Family Caregiving on Contract

The elderly mother wanted to avoid a nursing home and remain in her house in Kansas City, but she needed hands-on help. The daughter, a nurse at a local hospital, was willing to shoulder responsibility for her mother’s care but couldn’t afford to lose income by substantially scaling back her work schedule.

So an elder law attorney drew up a care contract, specifying that the daughter would help her mother a certain number of hours each week and perform particular duties, for which her mother would pay the same hourly wage her daughter would have earned at the hospital. The whole family agreed that this was fair.

Formal contracts between adult children and their aging parents can be advantageous, legal experts say. We’ve all got the sense that this shouldn’t be reduced to a monetary equation — you should do it because you love your parents, but caregiving can be grueling, and reducing or forgoing employment can undermine an adult child’s ability to save for his or her own retirement.

Elder lawyers have been discussing care contracts or caregiver agreements for years, but interest has picked up since 2006, when Medicaid eligibility requirements tightened. As parents “spend down” their assets to qualify for Medicaid, which pays for most nursing home care, they face stiff penalties if they simply give family members money.

With a formal caregiving contract, however, elders can show that they were paying for services rendered. Money can be transferred to younger relatives without triggering a penalty. Assuming, of course, that those relatives legitimately take on the task. A simple idea, a care contract can become a complex document, covering not only the caregiver’s responsibilities and payments but issues common to any employer-employee relationship.

Will the caregiver receive health insurance or workers’ compensation? Does she get an annual raise? A vacation? What happens if s/he’s no longer able to handle an ailing parent’s care on her own? Those contemplating contracts should also understand that the parent/employer must pay Social Security, Medicare and unemployment taxes; the caregiver pays her share of Social Security and Medicare, plus income taxes.

It’s still an uncommon arrangement, but one that could gain ground as parents live longer and families have to provide more care. One additional benefit in a caregiver agreement is that it’s a way of making it clear that the person receiving this income is working for it. If other relatives have a problem with that, let them take Mom for a while.”

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