If you pay relatives to provide care, you might want to have a contract (part 2)

In our first installment, we outlined the benefits of establishing a personal care contract. Nevertheless, personal care contracts are not only helpful with Medicaid, but they can also smooth over issues between siblings if one is more involved in handling a relative’s care than others.

It’s not uncommon, for instance, for a sibling who lives at a distance to suspect that a caregiver sibling is mismanaging the senior’s affairs, taking advantage of the senior’s generosity, or being overcompensated in the senior’s estate plan. Putting everything in a contract creates transparency and can prevent such disputes.

It’s important to work with an attorney to draw up a personal care contract, to make sure it will pass muster with Medicaid or other agencies.

A good contract should specify what kinds of services the younger family member will perform – preparing meals, bathing, shopping, travel to appointments, paying bills, and so on – as well as roughly how many hours per week will be devoted to care.

A provider can be fairly compensated, but you should be careful not to pay too much, or the government might claim that the payments are really a disguised gift. A good rule of thumb is to pay an hourly rate roughly comparable to what a home health care aide would receive in the area. Some people have offered to pay a child for a lifetime of care with a single lump sum. While this might work, and it quickly reduces assets for Medicaid purposes, it’s more likely to raise red flags with the state.

Ideally, the caregiver should pay Social Security, Medicare and other employment taxes, just like any other household employer. If you want to make sure the arrangement isn’t challenged, it’s a good idea to keep a diary of services provided, and even have a geriatric care manager come in occasionally to verify that the senior is receiving the care set out in the contract.