Family Caregiver Agreements – Acceptable? (Part 2)

            Last week we were discussing family caregiver agreements in light of a recent New Jersey Appellate court decision, E.R. v. DMAHS.  In that case, Mom and Daughter entered into a caregiver agreement while Mom was living in Daughter’s home.

            Mom eventually entered a nursing home and applied for Medicaid.  The State of New Jersey looked back 5 years and counted all transfers from Mom to Daughter as transfers for less than fair value and not as payment for services received, despite the caregiver agreement.  A 2.5 year penalty period resulted, meaning after Mom had no money left she still was obligated to pay the nursing home for another 2 and ½ years.  Let’s examine why.

            The existence of a caregiver agreement, by itself, does not insure that transfers from Mom to Daughter will be treated as “for value” payments.  The agreement must be reasonable.  That means that Daughter must be paid at market rates.  What would it cost to hire a caregiver on the open market?  If it costs $15 per hour Daughter cannot be paid $50 an hour.  The court also noted that Daughter cannot be paid a rate equivalent to the cost of a licensed aide if she is not licensed herself.

            The agreement must actually be followed.  Now, this should be common sense.  But what happened in the E.R. case is that despite the agreement to pay Daughter an hourly basis, she made sporadic large withdrawals from Mom’s account.  She didn’t abide by the terms of the agreement.  If she didn’t honor the agreement, the State of New Jersey certainly won’t either.

            Poor record keeping was also a problem.  Daughter failed to keep track of the amount of time she spent administering care or the types of services she performed.  It all made the “payments” look like gifts.

            So, where does that leave us?  Clearly, the burden of proving these agreements are reasonable lies with the Medicaid applicant and not the State of New Jersey.  I have always viewed these agreements as helpful in certain situations but the problem lies in the execution.  Families must be very careful to not overreach by being paid too much for the services provided.  Carefully drafted written agreements must be in place but equally as important, the agreements must be followed and there must be detailed record keeping.  Seeking the opinion of a knowledgeable elder care attorney is critical before going down this road.  Otherwise you could end up in a real bind, just like E.R.