It may, at face value, seem a bit cruel – taking payment from an aging parent or loved one who needs assistance with their day to day care. However, setting up a formal caregiving contract can have benefits for both parties. First of all, setting up an agreement allows an aging loved one to receive care at home when they might otherwise have to move out. The agreement also allows for some compensation to the caregiver.
According to the Wall Street Journal, setting up a contract can also be used to ease family tension. Having a formal agreement in writing can prevent family feuds or misunderstandings such as when and how much the caregiver will be paid or resentment at not being paid at all. Being paid a specified amount can ease a lot of these tensions and prevent greater problems down the road.
One of the key benefits of caregiver contracts is their use as a Medicaid planning tool. Medicaid rules require strict asset limits be met in order to qualify for benefits; less than $2,000 in assets not including a home, car and prepaid funeral. While you cannot give your assets away (gifting results in a Medicaid penalty) you can pay for in-home care. In order to pay family members for care, Medicaid requires a formal caregiver contract to be set up before payment is made and provide reasonable compensation (i.e. what you might pay a private company). This allows money to be spent down so that your loved one can qualify for Medicaid benefits if needed.
It is important to note that income taxes must be paid on money paid under a caregiver contract. Meet with an elder law attorney to discuss if setting up a caregiver contract is right for you.