Hiring a Family Member to Care for an Aging Parent
As the New Year evolves, one of the critical questions that many families will face in 2011 is how to provide care for an aging parent, and who will provide that care. The choices are myriad, but are often driven purely by financial considerations.
A growing number of families are choosing to compensate relatives who serve as the caregivers for their aging elders. According to a study by the National Alliance for Careging ("NAC") and AARP, more than 43 million Americans provided care for a friend or relative over 50 years of age in 2009. That's 28% more than in 2004. A survey by Home Instead Senior Care, a home-care franchisor, nearly 7% of the respondents to the survey said they receive compensation for the care provided to a relative.
The percentage of family members receiving compensation is growing because of the state of the economy, the high unemployment rate, the high cost of nursing home care, changes in the Medicaid law effective in 2006, and the aging population. The 79 million baby boomers have started reaching age 65 and will be retiring over the next few years.
There are many important considerations when deciding whether to provide compensation for a family member who cares for the elderly. Perhaps foremost among these considerations is how the compensation is structured so that the elderly person's potential qualification for Medicaid benefits is not compromised. Other considerations include compliance with payroll tax laws, income tax laws, and the degree of sacrifice made by the caregiver. 37% of caregivers said they quit a job or reduced their working hours to accomodate their responsibilities as a caregiver according to the NAC. Another factor is the impact of the compensation on potential beneficiaries of the elder person's estate.
Where a caregiver has made a meaningful financial sacrifice to provide care to an elderly relative, it is appropriate and reasonable that the caregiver be compensated in some manner. The level and type of compensation will vary depending on the particular circumstances associated with the caregiver, the elderly person receiving the care, and the family members of that elderly person.
If the elderly relative may need Medicaid benefits, extreme care must be taken to ensure that the method and amount of compensation does not disqualify the elderly from receiving Medicaid benefits to pay for nursing home care. Under the Institutional Care Program ("ICP") provided by federal and Florida Medicaid law, an elderly person who qualifies financially, and who is a resident of a skilled nursing home, can receive Medicaid benefits to pay for the cost of the skilled nursing home care. Compensation to a caregiver must be carefully structured to avoid a penalty period, or outright disqualification, for those benefits.
Compensation to the caregiver should be pursuant to a written contract. The actual compensation can be hourly, and can be paid either periodically (weekly, monthly, etc.), or in a lump sum paid in advance based on the elderly person's life expectancy. Such payments often provide an unexpected benefit to the elderly person. By depleting the elder's savings or other assets, qualification for Medicaid benefits can happen sooner, rather than later. But, without a written employment contract that is properly structured to comply with Medicaid law and regulations, and is in place before the payments begin, the payments may cause ineligibility for or delays in receiving Medicaid benefits.
When relatives are compensated by the elderly person, in excess of $1,700 annually, federal payroll taxes may be required to be paid by either the employer or the employee. In such circumstances it is important that the family members consult with a qualified certified public accountant to ensure compliance with payroll tax laws.
Gifts, and advances on one's inheritance, should usually be avoided, unless there is sufficient assets or income to eliminate the need for Medicaid benefits. Such transfers could negatively impact the availability and timing of Medicaid benefits.
One final consideration. There should be full disclosure of the compensation arrangements to all affected family members. When such matters are not disclosed, it is not uncommon for family members who are not a part of the compensation arrangement to challenge the fairness and validity of the compensation after the death of the elderly person.
A growing number of families are choosing to compensate relatives who serve as the caregivers for their aging elders. According to a study by the National Alliance for Careging ("NAC") and AARP, more than 43 million Americans provided care for a friend or relative over 50 years of age in 2009. That's 28% more than in 2004. A survey by Home Instead Senior Care, a home-care franchisor, nearly 7% of the respondents to the survey said they receive compensation for the care provided to a relative.
The percentage of family members receiving compensation is growing because of the state of the economy, the high unemployment rate, the high cost of nursing home care, changes in the Medicaid law effective in 2006, and the aging population. The 79 million baby boomers have started reaching age 65 and will be retiring over the next few years.
There are many important considerations when deciding whether to provide compensation for a family member who cares for the elderly. Perhaps foremost among these considerations is how the compensation is structured so that the elderly person's potential qualification for Medicaid benefits is not compromised. Other considerations include compliance with payroll tax laws, income tax laws, and the degree of sacrifice made by the caregiver. 37% of caregivers said they quit a job or reduced their working hours to accomodate their responsibilities as a caregiver according to the NAC. Another factor is the impact of the compensation on potential beneficiaries of the elder person's estate.
