their daily lives, thereby making it possible for them to continue living independently. The assistance provided to elders can range broadly from helping to pick up weekly groceries to having the parent move into their child’s home for 24/7 care. Regardless, having a valid and well-crafted care-giver contract in place can both protect and benefits parent and child.
What is a Care-Giver Contract?
A caregiver contract basically defines the service and/or living arrangement between patent and adult child. The contract can outline the responsibilities of the caregiver, and specify the payment they will receive for their services. Many adults would be happy to assist their aging parents free of charge, however, this may actually not be in their parents best interest financially for two reasons; first, by paying their child for caregiver services the elder is able to reduce their estate, thereby quickening their eligibility for MassHealth (Medicaid) benefits; second, by framing your relationship formally as employer/employee the money exchanged is deemed a “salary” expense rather than a gift, which would otherwise result in a period of MassHealth disqualification.
Furthermore, having a clearly defined agreement helps to avoid any potential conflict in the future, ensuring that the cost of care is paid at the time it is received rather than left for family members to argue about as part of a later division of assets.
Important Considerations for Care-Giver Contracts
A caregiver contract should be drafted by an attorney who specializes in elder law and who can customize the contract terms to your unique situation. A good caregiver contract should specify the rights and obligations of both parties, including what services are to be provided and what costs will be incurred. It should also be written as soon as possible so that there is no question as to the parent’s mental soundness.
Contracts between family members are carefully scrutinized by MassHealth, so extra caution should be taken to ensure that the terms are reasonable and fair. A caregiver’s compensation rate should be comparable to what an outside party would receive for the same services, and any out-of-pocket expenses to be reimbursed should be specified.
As with any employer/employee relationship, a caregiver contract may result in certain tax responsibilities to both parties. All income paid to the caregiver is subject to taxes and the elder/employer may need to withhold funds for federal and state employment-related benefits. However, the elder is allowed to deduct some of their care-giver expenses on their individual tax return as a medical expense. In some instances long-term care insurance will actually cover the costs of care-giver services, but only if they are clearly defined in a formal contract.
Care-giver contracts offer a way to recognize and reward the time, money, and effort that family members often spend on caring for an elderly parent. Contact an elder law attorney to find out more about this mutually beneficial arrangement.
