Financial Protocol: How To Compensate Family Caregivers

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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 Methods

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?

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2 Responses to Financial Protocol: How To Compensate Family Caregivers

  1. Hettie Norlund says:

    To Whom It May Concern:
    I would like to take this opportunity to bring a situation to light:

    In 1999 I traveled from Washington State to Virginia to visit my grandmother. After a couple of days, I realized that her home was in disrepair and she was struggling to keep her affairs straight. Her son and daughter lived 15 minutes from her home and did not help. I found a job in Virginia and moved east to help her. About four years later I noticed that she was forgetting things. I chalked it up to aging and increased my help. In 2006 she started bouncing checks and having increased difficulty with finances and daily tasks. She was diagnosed with Alzheimer’s Disease in 2006. I was still going to her home daily to take meals, manage medications, and clean. Her son had moved his daughter and her boyfriend (neither of whom were employed) in with her under the premise of caring for her. Her son was having $2000/month transferred directly from his mother’s account to his girlfriend’s account. Her homeowners insurance had lapsed, and she received disconnect notices from utilities.
    Her son and I both have POA. On December 5, 2006 I took her to the bank for some money for her personal items. Of the $4500 she received on the 3rd, she was left with $0.67. None of her bills had been paid. I confronted her son and his daughter. They denied knowledge.
    The next day I went to take her meals prior to going to work and found the locks had been changed. I called the police. They said they couldn’t help because it was her home. I called APS.
    An APS investigation resulted in an emergency hearing and Grand mom being placed with me. I have cared for her since.
    She currently has later stages of Alzheimer’s Disease. She has not known me for 5 of the years she has been with me.
    We began Guardianship/Conservatorship proceedings. This lasted 2 years because it was contested. Her son wanted her home and wanted her institutionalized. I was granted Guardianship and Conservatorship. Since then caring for her has been the easy part.

    1) I have been made aware repeatedly over the course of the past 7 years that if I did not do as the GAL said that my grandmother would be placed in a nursing home. These repeated threats prompted me to research the matter. My findings were as follows: the average cost of a nursing home (Sentera has several) that handles dementia patients in Virginia is $8,000/month. It was explained that the figures is a starting cost. Patients that cannot care for their own personal needs are charged accordingly: extra for personal care, extra for dressing, cleaning, and personal care items must be provided by the family. With the extras currently provided to grand mom the total for care would be approximately $10000 – $12000/ month. Nursing homes will turn you away if you do not have sufficient funds to pay for care. When grand mom becomes combative, the nursing home will call a family member to come and retrieve her. She is combative daily. When this occurs, I would be right back in the position I am currently in. There have been several social workers and medical providers in my home to serve Grand mom, all of them have said that the care she receives is superior. Grand mom is happy and well cared for where she is. I think that it is inappropriate to threaten me with removing her from my home.
    2) I have been told, by the court commissioner, that I should run my responsibilities as a business. I have been told that failure to do so will result in conservatorship being assigned to someone else. Someone that will charge a fee for their services, yet I am not allowed to collect conservator fees because I am family. I talked with Jewish Family Services and was told that her assets needed to be sufficient to cover their fees, if not, they will not accept the client. Changing the person that handles the finances will not result in more assets being available only more going out. Neither the GAL nor the Commissioner of Accounts will accept being paid 1/10 of their earned wages. I am expected to. I have been told that I can only collect $668/month for roughly 350 hours of care. That is $0.50 per hour. It seems ironic to me that if I request compensation for my duties that I am family, but otherwise it is a business. I have been told that my primary responsibility is to conserve her assets for her heirs. Heirs that have not seen her or called or offered to help her in any way. She needs her assets for her care. I believe I am being discriminated against because I am family.
    3) I requested, when I first applied for Guardianship and Conservatorship, that all matters be addressed at the initial hearings. I also requested training regarding the financial issues. The hearings have already cost in excess of $25000 and here we are again.
    4) I have been told by the GAL and the commissioner that selling grand mom’s home will be easier for accounting. The rent from her home provides her with an additional $137/month income ($1644/year). She would be losing monies on the sale AND on potential income. The GAL has offered to manage the property for her, for a fee. A fee that I am not authorized to collect for myself. Yet, I have been doing the job since I was allowed to rent the property. My boyfriend and I have done most of the repairs and maintenance excepting those that were structural or electrical.
    5) I have been reminded repeatedly that an addition was added to my home. And it is implied that I should compensate for that. For seven years I have taken care of grand mom and her property, endured court hearings, threats, and sacrificed my life. Judge T*** awarded $10/hour for my efforts. This averages $43,000/year. After 7 years I believe the debt has been paid several times over. The addition was necessary to accommodate grand mom’s decline. My home was large enough to suit me. I was in the process of restoring it. Restorations have come to a halt due to a $500/month increase in my insurance/property taxes because of the addition.
    6) Finally, the bottom line is that Grand mom does not have enough income to cover her expenses — whether in a home, or with me. Care provided while I work is $2500- $3000/month for 40 hours a week. She requires 24 hour a day care. Unfortunately, that is the way it is with many elderly people. I am willing and able to care for her, but not at a detriment to my family and myself. I respectfully requested reasonable wages for my labor and that any unpaid wages result in a lien against her property.

