Caregiver Contracts: How to Pay a Family Member for Care

Although people are willing to volunteer to care for a parent or loved one without any promise of compensation, entering into a caregiver contract (also called personal service or personal care agreement) with a family member can have many benefits. 

The Benefits of Becoming a Family Caregiver

Caring for a relative rewards the family member doing the work. It can help alleviate tension between family members by making sure the work is fairly compensated. In addition, it can be a be a key part of Medicaid planning, helping to spend down savings so that the elder might more easily be able to qualify for Medicaid long-term care coverage, if necessary.

Tips for Effective Caregiver Contracts

The following are some things to keep in mind when drafting a caregiver contract:

• Meet with your attorney. It is important to get your attorney’s help in drafting the contract, especially if qualifying for Medicaid is a goal. Find an attorney near you. 

• Caregiver’s duties. The contract should set out the caregiver’s duties, which can be anything from driving to doctor’s appointments and attending doctor’s meetings to grocery shopping to help with paying bills. The length of the term of the contract is usually for the elder’s lifetime, so it is important to cover all possibilities, even if they are not currently needed. The contract can continue even if the elder enters a nursing home, with the caregiver acting as the elder’s advocate to ensure the best possible care.

• Payment. Payment to the caregiver can either be made with a lump-sum payment or in weekly or monthly installments. For Medicaid purposes, it is very important that the pay not be excessive. Excessive pay could be viewed as a gift for Medicaid eligibility purposes. The pay should be similar to what other caregivers in the area are making, or less. To calculate a lump-sum payment, take the monthly rate and multiply it by the elder’s life expectancy. (Note that some states, such as Georgia, do not recognize the ability to create a lump-sum contract based upon life expectancy.)

• Taxes. Keep in mind that there are tax consequences. The caregiver will have to pay taxes on the income he or she receives.

• Other sources of payment. If the elder does not have enough money to pay their caregiver, there may be other sources of payment. A long-term care insurance policy may cover family caregivers, for example. Also, there may be state or federal government programs that compensate family caregivers. Check with your local Agency on Aging to get more information.