If you pay relatives to provide care, you might want to have a contract (Part 1)

A growing number of seniors are providing a salary or other form of reimbursement to their family members who provide them with personal care. If you’re thinking of doing so, it can be a very good idea to draw up a written contract. This can make it easier to qualify for Medicaid, and can help a family in other ways as well.

It might seem odd to sign a contract with your family. Many children feel awkward about asking for compensation, and many parents assume that the children should help them solely out of love. However, children often devote enormous time and resources to caring for an aging relative, and it’s not unreasonable for them to be compensated in some way. And if there are several siblings and one is more involved in providing care than the others, a contract can be a good way to reward the child who is doing the work without having to divide family assets unequally in a will.

Here’s a good example of how a written contract can be helpful: Widley David entered a Louisiana nursing home in 2008. Over the next two years, he wrote six checks totaling about $50,000 to his nephew and his nephew’s wife, who were his closest living relatives. Widley said the checks were to reimburse the couple for the care they provided him in the nursing home.
The couple visited Widley every day, drove him to appointments, paid bills, and provided other services. The nephew even quit his job so that he could devote himself to Widley’s care.

After two years, Widley applied for Medicaid. But the state Medicaid officials found out about the checks, and said they were an improper attempt to reduce Widley’s assets so he could qualify for benefits.

According to the state officials, if Widley had signed a contract saying the payments were for personal care, that would have been fine. But since there was no written contract, there was no proof that Widley “owed” the money, and therefore the checks were treated as a gift.

As a result, Widley was disqualified from Medicaid for nearly 15 months, during which time he had to pay out-of-pocket for his nursing home care.

Widley took the case to court, but the Louisiana Court of Appeals sided with the state. It said that while Widley might have intended the checks as a form of compensation, a “personal care agreement was necessary to validate this alleged arrangement.” Otherwise, without a contract, Widley lost.

In our next installment we will outline the importance of personal care agreements.