Thursday, September 21, 2006

Family Care-Giving Contracts

An article that appeared on September 7, 2006, in the Wall Street Journal, entitled "Who Will Mind Mom? Check Her Contract", received attention from at least two prominent legal blogs -- the "Elder Law Prof Blog", in a posting on September 8, 2006, and the "Wills, Trusts & Estates Prof Blog", in a posting on September 19, 2006.

Both postings contained excerpts from the article, but did not lead to the full text of the article. The article is now available free in its entirety from the
Pittsburgh Post-Gazette online here.

The article examines the growing use of written contracts to document care-giving arrangements provided by certain family members to other elderly or disabled family members. This arrangement -- known as "personal service" or "personal care" -- is employed more frequently, and thus becomes the subject of more documents prepared by lawyers.

Such negotiated, detailed arrangements can reduce family friction, reward those family members more involved in caretaking, and evidence the expense as reasonable and efficient in anticipation of questioning by third-parties, such as a governmental agency administering Medicaid, an estate beneficiary, or a creditor.

For example, the article notes:

Medicaid isn't likely to "disqualify you for making those payments to your children if you have an arm's length, commercially reasonable contract, in writing, ahead of time," says Charles Sabatino, director of the American Bar Association's Commission on Law and Aging in Washington. * * *

In order for a caregiver contract to be respected -- and to pass muster with Medicaid authorities -- it has to follow certain formalities. For one, you can't pay the caregiver an inflated rate in order to shift lots of money out of your estate. Instead, you should specify what duties the caregiver is expected to perform and then contact local home-care agencies or geriatric-care managers to establish the market value of those services in your area. Such duties can vary from preparing meals, bathing and dressing to housecleaning and chauffeuring, as well as arranging doctor's appointments and friends' visits and overseeing medications.

The article notes that there are tax consequences to consider in such inter-personal arrangements:

The compensation is considered ordinary income, so the caregiver has to pay income taxes on the payment. Also, depending on how the contract is structured, Social Security and other payroll taxes may have to be withheld.

The article also raises issues of source of funding for such an arrangement, cost of document preparation, consideration during estate planning, and government programs allowing such arrangements.

The article does not address the position of the Social Security Administration on such arrangements where the care-giver is also a "representative payee" for a social security recipient.

The article references reputable websites that offer information on caregiving contracts or related issues, as follows:

*National Academy of Elder Law Attorneys
American Bar Association Commission on Law and Aging
*National Family Caregivers Association
*Family Caregiver Alliance
National Alliance for Caregiving

If you want to see a model of such an agreement, one graciously has been posted by attorney
Dallas Leigh Atkins, P.O. Box 30738, Santa Barbara, CA 93130 (Ofc: 805-687-8782), entitled "Template for Lifetime Personal Care Services Contract" (with provisions revised as of June 22, 2006). It is available online here.