A caregiver agreement, also called a personal service agreement, is an agreement between the potential Medicaid recipient and a caregiver who promises to care for the recipient in exchange for payment either in a lump sum or in monthly amounts, Typically, the caregiver is a family member although it can also be a friend or a professional caregiver.
Caregiver agreements can be beneficial in a number of ways:
The individual may be able to remain in the community longer, delaying nursing home;
It can avoid probate additional care if the person does enter a nursing home;
It can avoid probate by transferring assets prior to death; and
It can avoid gift taxes if assets are transferred through payments for services based on fair market value;
The downside is that caregiver agreements are often determined to be invalid by Medicaid. Because they are often between family members they are looked at with great skepticism and viewed as a means of transferring assets while avoiding the improper transfer rules.
The other risk is that the caregiver may not keep his promise to care for the individual either intentionally or because he is unable to due to illness, death, or relocation of the caregiver. There is very little recourse if the caregiver cannot or chooses not to perform the services. This is probably not a problem where payment is monthly but obviously more of a problem where a lump sum is transferred.
Sometimes the caregiver seeks to enforce the agreement against the recipient. Services provided between family members are generally presumed by courts to be gratuitous though the presumption can be rebutted if the evidence contrary is clear and convincing. Family members who do not live together are not held to as high a proof standard though parent-child agreements must always meet a high proof standard regardless of living arrangements.
Sometimes a recipient repeatedly indicates that he intends to pay for the caregiver’s services through his estate though his intention is never reduced to writing or compensation specified. A caregiver may subsequently bring a claim against the state for the fair market value of services rendered.
Though viewed with extreme disfavor by Medicaid, a caregiver agreements can succeed but require a properly drafted agreement. Agreements near the time the person enters a nursing home are viewed with heightened suspicion. Payment should be fair market value for non-companionship services rendered in the future and not reflect payment for past services. Payment should be on a weekly or monthly basis as opposed to lump sum and should not be for services provided in nursing home. Finally, there must be scrupulous record-keeping and the caregiver should report earnings on income tax.