Compensating Relatives for Providing Care to Elderly Family Members

A growing number of families are compensating relatives for their care-giving services to elderly family members. The high unemployment rate, an aging population, the rising cost of nursing home care, and a change in Medicaid law making it harder to qualify by giving away assets have led to this trend. When caregivers make financial sacrifices, such as quitting work or cutting back on hours, it is appropriate to compensate them. This compensation can also be used as an estate planning device.

Drafting an employment contract and paying the caregiver an hourly wage can help the elderly family member spend down assets in order to qualify for Medicaid without incurring penalties. Giving the caregiver annual gifts can help reduce the size of the elder family member’s estate while providing the caregiver with tax-free payments. Arranging for the caregiver to receive a larger inheritance can help ensure that the elderly family member has enough money during life. Which option is best will depend on a variety of factors, including tax considerations, Medicaid law considerations, the number of hours of care needed, the elderly family member’s monetary need, and the caregiver’s monetary need.

Regardless of which method is selected, such arrangements should be disclosed to the entire family to avoid suspicions that can result in family conflicts or estate litigation.

See Anne Tergesen, Should You Pay a Relative to Take Care of Mom?, W.S.J., Dec. 11, 2010.