The same scenario plays itself out over and over again in America. An elderly person needs help with care and prefers to stay at home. The best care can often come from someone who is emotionally involved with the senior and they turn to children or grandchildren to provide the care.
Sometimes the parent needs help with simple things like picking up around the house or assisting with the preparation of meals. But a growing number are needing more advanced care. Parents are needing help with bathing, toileting and transportation to doctor appointments. Aging adults become heavily reliant on their children much as their children were reliant on them early in life.
Providing care is a good thing for the frail parent. It can bring family members together and can often delay the entry of the parent into a skilled nursing facility. Doing this also cuts down on the cost of care. It cuts the cost to the patient because care at home is often far less expensive than facility care. It cuts the cost to the state which often has to pick up the extra care costs once nursing home patients or assisted living residents have exhausted their resources through the Medicaid Spend Down.
The parent (or grandparent) does not expect to get this care for free. They are more than happy to pay their loved one a reasonable fee for their time and effort – which is a blessing to both the caregiver and the parent. If the person needing care is a veteran or a widow of a veteran, this type of arrangement can even be paid for through a little known benefit known as the Homebound VA Aid & Attendance pension – which is one of the reasons many elderly veterans enter into these type of caregiving relationships with their family members.
What seems like a simple transaction can become very problematic.
At the outset, the patient becomes an employer. The caregiver can be an employee or an independent contractor, but in both cases their money they earn from providing care is considered income and should be treated as such.
VA AND MEDICAID HAVE STRICT RULES FOR CAREGIVER AGREEMENTS
Most family members provide care based simply on being asked to by the parent or grandparent for help. Unfortunately, they usually fail to put the terms of their agreement in writing. The terms of employment and the care to be provided need to be agreed to in the form of a written contract often called a Personal Service Contract or a Caregiver Agreement. The terms of the Caregiver Agreement should address whether the caregiver is an employee or not, the rate of pay, and how taxes are to be handled (e.g., will a W-2 or a 1099-MISC be issued). Failure to report the income or account for the taxes due will cause the payments to be considered gifts for Medicaid purposes.
Most caregivers provide care without keeping track of their time or activities. It is always best for a caregiver to keep a time and activity log. This allows for payments for care to be matched up with the hours of service if ever anyone inquired.
In most states, paying in advance for care does not conform to the Medicaid rules. When the grandchild comes and asks for a lump sum payment so she can buy a new car and then agrees to work it off by providing hourly care, that type of transaction will not fly in most states. Most state Medicaid rules require that any payments made for care must be made at the time services are rendered or as soon thereafter as the patient can afford to pay. Pre-payment is also considered in most states to be gifting for Medicaid purposes.
Not all activities can be performed under a caregiver agreement. In Texas, the state Medicaid rules restricts what a caregiver can be paid for and does not allow payment for services that would “normally be provided by a family member (such as house painting or repairs, mowing lawns, grocery shopping, cleaning, laundry, preparing meals, transportation to medical care).”1 In Pennsylvania the Medicaid rules state that caregiver services may not “include merely providing companionship.”2 Again, if care is paid for that does not comply with the strict state Medicaid rules then the payments are considered gifts for Medicaid purposes.
MEDICAID GIFT PENALTIES
Why is treating the care payments as gifts a problem?
The long-term care Medicaid program looks for any gifts done within the last 5 years. All gifts are added up and used to penalize the patient and make them ineligible for Medicaid. The total amount of the gifts are added up and used to create a penalty period that only begins after the patient’s assets are depleted. Medicaid will only waive the penalty if the patient pursues all legal recourse to get the funds back from those who received the gifts.
If not done properly, all the payments for care could be considered gifts!
Take this example: A mother has a hard time getting around so she decides to hire her daughter for help. The daughter orally agrees to provide help with everything her mom needs help with around the house for $18 an hour. She works about 25 or so hours each week so her mom just writes her a check at the end of every week for $500. They sign no agreement, the mom does not arrange to have a 1099-MISC sent to the daughter and the daughter does not report the income on her taxes.
This situation continues for a period of six years and then the mom ends up in the nursing home and is quickly left destitute from the high costs of care until she has spent down to Medicaid’s asset limit (usually $2,000 in most states). A Medicaid application is filed on her behalf and they ask for the last five years’ bank statement and see each month $500 being paid to the daughter. For the five years before the mother entered the nursing home the mother paid over to the daughter $130,000.
When asked what the payments are for, the daughter tells Medicaid that it was for her mother’s care. But when Medicaid asks her to provide the caregiver agreement, there is none. When they ask her to show that she reported the payments as income on her tax returns, there is no proof. Medicaid rules provide that if there is no written caregiver agreement, the care being provided was done for free by the daughter of the goodness of her heart. The payments to the daughter are therefore not considered payments but are considered gifts (often referred to as improper transfers or uncompensated transfers). As a result, Medicaid rules that the $130,000 is penalty-causing gift. For a gift of that size, it can make a patient ineligible for almost 2 years of Medicaid payments depending on the state’s penalty divisor.
The family can file for an undue hardship waiver, but Medicaid sets up a near impossible standard by which to get the penalties waived. Medicaid’s undue hardship provisions usually require that a patient use all legal resources to attempt to collect the gifts before they will waive the penalties. Proof that this has occurred can only be achieved when the patient sues the caregiver to retrieve the payments. This puts the family in an awkward position that is best to be avoided.
The good news is that these problems can be solved with a proper Medicaid and VA Compliant Personal Service Contract. If you’re considering paying a loved one for care and want to make sure you’re on the right side of the law, contact our team and have your situation reviewed by a Certified Medicaid Planner™ today!
[1] Texas Medicaid Manual § I-4140
[2] Pennsylvania Long-Term Care Handbook §440.8
