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Another socio-economic impact of increased longevity is the growing occurrence of children and/or other family members serving as care-givers for aging parents and relatives. The latest statistics from a 2010 report by the National Alliance for Caregiving (NAC) reported that 43.5 million Americans in 2009 were looking after a friend or relative over the age of 50, which represented a 28% increase compared to 2004. This includes the new category of “sandwich” families, in which households are still raising younger children while also caring for older family members as well.
Two factors, one social and the other financial, have spurred this increase in family members providing care. First, in-home health experts have long recognized that family members often make the best caregivers. Many elderly individuals may not want or feel comfortable receiving help from strangers, especially in very personal care matters such as bathing, dressing, cleaning, and food preparation, etc., yet are much more comfortable receiving assistance from family members whom they know and trust.
In addition, the skyrocketing medical costs of longevity have left many families financially un-prepared for the expenses of nursing homes or extended-care facilities. For many elderly individuals, continuing to live at home with family assistance is their only viable financial option.
The NAC report notes that currently the majority of family-related caregivers are not receiving compensation for their services. However, the report also notes that caregivers usually find their duties require significant financial sacrifices – cutting work hours, moving to live with an aging parent, etc. – and financial remuneration to the family caregivers is not only a reasonable expectation, but likely to increase in practice. The reasoning is sound, but as with many other financial transactions, the devil is in the details. The following is an overview of some issues to consider if you or a member of your family is facing this situation.
Payment arrangements for providing care can be simple or complex, depending on circumstances. Some caregivers may be compen-sated by receiving a larger inheritance when the elderly person’s estate is distributed. Anne Tergesen reports in a December 11, 2010, Wall Street Journal article (“Should You Pay a Relative to Take Care of Mom?”) that “some families prefer to give tax-free gifts in lieu of compensation.” Current tax laws allow individuals to gift up to $13,000 each year to any individual without incurring either income or gift taxes.
While relatively simple, both options have potential drawbacks. $13,000 a year may not be enough compensation, and larger gifts may trigger a taxable event. Within certain time frames, gifts may be subject to “clawback provisions” if the elderly person applies for financial assistance from Medicaid, as it may be presumed that the gifting was part of a strategy to reduce one’s financial assets in order to better qualify for Medicaid benefits. Depending on the size of the estate and the duration and cost of care, the assets of an estate could be exhausted and the amount left as inheritance minimal.
These potential issues cause many families to consider straightforward payment arrangements, which in short order makes these payments subject to income tax provisions. When annual compensation exceeds $1,700, an employer and employee each owe federal payroll taxes Social Security and Medicare. In addition, the employer must generally pay 6.2% on the first $7,000 in wages in federal and state unemployment tax, according to Melissa Lubant, a CPA quoted by Ms. Tergesen in the WSJ article. In some cases, people employing someone for 40 or more hours a week also are required to contribute to state workers’ compensation insurance pools.
While the terms of compensation may typically be based on an hourly wage, to minimize the bookkeeping requirements some families may choose to receive payments monthly, or even as a single annual distribution. With both gifts and payment arrangements, estate-planning issues may also be in play, depending on the size of the estate, ownership of assets, and other family issues.
Get it in Writing!
Whatever method of compensation is chosen, it is vitally important to be sure any compensation agreements are disclosed to the entire family. When revealed after the fact, compensation agreements can exacerbate family tensions, and create unnecessary suspicion. It is not uncommon for “surprise” arrangements to result in uncomfortable and embarrassing litigation that often drives families apart.
Some financial experts are comfortable with using generic documents that can be found online to craft “personal care contracts.” Others may find comfort in using experts to craft the agreement and explain the particulars to all interested parties. Regardless the process, contracts should clearly specify the caregiver’s responsibilities, hours, and rate of pay.
Having a written agreement in place not only clarifies the terms for other family members; it can be a vital document if the individual eventually applies for Medicaid benefits. Although care recipients can pay whatever they choose, Medicaid could disallow some payments if they substantially exceed the prevailing wages, seeing this as another effort to minimize assets when applying for Medicaid benefits.
Is There a Long-Term Care Policy in Place?
There are instances in which using family members as caregivers can impair the ability to receive long-term care benefits from private insurance coverage. While many newer long-term care policies give discretion to the beneficiary as to where and how benefits are disbursed, the terms vary with the insurance companies and the language of their contracts. This is particularly the case with older contracts, which often specify the use of caregivers with specific licenses.
In addition, families should be careful about assuming care responsibilities without first consulting medical professionals. In a January 22, 2011 follow-up article, Ms. Tergeson relates the experience of families who “bridge the gap by relying on friends and relatives” to care for an elderly family member for a 90-day waiting period, only to find out that the waiting period begins only after the individual has first been seen by a licensed caregiver. The family’s early intervention actually delayed the receipt of long-term care benefits.
Receiving Payment as a Caregiver from Medicaid
In some circumstances, it may be possible for a family member to serve as a Personal Care Assistant (PCA) for an elderly person receiving benefits from Medicaid. Quoting a brochure produced by the state of Virginia’s Department of Medical Assistance Services, “a PCA can be anyone of your choosing who is at least 18 years old, but Medicaid rules do not allow you to hire your spouse. Any family member who meets the criteria above may be your PCA. Oftentimes, sisters, brothers, aunts, uncles, cousins, etc. work as PCAs for their family members.” The fees and guidelines for PCA services are established by Medicaid and/or a state agency which may administrate the PCA program.
From the variety of options and accompanying details, it should be obvious that plans for caregiving should include input from financial experts. Caregiving is not a do-it-yourself project.
The life expectancies experienced today in the developed countries of the Western World have no precedent in history; never have so many lived for so long. In this “brave new world,” of longevity, the process of caring for elderly family members is still evolving. Eventually, governments and businesses may provide workable institutional strategies for long-term care. But for now, families are most likely the first and best choice for providing care and dignity.
ARE YOU FINANCIALLY PREPARED TO CARE FOR AGING FAMILY MEMBERS?
ARE YOU FINANCIALLY PREPARED TO HELP YOUR FAMILY CARE FOR YOU?