Child caregiver contracts are agreements that help benefit children who devote themselves as caregivers for their ailing parents by compensating them for the work they perform during the parent’s life. These agreements can help families in a number of ways; from allowing a parent who needs care to choose a close relative as their caregiver to replacing lost income to the caregiver who had to stop working elsewhere to care for their parent.
Recent studies indicate the number of caregivers for the elderly in the United States alone is staggering. Estimates suggest 65.7 million Americans, or approximately 29% of the adults in the United States are caregivers for another who is ailing.[i] A large chunk of them are caregivers for elderly family members. Many caregivers go uncompensated for their work. In addition to a physical and emotional toll, there are also financial consequences to being a caregiver. In 2011, the Congressional Budget Office (CBO) estimated the economic value of caregiving for the elderly to be $234 billion.[ii] Many caregivers need to reduce the amount of hours they work, and sometimes even have to stop working altogether because they have assumed the job of caregiver. This can have a negative impact on both the caregiver’s financial situation and the economy as a whole.
Caregivers do not need to go uncompensated. One tool at the elder law attorney’s disposal is called a child caregiver agreement or child caregiver contract. An attorney can write a contract to detail the expectations a parent has for their care and, in return, compensate the caregiver for their time and energy in providing this care. In many instances, a caregiver child can be compensated for the tasks they are already performing for their parent. Parents often feel relieved that someone close to them, as opposed to a stranger, is providing their care. At our firm we frequently see parents who want to benefit their children who choose to undertake this venture but don’t know how to do so. These clients have also usually heard about potential issues that could arise if they give away assets to their children.
Sometimes parents choose to make gifts to their children who take care of them. In the absence of a child caregiver contract, if the parent gives a child money or other assets because the child has been taking care of them, this transfer will probably be considered a gift for purposes of the Medical Assistance program. Medical Assistance (MA) is the government program that helps financially eligible individuals pay for long-term care in their home or a nursing facility.
Sometimes the amount of care an individual needs exceeds what a family caregiver can provide. If this happens, the parent who has been transferring assets to a caregiver child in the absence of a caregiver agreement will likely be ineligible for MA for a period of time (called a penalty period). Individuals who have a well drafted child caregiver contract in place will likely not be assessed the same penalty because they will be able to demonstrate to the Department of Public Welfare (DPW) that the assets they transferred to their caregiver were payment for care – and therefore not a gift.
To keep matters above board with child caregiver contracts, it is important that the caregiver claims the transfers as income for tax purposes. The caregiver is treated as an employee of the parent in this scenario, which has tax implications on both parties. Paying the tax, however, provides a clear record of what is happening to both the IRS and the DPW should the parent need to apply for MA in the future. Fulfilling tax obligations can also serve to protect the parties should the caregiver become disabled or an accident occur during the course of their work.
At Marshall, Parker & Weber we help families deal with the issues associated with aging – including the drafting of child caregiver contracts. We offer free initial office consultations for new clients and can help determine if a child caregiver contract, estate planning documents, or other arrangements are right for you and your family.