Caregiver Agreements – Paying Kids To Care For Parents

by | Apr 19, 2011 | Health, Tax Planning | 2 comments

We’re pleased to feature a guest post from Tom Simmons, a partner with the Rapid City law firm of Gunderson, Palmer, Nelson & Ashmore, LLP.

A Caregiver Agreement is a formal written contract, usually between family members, to provide housekeeping, meal preparation, medical supervision, bill paying, transportation and other services for a fee.  Typically, for example, an adult daughter may enter into an agreement that specifies what care she will provide for her aging mother.  In most circumstances, family members may provide varying degrees of care and assistance to their parents without a formal agreement.

So when would a formal written agreement be necessary or advisable?

A written agreement is recommended whenever the caregiver and aging adult agree that the caregiver should be compensated for his or her services.  Although for many families, caregiver services would be rendered without any expectation of monetary reward, reasonable compensation is a recognition of the often significant sacrifices in time, effort and emotional commitment that a caregiver may make for an aging parent’s needs. A Caregiver Agreement can even help minimize the negative family dynamics when one child makes enormous sacrifices to help care for a parent, sacrifices that may be significantly greater than those of his or her siblings.  Although Caregiver Agreement forms are widely available on the internet, and an attorney is not necessarily required to draft one, the benefit of legal counsel is to explore the precise expectations that each party has and making sure those expectations are clearly set forth.  Because Caregiver Agreements are also individualized and unique, there is no one-size-fits-all form agreement.

A Caregiver Agreement is also helpful in articulating exactly what is to be expected of a caregiver, and what is not.  The specific duties and responsibilities can be documented and spelled out.  Time off, vacation time and the responsibilities of identifying a replacement if the caregiver is unavailable should all be clearly articulated.  A written agreement minimizes misunderstandings with other family members about the precise compensation that was agreed-upon for the caregiver.

Caregiver Agreements have some advantages in terms of Medicaid and elder law planning as well.  Without a written agreement, the Medicaid agency may try to characterize payments to a caregiver child as “divestments” and impose ineligibility penalties against the parent for making improper gifts to the caregiver child.  The Medicaid agency will generally review Caregiver Agreements for reasonableness, especially those which provide for a large, single lump-sum payment for future services to be rendered.

Compensation to a caregiver is taxable income since it is “earned” by the caregiver’s efforts.  Proper tax reporting must be undertaken, and if the caregiver is an “employee” (as opposed to an “independent contractor”), unemployment insurance, workers’ compensation coverage, Social Security withholding and payroll taxes must also be addressed.  Reimbursement of expenses and/or mileage costs or use of a caregiver’s vehicle should also be considered.

Most families approach the concept of a Caregiver Agreement with some trepidation, feeling that helping a loved one is not something which merits a legal document since the parties trust and love one another.  “I don’t need a lawyer to write up an agreement with my own mother to help her clean her home and manage her medications,” the daughter might say.  But a Caregiver Agreement recognizes that an adult child is under no legal obligation to provide supporting services to an aging parent and that by doing so, the child is, in fact, entering into a relationship which is more than merely that of parent/child, but also caregiver/recipient.  An agreement that clearly sets forth what is going to be expected and the parameters of those expectations can have benefits for the family, as well as, outside parties (e.g., the IRS or a Medicaid agency) who may have an interest in second-guessing the nature of the services provided.

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