The Caregiver Contract: A Method for Keeping an Elder's Life Savings in the Family

For a variety of reasons, many individuals assume the role of caregiver for their elderly parents. Such an arrangement provides financial and emotional advantages for the elder, as there is no substitute for the love that a family member can provide. Unfortunately, these family caregiver arrangements are often temporary, because our parents’ needs increase over time. Eventually, they are likely to reach a threshold where a nursing home becomes a necessity.

When a stay in a skilled nursing facility becomes inevitable, it is likely to wipe out the life savings of the elder. Once the parent is impoverished, he or she becomes eligible for MassHealth (Medicaid) benefits, which cover the cost of the nursing home. While MassHealth provides a tremendous benefit, it eliminates elder’s ability to pass their wealth on to the next generation.

For this reason, estate planners look for ways to transfer an elder’s wealth to their children before they need nursing home care. But because of the stringent MassHealth regulations, this is easier said than done. Fortunately, there is a terrific option for individuals that care for their parents at home: the Caregiver Contract.

In practice, a Caregiver Contract is quite simple: the family member provides a service (the care of the elder), and the elder provides compensation for the service. This compensation serves as a wealth transfer from the parent to the caregiver, and essentially keeps the money in the family, and away from the nursing home.

When entering into this arrangement, however, it is important to reduce it to a written contract. Without a contract in place, when the elder pays the caregiving child, MassHealth may consider the compensation to be a gift. This can have serious implications, because gifts create a period of ineligibility for MassHealth benefits (commonly known as the five-year lookback rule). This can happen even when the transfer is to a child that serves as the parent’s caregiver. 

Fortunately, when the compensation arrangement is established in a properly drafted Caregiver Contract, MassHealth is will consider the transfer of wealth as compensation for services. And because the transfer is compensation according to a legally binding contract, it will not be characterized as a gift. Accordingly, it will not create period of ineligibility. 

Of course, hiring a family member to serve as caregiver is a serious matter... but family members often serve as caregiver anyways. In this instance, consulting an attorney to establish a Caregiver Contract could ensure that the elder’s life savings remain in the family, instead of disappearing to the nursing home.