Why you need a caregiver agreement

As family members age and require care, the burden of that care often falls on an adult child. For those that leave jobs to care for family members, it can become a financial hardship for the family. Frequently the family does not realize the legal intricacies involved in privately paying a family member or friend to provide care. Payments made to a family member or private caregiver who provides care can be a minefield of potential Medicaid and income tax issues.

A caregiver agreement is a written agreement between a caregiver and the recipient of the care. The agreement is a contract that outlines the expectations as to what services will be provided, where the services will be provided, and the compensation terms. Caregiver agreements have long been used by Elder Law Attorneys. The cornerstone of the caregiver agreement relies on the premise that the care and services being provided by a relative or friend would require payment to a third party at prevailing market rates for identical services; thus, payment to the relative or friend is considered a fully compensated transfer for Medicaid eligibility purposes and should not result in the imposition of a penalty period. A written caregiver agreement is required in Pennsylvania to comply with Federal and State Medicaid policy to ensure that the payments made to the caregiver are not deemed a gift under Medicaid rules. The caregiver agreement must outline the services to be provided and the rate of pay. Payment to the caregiver can either be made with a lump-sum payment or in weekly or monthly installments. For Medicaid purposes, it is very important that the pay not be excessive. Excessive pay could be viewed as a gift for Medicaid eligibility purposes. The pay should be similar to what other caregivers in the area are making, or less.

Medicaid has a five (5) year look-back period, whereby should an individual enter a nursing home and apply for Medicaid benefits, the Department of Human Services (DHS) will look back five years to see whether the applicant has made any transfers of property or assets without receiving fair market value. If you have, this will create a period of ineligibility. Where a family member is being paid for providing care or where a private caregiver is hired, unless there is a written agreement or contract in place, Medicaid could construe the payments as a gift or uncompensated for transfer.

Many improperly pay a caregiver without thinking of the income tax consequences. For many families the caregiver will be considered a “household employee” The IRS view the household worker as an employee of the family. Misclassifying the caregiver as an “independent contractor” and issuing a 1099 is considered tax evasion. It is important to consult with a tax professional regarding the responsibilities of a household employer in Pennsylvania.

If you have any questions, or require assistance, contact the elder law team at OWM Law at 610-323-2800, or email Rebecca Hobbs, CELA© at rhobbs@owmlaw.com

The legal advice in this column is general in nature, consult your attorney for advice to fit your particular situation.

Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville,610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at rhobbs@owmlaw.com