Four in ten U.S. adults are now caring for a sick or elderly family member as more people develop chronic illnesses and the population ages (Reuters). These caregiving responsibilities can take both a physical and financial toll on the family members. Spending time caring for family members takes time away that could be spent earning money. Many times the chronically ill elder will want to compensate the family member for these caregiving efforts. However, without a properly structured personal services agreement, these attempts to compensate could impact future eligibility for government benefits.
I recently met with an a 94 year old who had been diagnosed with Parkinson’s Disease 4 years ago. Her three children, who all live nearby, had been taking turns helping her so that she could stay in her home. The children helped her go to appointments and shopping; they helped her to pay bills; they helped manage her prescriptions and they helped her with household chores. She felt very grateful. So for the past three years she had made annual exclusion gifts to each of the children and their spouses. In all she gifted over $200,000. Now she needs nursing home care and her assets are around $100,000. But for the gifts, she could get immediate Medicaid eligibility through the use of income producing property and a pooled trust, thus preserving the resources she has, but the gifting causes a period of ineligibility for Medicaid. These gifts cause 24 months of ineligibility. She will have to privately pay for her care and deplete all of her assets and then some, before she will be eligible. This ineligibility would not have happened if a properly structured personal services contract had been in place.
Personal services agreements must be specific. The family member caregiver must pay income tax and self employment tax. Depending upon the situation, personal services contracts may be structured for monthly payments, or may be structured as a one-time lifetime payment.