A recent Wall Street Journal online article announces that “caregiver arrangements” are on the rise given the nation’s current economic conditions. According to attorneys and caregiver advocates, more families are looking into these arrangements as a way to make everyone happy: family members providing care get some compensation for their time, and the care recipient is able to stay at home as long as possible. It is truly a win-win situation, but “agreements need to be carefully crafted…there are tax consequences.”

Also known as personal-service or personal-care contracts, the agreements have grown in popularity as a Medicaid planning tool because they can reduce the size of an estate, says Louis Jay Ulman, a senior principal at Offit Kurman, a law firm with offices in the Baltimore-Washington corridor.

Caregiver agreements must be set up properly, completed in advance with reasonable expectations for services that will be rendered. Specifics about the duties that caregivers will perform and the cost of said services must also be clearly stated. Be sure to garner input from all family members on these specifics as a means for avoiding future issues. Finally, determine how the payments will be made, whether in installments or an up-front lump sum. Keep in mind that caregivers who receive compensation will also be required to pay taxes on that income.

For many sandwich generation families who are struggling to meet their own family’s needs and provide care to their aging parents, this arrangement seems very appealing, although I think the buy-in from all family members could get a little sticky in some cases. In my time with the Alzheimer’s Association, I have heard numerous stories about disagreements among siblings – some very intense - as to the best care plan for their family member. I assume that having many open discussions before setting it in stone and enlisting the services of a good lawyer whom you trust is key.  And, as with anything, be sure to read all the fine print.

- Michelle Seitzer