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When to 'hire' your children to care for you

Business Law

Posted: March 14, 2008 1:09 a.m.
Updated: May 15, 2008 5:02 a.m.
As people get older, they often hire individuals or companies to perform services for them, such as housekeeping, cooking, driving, paying bills and personal care.

What's new is that a lot of seniors are hiring their own children. They're signing contracts with the children specifying what services will be performed and how much the children will be paid. It's not that children require their parents to hire them and wouldn't help them anyway, but these caregiver contracts (also called personal service or personal care agreements) can have significant estate planning benefits.

Some practical benefits are that it rewards the family member doing the work. It also reduces the elder's taxable estate. It can help alleviate tension between family members by making sure the work is fairly compensated. In addition, it can be a key part of Medi-Cal planning, helping to spend down savings so the elder might more easily be able to qualify for Medi-Cal Long Term Care coverage, if necessary.

* Meet with an attorney. It is important to get an attorney's help in drafting the contract, especially if qualifying for Medi-Cal is a goal.

* Caregiver's duties. The contract should set out the caregiver's duties, which can be anything from driving to doctor's appointments and attending meetings to grocery shopping and help with paying bills. The contract length is usually for the elder's lifetime, making it 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. However, once the elder qualifies for Long Term Care Medi-Cal, further payment would stop.

* Payment. Payment to the caregiver can either be made with a lump sum payment or in weekly or monthly installments. For Medi-Cal purposes, it is very important the pay not be excessive because it could be viewed as a gift for Medi-Cal eligibility purposes. The pay should be similar to what other caregivers in the area are making.

Currently, for Medi-Cal purposes, in home supportive services are paid out at an hourly rate of approximately $7.11 per hour. Private caregiver companies charge rates which are higher than the Medi-Cal reimbursement rate. To calculate a lump sum payment, take the monthly rate and multiply it by the elder's life expectancy.

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

* Other sources for payment. If the elder does not have enough money to pay his or her caregiver, there may be other sources of payment. A long-term care insurance policy may cover family caregivers, however, you must read the policy to understand if payment can be made to family members. Also, there may be state or federal government programs that compensate family caregivers. The Santa Clarita Valley Senior Center and the local Area Agency on Aging are good sources of information to get informed about the sources of payment which might be available.

Gina MacDonald's practice is limited to estate planning, probate, elder law and family law. Her column represents her own views, and not necessarily those of The Signal. "Business Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association.


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