(The pdf for the issue in which this article appears is available for download: Vol. 37, Issue 3.)
How often do we hear our friends talk about a parent’s changing health needs, the struggles they have with caring for them from a distance, worrying about them living alone and maybe needing more assistance, and hiring caregivers? And then one day, it hits home and your mom, dad, or grandparent is in need. Maybe it became apparent following the recent holiday get-together, anniversary, or big birthday. Your aging loved one doesn’t appear as neat and tidy as usual, they have lost weight, they appear confused, or are forgetful about that famous family recipe made for over 50 years. Or, your loved one experienced an injury, surgery, or diagnosis that you realize is affecting them more than you’d previously thought.
When lapses in memory or physical issues start to affect a loved one's activities of daily living, such as cooking, eating, bathing, or paying bills, it’s time to evaluate their needs and living situation. As the affected loved one’s care needs increase, attorneys can assist with drafting caregiving/personal care agreements.
Discuss Caregiver/Personal Care Concept Within the Family
An unexpected medical event, surgery, or diagnosis of Alzheimer’s disease puts any family in a stressful and scary situation. Who will take charge? Who will serve as the primary caregiver? Where do we start this process and what resources are available? The first step is planning a family meeting so everyone, including the loved one, is provided an opportunity to be involved and collectively outline the role each member has for the well-being and safety of their loved one.
Many adult children or family members welcome an opportunity to be the caretaker for a loved one. It’s estimated more than 65 million family members provide more than $375 billion a year in uncompensated care to family members.1 The caregiver may feel obligated or have a sense of duty to provide care out of love and affection. Initially, the care provided may be very casual such as grocery shopping, preparing meals, transporting to appointments, or assistance with bathing.
Problems arise when the caregiver is no longer able to adequately provide the care or the care required is unaffordable. If the caregiver has to take a leave of absence from their regular job, they may benefit from a source of income and working closer to or in the home of the parent or loved one.
One way to compensate a caregiver is through a caregiving contract. The arrangement provides many benefits to all involved. The aging parent has a trusted family member to tend to their care needs. They are able to stay in their home longer.
Some family members are paid for their services by the aging parent and more families are creating caregiver/patient care agreements. In recent years, these agreements have grown in popularity as a tool to plan for Medicaid because they can reduce the size of an estate.2
Key Elements of a Caregiver/Personal Care Agreement
This is a job; treat it like a job. Understand that the caregiver is engaging in an employment arrangement: the older adult is the employer and the caregiver is the employee. Start with a job description outlining the specific tasks the caregiver needs to perform. Here are some key elements:
The agreement should be in writing and signed by both parties.
- Include a start date for services. The agreement should include a specific start date for when service begins. This date should not be retroactive. Generally, agreements can be for a specific period of time or indefinitely. If the arrangement is long-term, consider reviewing the agreement, services, and compensation on an annual basis.
- Detail the services included in the agreement. Agreements can be very detailed as to providing non-medical care only, such as cooking meals, doing housekeeping and laundry, or providing transportation to appointments. Activities of daily living include more personal assistance such as bathing, toileting, transferring, walking, exercising, medication reminders, feeding, dressing changes, etc. Understand the scope of the services needed and determine the caretaker’s comfort level and skill level. Is the caregiver up to the task of performing these tasks?
Consult with a physician-obtain a medical opinion of whether their needs can realistically be met in a home setting. The physician may assist with determining how much care is necessary and assist in a mental capacity assessment.
An alternative method of creating a care plan is to hire a licensed geriatric care manager to visit the adult at home and conduct an assessment of their health and needs. There is a fee associated with an assessment which varies by state and region. The geriatric care manager may also be retained on a monthly or as-needed basis to provide an in-home assessment between physician office visits.
- Make a legal plan. If there is no estate plan in place, now is the time to address the need for Powers of Attorney, possible guardianship, wills, trusts, and health care directives. The mental capacity of a loved one will dictate what documents may be executed.
- Make a financial plan. What are the assets and resources in the estate? Caregiving agreements are often tied to Supplemental Security Income (SSI) or Medicaid planning. There may be a spend-down scenario where using assets to legitimately pay for a family caregiver enables a loved one to not jeopardize SSI or Medicaid eligibility.
Identify assisted living or skilled facilities to consider for Plan B when providing care at home is no longer an option. Consult the admissions director about the levels of care provided, private-pay requirements, and acceptance of SSI/Medicaid payments when assets have been exhausted. Many communities require a period of private pay prior to accepting Medicaid. Families that wait until there is no money left limit their choices and accessibility.
- Agree on compensation. Conduct a salary survey of home services agencies in the area to assist in the determination of compensation for the caregiver. Agencies charge a higher rate because they absorb all the responsibility of an employer: payroll taxes, unemployment, workers’ compensation, supervision, training, licensing requirements, and more. Private-hire caregivers do not carry the same financial responsibility and are less expensive but come at a greater risk of liability.
Review the proposed compensation with the loved one and other family members as some may be sensitive to how this arrangement might affect the overall family dynamics.
- Consider caretaker leave needs. Respite, vacation, and illness coverage are important in any employment scenario—consider paid vacation or paid time off (PTO) for caretaker illnesses. What is the back-up care plan for the loved one? Another family member may step in or the caretaker may need to contract with a local agency for back-up support. Agencies generally need 24-48 hours to initiate a service agreement and to provide a qualified caregiver.
- Keep a daily log or note archive. Daily notes or journaling provide the supporting documentation to justify the care provided; include the care provided and any payments received. These notes are valuable to communicate to other family members about the care provided and to assist in an application for Medicaid. Ensure that you have a consistent, reliable way to store these notes. Consider storing all important documents in a binder and add supplemental information along the way.
- Review and update the care plan. It is recommended that the caretaker and the loved one review the plan at least once a year. If a loved one has a medical event and requires hospitalization, it may be helpful to review the care plan for any changes in care needs especially with medication and any post-hospitalization therapy requirements.
- Termination clause. Consider language in the event that one of the individuals wants to terminate the agreement with or without cause and how much notice is required.
Long-Term Care Insurance
Some long-term care (LTC) policies may be used to compensate family members who provide care. Newer policies may offer cash alternatives to offset the expenses of hiring a family caregiver. Check the loved one’s LTC policy for details.
Bookkeeping and Taxes
Accountants and professional money managers provide bookkeeping and payroll services for the household. Consider utilizing a third-party for the details of setting up tax reporting and withholding, and worker’s compensation for the paid caregiver. It is not recommended to have the paid caregiver perform this service as part of their job description as the perception of financial exploitation may become an issue.
The compensation earned by the caregiver is reportable income and must be reported as income on Form 1040. The caregiver may be required to pay self-employment tax depending on the facts and circumstances. Consult with an accountant for specific laws and requirements.
Families are likely to contact an elder law attorney after they have been caring for a family member for several months free of charge. As a loved one’s medical condition deteriorates or Alzheimer’s progresses, a caretaker may find that they need compensation for the increased level in care. Lawyers can draft agreements for services going forward. The caregiver cannot be compensated for care that was being provided gratuitously.
When in the midst of the storm, it can be hard to see the right thing to do. Usually these agreements are part of estate planning or part of estate and Medicaid planning. Proactive planning can help families stay focused, in control, and avoid costly penalty periods of ineligibility for Medicaid or other state funding.