Personal Care Agreements

Why Are Family Caregiver Contracts Becoming So Common?

According to a 2020 report by the AARP Public Policy Institute and National Alliance for Caregiving, nearly 42 million Americans provide unpaid care to someone age 50+. Often, adult children care for aging parents—sometimes just helping with errands and daily needs, but in many cases providing extensive support for conditions like Alzheimer’s or dementia. As needs grow, caregivers may even leave their jobs. A Family Caregiver Contract (also called a Personal Care Agreement) creates a win-win: the caregiver is paid for their time, and the elder gets reliable care.

What Exactly Is a Family Caregiver Contract?

Also known as Personal Care Agreements, Elder Care Contracts, or Personal Services Contracts, these are written agreements between a care recipient and a caregiver. They are most often between family members—such as an adult child and parent—but can also be between friends or unrelated caregivers. The contract:

Defines the caregiver’s duties (e.g., personal care, transportation, housekeeping)
Specifies where and when care is provided
States the pay rate and payment schedule
Clarifies expectations for both parties

By putting it in writing, both sides are protected—especially when Medicaid eligibility might come into play.

Why Do These Contracts Matter for Medicaid?

Medicaid has strict asset limits (generally $2,000 for an individual in most states) and enforces a Look-Back Period—typically 60 months—to prevent “gifting” assets to qualify. If an elder pays a caregiver without a formal agreement, Medicaid may treat those payments as gifts, triggering a penalty period of ineligibility.

A properly drafted Personal Care Agreement provides proof that payments were for legitimate care, not gifts. To strengthen documentation, caregivers should keep a daily log of hours worked, services provided, and payments received.

Even for seniors not currently seeking Medicaid, a contract can serve as a planning tool to “spend down” excess assets without violating Medicaid rules.

How Do Personal Care Agreements Work in Practice?

The agreement establishes a formal employer–employee relationship. The care recipient pays the caregiver based on a written, signed, and ideally notarized contract. Important requirements include:

Reasonable pay rate: Must match local market rates for similar services
Prospective payments only: No retroactive payments for past care
Lump sum payments: Allowed in some states, calculated using hourly market rates × life expectancy from actuarial tables; not permitted everywhere

Improper lump sum calculations—or making them in states where they are prohibited—can make the payment look like a gift under Medicaid’s rules.

Who Can Use These Contracts?

Most agreements are between an aging parent and an adult child, but they can also be used for:

Grandchildren caring for grandparents
Nieces/nephews caring for aunts/uncles
Siblings caring for siblings
Unrelated friends or private caregivers

Note: Agreements between spouses generally don’t work as a Medicaid spend-down strategy because all marital assets are considered jointly owned.

What Should Be Included in a Personal Care Agreement?

Services: All care tasks, such as cooking, laundry, assistance with daily activities, and transportation
Frequency: Days per week, hours per day (can allow flexibility)
Pay rate & schedule: Weekly, bi-weekly, monthly, or lump sum (if permitted)
Start date & term: Must be a future date; define length of agreement
Modification/termination clause: Allows for changes or ending the agreement with mutual consent
Signatures: Both parties sign; notarization recommended

Common Mistakes That Can Jeopardize Medicaid Eligibility

Paying retroactively for past care
Failing to keep a daily log of services and payments
Setting pay above market rates
Not following state-specific rules on lump sum payments

Do You Need a Lawyer or Medicaid Planner?

You don’t have to hire a lawyer, but working with a Medicaid Planning Professional is strongly recommended—especially if Medicaid is in the picture. They can ensure the agreement meets state rules, advise on lump sum calculations, and help avoid Look-Back violations. For high-asset cases, professional guidance can protect both eligibility and family harmony.

Quick Medicaid Compliance Checklist for Caregiver Contracts

Requirement	Status	Notes
Written contract signed by both parties	✅ Required	Notarization recommended for extra protection
Reasonable pay rate (local market rate)	✅ Required	Call local agencies to verify rates
Retroactive payments for past care	🚫 Not Allowed	All payments must be prospective
Daily log of hours & services	✅ Required	Used as Medicaid proof of care relationship
Lump sum payment	⚠️ State-Specific	Only in certain states; must be calculated properly
Agreement between spouses for spend-down	🚫 Not Effective	Marital assets are jointly owned under Medicaid rules