 |
| Catherine E. Sears, Esq. |
Just as you have the opportunity to
choose your own mechanic or your own attorney, a Medicaid applicant has the
opportunity to choose who to hire to provide caregiving services. Of course,
the applicant may choose to hire a professional in-home caregiving company;
however, if certain criteria are met, the applicant may, alternatively, hire a
trustworthy family member to serve as a caregiver. The applicant and the family
member might understand between themselves that the family member would ordinarily
provide such caregiving services out of the goodness of her heart for no cost,
and that being part of a family means helping your loved ones without expecting
anything in return.
However, by paying a family member to
serve as a caregiver, the Medicaid applicant can still spend-down his resources
in order to qualify for Medicaid, and, instead of having that money go to a
professional company, can keep the money in the family. Additionally, even
though this money will now legally belong to the family member and not to the
Medicaid applicant, there can be an acknowledgement within the family that
these funds are still the applicant’s money because the family member would
have been willing to provide assistance free of charge.
Once a senior actually receives
long-term Medicaid, all of her income, with the exception of the $40.00
“personal needs allowance,” will go towards paying the cost of her health
insurance premiums and the patient-pay responsibility at the long-term care
facility. Therefore, any other expenses which go beyond the scope of the cost
of the long-term care facility (including new glasses or hearing aids, new
clothes if the senior’s clothing size fluctuates due to her medical condition,
tasty snacks to supplement the food provided by the long-term care facility,
etc.) must be paid from the personal needs allowance or out of the goodness of
family members’ hearts. These expenses can add up, and having family members
pay for these “supplemental needs” out of their own pockets can have a significant
impact on family members’ own finances. However, if a family member had
previously been paid for serving as the senior’s caregiver, then that family
member can use that “extra” money to pay for these supplemental expenses
instead of using her personal assets. Then, if there is any money left over
after the senior dies, the remaining funds can be distributed to the senior’s
family members to pass some assets on to the next generation.
There are some practical factors to
consider in determining whether a caregiver agreement between a parent and a
child is an appropriate strategy for your client. First, the caregiver child must
be trustworthy to maximize the likelihood that he will, in fact, use these
funds for his parent’s supplemental needs. It is wise for the caregiver child
to create a separate bank account and deposit the funds into that account
instead of commingling the assets into an existing joint account with a spouse.
It is also wise for the caregiver child to update his own estate planning
documents to say what will happen to the assets in case the caregiver child
predeceases his parent. Additionally, because the money from serving as a
caregiver will be considered earned income for the caregiver child, he will
need to report and pay income taxes on the income. Since the money will legally
belong to the caregiver child, there will be gifting ramifications for any money
he returns to the parent during the parent’s lifetime and any money he gives to
his siblings or other beneficiaries after his parent’s death. Depending on the
amount gifted to a particular individual within a calendar year, he may need to
file a gift tax return, and any amount gifted could create a penalty period if
the caregiver child himself needs long-term care Medicaid within five (5) years
of making the gift. If the caregiver child is also serving as Agent under the
parent’s durable power of attorney or as Trustee of the parent’s revocable
living trust, then it is also important to make sure that the power of attorney
and/or trust document give the caregiver child the power to engage in
self-dealing.
There are also a number of factors
that need to be met to ensure that a caregiver agreement between a parent and a
child will be treated as compensation for services and not as an uncompensated
transfer which will create a penalty period. The rules that govern these
requirements are extremely detailed, so it is important to have an experienced
elder law attorney draft a precise, custom-tailored contract for your family to
avoid accidentally failing to meet one of Medicaid’s many criteria.
If a family member is providing
caregiving services to a Medicaid applicant, this can be an extremely effective
way of transferring assets to such family member without creating a penalty to
the applicant. However, for this strategy to work correctly and not penalize
the Medicaid applicant, it is imperative that all parties treat the arrangement
as the formal, legal matter it is and not as an informal arrangement simply
because it involves family members.