    7) The current budget provides for $3000 in care, $600 in personal hygiene items, clothing, prescriptions, cleaning supplies and food (Depends are about $180/month and 3 loads of linen are done every day for her) and $350 for utilities. Any additional care I am expected to pay for. This leaves roughly $1200/month for saving. According to the Commissioner of Accounts, this is for her heirs.

    8) I understand that the Commissioner has a job to do, as does the GAL and the courts. I am working THREE full time jobs and requesting minimal compensation.

    9) There is no protection for me. I contacted an attorney on 1/23/2013 and was told that whereas this situation was absurd and unjust there was not enough pieces in the pie for him to collect a wage. He said that I would probably have to “live with it”.

    10) I am not ready to roll over yet. Maybe I want to have my cake and eat it too. I want my grandmother with me. I have made promises to my father and her husband (an Air Force Veteran) I will not put my family away. But I cannot afford to work for $0.50/hour. Nor can I afford to get an outside job and earn minimum wage less deductions and pay a caregiver $13.65/hour.

    It needs to be noted that everything I have done for my grandmother. I would do again. I am frustrated by the system. I am one person trying to do the morally correct thing. I am taking care of my family. I have not put her in a home, or neglected her. I have kept my promises to her and my father. I have had NO help except for that of people living in my home. $5000 a month is $5000 a month. Care is $2500-$3000 for 40 hours. There are 2 care agencies in Hampton that will not provide care due to her combative nature. Her food and supplies = $600. Her ¼ of utilities = $400. That brings her total to $3500-$4000/ month. I have earned $1000-$1500/ month for in excess of 300 hours/month. That is roughly $3.33/hour – $5.00/hour. This does not include expenses for clothing, linen, Commissioner fees, Guardian fees, bond expenses, accounting fees, maintenance materials, prescriptions or incidentals (incidentals include additional court fees, increased outside care when I have meetings, additional medical supplies ordered by the doctor but not covered by insurance)

    The judge in the Hampton Circuit Court signed an order allowing me $10.00/hour for providing care. The Commissioner said that the order is invalid. I don’t understand that. Doesn’t the Commissioner work for the courts? I feel as though I am stuck in the middle. The GAL works for the courts as does the Commissioner. I am working for Grandmom and me. I cannot fight the windmills alone.

    Grand mom used to tell me that she couldn’t wait for her Golden Years. I am not looking to turn a profit, but it is expensive to care for an additional person. If I could come closer to breaking even, I would be happy. I think it is absurd to preserve assets for her heirs when she needs full-time care. I don’t believe that a nursing home is acceptable. They are not interested in preserving her assets. All of her income is designated for her care and comfort. If her heirs, who have been alleged as abusive and neglectful by APS. Admittedly, there is now a mortgage on her home to pay for the addition and to pay off a lien her son had incurred against the property. I further think it is disgusting that others are eligible to receive compensation for their labor while I am required to struggle monthly to compensate for what she is not permitted to contribute.

  2. Hettie, your story is absolutely heart-breaking. I don’t know what to say, other than, I’m so sorry you are going through this. My father lives with me and it is not easy, though he is thankfully more independent than your mom. I hope that a lawyer or someone who can help finds you soon.

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