Caregiver Agreements

By Michelle Lonsinger

Overview of Caregiver Agreements

A Caregiver Agreement, also called a Personal Care Contract or Personal Service Contract, is a written contract between a care recipient and a caregiver. It defines the duties and compensation of the caregiver, and can be used to provide a family caregiver with a modest income or stipend to cover expenses such as time and fuel.

What are the benefits of a Caregiver Agreement?

Many people become family caregivers out of love or a sense of obligation, and do so without payment for their time and expenses. If the care recipient later needs nursing care and has too large an estate to qualify for Medicaid, the care recipient will use his or her assets to pay for nursing care, often leaving the caregiver and other heirs with little or no inheritance.

A Caregiver Agreement provides the caregiver with a modest source of income, and ensures that the caregiver is reimbursed for expenses such as fuel, food, and time.

Frequently, one of the care recipient’s heirs acts as the primary caregiver, and is rewarded with informal gifts or a larger share of the estate in the care recipient’s will—leading to family fights and contested wills.

With a Caregiver Agreement, the care recipient is able to reward the caregiver for his or her efforts pre-estate without other heirs feeling slighted. The care recipient also receives care that is provided by a trusted relative, and will probably save money by being cared for at home.

A caregiver’s salary does not count as a gift when considered for Medicaid eligibility, but still reduces the size of the care recipient’s estate. This may improve the care recipient’s chances of becoming eligible for long-term care coverage under Medicaid.

What is specified in a Caregiver Agreement?

A Caregiver Agreement should specify the following items:

• Duties of the caregiver, such as housekeeping, preparing or providing meals, running errands, administering or supervising medications, providing transportation, paying bills, bathing, and dressing
• Market cost of the provided services (personal care services or geriatric care services) based on the market in the care recipient’s location
• Times and days that the caregiver will provide the duties
• Caregiver’s responsibilities for supervision of other caregivers
• Method of reimbursement for expenses incurred by the caregiver
• Method of payment, such as weekly or monthly installments or a lump-sum payment based on the care recipient’s life expectancy; if payment is to be a lump-sum, the contract should specify safeguards to prevent the caregiver from absconding with the funds (such as depositing paychecks into an escrow account rather than to the caregiver directly), and specify how money will be returned if the contract ends prematurely

Do I have to pay taxes on money earned through a Caregiver Agreement?

The caregiver must pay income taxes on all compensation earned through a Caregiver Agreement, exactly as if the income came from any other job. Depending on how the contract is structured, the care recipient may be responsible for withholding Social Security and other payroll taxes, and an accountant or payroll service may be required.

Can the care recipient use long-term care insurance benefits to pay the caregiver?

Some long-term-care insurance policies, such as those that pay lump-sum indemnity benefits, may allow the care recipient to pay a family caregiver with a portion of the insurance benefit.

Some state and federal government programs also provide funding to family caregivers with “consumer-directed care” or “Cash & Counseling” programs. Call your local Area Agency on Aging (call 1-800-677-1116 to find your local AAA), or contact your local Department of Social Services to determine what government funding you might qualify for.

How do I make a Caregiver Agreement?

A Caregiver Agreement must be carefully worded to ensure that it is a commercially reasonable arm’s length contract, because it can have later significance for Medicaid eligibility and can become an issue during settlement of the care recipient’s estate (an arm's length relationship is a term used to describe a type of business relationship with a close associate that helps to avoid a conflict of interest). It’s a good idea to create a Caregiver Agreement while the care recipient is of sound mind, because things become much more complicated if the contact has to be signed under the care recipient’s Power of Attorney.

You should use the expertise of a competent legal advisor when creating a Caregiver Agreement, and get input from all family members. Many legal advisors will require that the care recipient also have other estate planning, such as a durable Financial Power of Attorney, in place before entering into a Caregiver Agreement. An example of a basic Caregiver Agreement, created and formatted in Microsoft Word, is available here.

Does a Caregiver Agreement need to be notarized or witnessed?

A Caregiver Agreement does not need to be notarized, but should be witnessed by one or more parties unrelated to the care recipient or caregiver. If other family members participate in creating the contract, your legal advisor may recommend that they sign the contract as well.

What should I do with a Caregiver Agreement after it’s signed?

Copies of the signed contract should be stored in a safe location by the caregiver and care recipient.

 

Michelle Lonsinger is a freelance researcher, technical writer, and editor.

Copyright © 2008 by Michelle Lonsinger

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