Where a caregiver has made a meaningful financial sacrifice to provide care to an elderly relative, it is appropriate and reasonable that the caregiver be compensated in some manner. The level and type of compensation will vary depending on the particular circumstances associated with the caregiver, the elderly person receiving the care, and the family members of that elderly person.
If the elderly relative may need Medicaid benefits, extreme care must be taken to ensure that the method and amount of compensation does not disqualify the elderly from receiving Medicaid benefits to pay for nursing home care. Under the Institutional Care Program ("ICP") provided by federal and Florida Medicaid law, an elderly person who qualifies financially, and who is a resident of a skilled nursing home, can receive Medicaid benefits to pay for the cost of the skilled nursing home care. Compensation to a caregiver must be carefully structured to avoid a penalty period, or outright disqualification, for those benefits.
Compensation to the caregiver should be pursuant to a written contract. The actual compensation can be hourly, and can be paid either periodically (weekly, monthly, etc.), or in a lump sum paid in advance based on the elderly person's life expectancy. Such payments often provide an unexpected benefit to the elderly person. By depleting the elder's savings or other assets, qualification for Medicaid benefits can happen sooner, rather than later. But, without a written employment contract that is properly structured to comply with Medicaid law and regulations, and is in place before the payments begin, the payments may cause ineligibility for or delays in receiving Medicaid benefits.
When relatives are compensated by the elderly person, in excess of $1,700 annually, federal payroll taxes may be required to be paid by either the employer or the employee. In such circumstances it is important that the family members consult with a qualified certified public accountant to ensure compliance with payroll tax laws.
Gifts, and advances on one's inheritance, should usually be avoided, unless there is sufficient assets or income to eliminate the need for Medicaid benefits. Such transfers could negatively impact the availability and timing of Medicaid benefits.
One final consideration. There should be full disclosure of the compensation arrangements to all affected family members. When such matters are not disclosed, it is not uncommon for family members who are not a part of the compensation arrangement to challenge the fairness and validity of the compensation after the death of the elderly person.
Posted by Randy Coleman at 1/3/2011 8:39 AM 
Categories: Asset Protection, Medicaid Planning, Estate Planning, VA Benefits, Elder Care, Qualified Income Trust, Personal Care Contracts, Nursing Homes
Tags: asset protection elder care estate planning attorney Florida asset protection attorney income tax planning Jacksonville elder law attorney Jacksonville Medicaid planning attorney Medicaid application Medicaid benefits Medicaid planning Medicaid planning attorney Medicaid rules Medicaid spenddown plan nursing homes personal care contracts VA Benefits
Categories: Asset Protection, Medicaid Planning, Estate Planning, VA Benefits, Elder Care, Qualified Income Trust, Personal Care Contracts, Nursing Homes
Tags: asset protection elder care estate planning attorney Florida asset protection attorney income tax planning Jacksonville elder law attorney Jacksonville Medicaid planning attorney Medicaid application Medicaid benefits Medicaid planning Medicaid planning attorney Medicaid rules Medicaid spenddown plan nursing homes personal care contracts VA Benefits
I've never seen this approach, but I like it. You're right, most decisions are driven by financial reasons, but it doesn't have to be that way. The family care approach seems like it could get a little sticky, but I can definitely see the benefits.
-R. Thomas
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Can two providers (sisters) be on the Personal Service (PSC) contract and split the funds and responsibilities evenly? Or, define the responsibilities and pay that provider more.
If only one provider can be on the PSC, it is fully funded, and the parent dies before the actuary life expectancy how is the remaining money distributed to the estate? What about the income taxes, are they paid the year lump sum funding or earned?
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Yes, there can be multiple parties to a personal care contract, or multiple personal care contracts. The responsibilities can be allocated based on the available time, interests, talents, or any other reasonable factor. Currently there is proposed legislation in the Florida Senate, SB 1972, that - if passed in its present form - will place some restrictions on what kinds of services, and who will be eligible to provide the services. Other proposed legislation would totally prohibit the use of personal services contracts, but that proposed legislation seems to have taken a back seat to SB 1972. The proposed legislation (SB 1972) applies to personal services contracts that are entered into after October 1, 2011. Accordingly, if there is a expectation there will be a need for a personal services contract already recognized by the family, there are obvious and signficant reasons to enter into, and fund, the personal services contract before October 1, 2011.
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