Providing Care Services and Being Paid By Your Parents?

    If you are providing care for your aging parent, and they are paying for your services, beware of the consequences. Medicaid, my treat the transfer of funds, from your parent to you, as a gift. Therefore, if your parents apply for Medicaid, to pay for the nursing home, they may be denied due to gifting.

    To prevent Medicaid from treating payments to family members as a gift, there must be a written, contract between the parties. This “care contract” must be in place before the work is performed and must specify the services and amount to be paid. The Medicaid rules require the services directly benefit the person applying for medical assistance and the payments must not exceed reasonable compensation for the services provided.

            The payments made under a “care contract” are payments to household workers. It is important to consult with a CPA or other tax advisor to make sure any withholding or other employment requirements are met.

            The ability to receive assistance from family members may help an individual stay at home for a longer period of time. Use of a written care contract removes the possibility that a penalty may be imposed for any payments to relatives. It is important that the flexibility to enter into this type of arrangement is included in the authority given under the individual’s durable financial powers of attorney in case the contract would be helpful when the individual is unable to sign.