Transferring money to a child can cause a penalty period for a Medicaid applicant if done within the five years prior to the application. One exception to this rule is a transfer in exchange for fair market value of services. This exception allows a parent to pay a child for taking care of him or her.
You may ask “Don’t family members care for each other without expectation of compensation?” The answer is yes, in most instances, and the law presumes that a child is rendering services for a parent gratuitously. So how can one overcome this presumption? The arrangement must be documented in a Caregiver Agreement. The Department of Social Services (“DSS”), the Connecticut agency that administers the state’s Medicaid program, recognizes payment under a Caregiver Agreement as a legitimate expense. If there is no written contract, DSS may consider such payment a disqualifying gift.
For many people, a Caregiver contract with a parent feels awkward. I typically hear “My mother raised and cared for me and now it is my turn to care for her. I shouldn’t turn the care of my mother into a business arrangement”. This sentiment is understandable. However, many children who care for parents sacrifice time away from a job and forego earning income they need to support themselves and their own children. Moreover, the mother would likely need a nursing home if the child did not take care of her. Additionally, many parents can’t afford the full cost of paying for a stranger to provide homecare. Finally, many parents would prefer to pay a child and keep the money in the family rather than pay a stranger or nursing home. In these circumstances, a Caregiver Agreement between the child and the parent makes perfect sense.
A written Caregiver Agreement must contain all of the necessary elements of a binding contract in order to satisfy DSS. The agreement should set forth the full scope of services and compensation to be provided. Moreover, it should include all of the family members who are providing any type of compensable service to the parent. Such services could include paying bills, grocery shopping, transporting the parent to medical appointments or recreational activities, providing companionship, cooking meals, house cleaning, yard work, and doing laundry. The agreement can specify that the payments are made weekly, monthly, or in a lump sum upon request from the service provider. If the child is uncomfortable accepting the payments, the child could collect the compensation, then set up a bank account in the child’s name and use the money as a nest egg for the parent’s benefit. The lump sum method provides the child the option of declining to accept payment if the parent never needs to apply for Medicaid. If the parent applies for Medicaid, the child can request the lump sum payment and reduce the parent’s countable assets and expedite the parent’s eligibility. Regardless of the method used, the caregiver should keep good records of all services provided to justify the payments.
Contact us if you would like to discuss in more detail how a Caregiver Agreement can benefit you and your family.
