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Use This Document to Keep Health Care in the Family

long-term care, care agreements

Caring for aging parents can lead to some tough decisions. Sometimes, family members would prefer to provide the care for a loved one themselves, but job responsibilities (and their own bills!) can prevent them from doing it.

Paying an adult child or a friend to care for an elder can work for people who find themselves in this situation. There are potential pitfalls, however. These include family conflict, public-benefits complications, and tax concerns. All these can be minimized, or avoided entirely, by putting the employment agreement in writing, just like you would for any job. A well-considered written agreement is a must, for the following reasons.

Avoiding family strife. Making a contract will help other family members understand clearly who provides care, what that care will be, and how much money changes hands. It is fair to compensate someone for their efforts, but it is also fair to show the agreement to the siblings. Their inheritances will be affected by payments to the caregiver and they may not be aware of their parent's care needs.

Tax considerations. Any remuneration should be treated as income - which requires the caregiver to pay taxes. If so, public-assistance programs will understand that the caregiver received that money as a quid pro quo for work done and not as a gift (see below). The parent should provide the caregiver with a Form 1099 and the caregiver should report the income on his/her tax return.

Planning for public benefits. If the parent's condition worsens and he/she eventually needs long-term nursing-home care, the parent may need help from Medicaid or Veterans’ programs to pay for the staggering costs of that care. However, if the parent has simply given money to the caregiver for taking care of her, those assistance-programs may choose to interpret the payments as gifts to the caregiver and she may be penalized, potentially heavily. To avoid that needlessly costly result, the caregiver's compensation must be shown to be a salary and not a gift. A written care agreement, and proper maintenance of logs and records will accomplish that goal.

A written care agreement should contain the following specifics:

  • A detailed description of the care provided. For example, transportation, running errands, food purchase and preparation, laundry, bathing, bill payment and checkbook balancing, house cleaning and maintenance, payment of fees for adult day-care, and recreation.

  • The caregiver must keep a detailed running log of services provided.

  • How much is to be paid, and how often. The amount should be comparable to the cost of professionally provided services. The agreement should also allow for reimbursement to the caregiver for out-of-pocket expenses, which also must be logged.

  • How long is the agreement to be in effect – a year or two? Over the person’s lifetime?

  • How the agreement may be terminated.

  • Provision for a “back-up” caregiver, if the primary caregiver were to become ill or need a break.

Could you write out your own agreement? Perhaps, if your situation is not complex and you are unconcerned about the potential impact of the arrangement on benefits entitlements. However, it is always a good idea to get someone with experience to prepare your document, or to let them prepare the document for you.

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