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Michigan Elder Law Today

Sunday, March 25, 2012

Can Adult Children be Paid by their Parents to Provide Care?

 

As an elder care attorney, I frequently meet with the adult children of a senior who has been hospitalized and is about to be discharged to a nursing home or has recently moved into a nursing home.  In these meetings, a common situation I see is that one of the adult children, frequently a daughter, has been providing  care to her mother or father for quite some time.  Be it dementia or the need for twenty-four hour, custodial care in an elder care facility, the elder’s needs have increased to the point that the caregiver child can no long realistically meet their elderly mother or father’s needs.  Sometimes the adult child had moved into their parent’s home to provide care for their parent after a stroke or the parent may have moved into their son or daughter’s home.   Often the level of care that is being provided is excellent and the elder has benefited by not having to move to an assisted living facility or nursing home sooner. In addition, the elder has benefited financially, because frequently the care has been provided for free.

A common misconception in Michigan is that family caregivers cannot be paid by their parent for the care they provide.  Many people have heard that any payments or transfers of money from a senior to a family member that are made within 5 years of applying for Medicaid are considered  a divestment and that divestments cause problems when mom or dad need to apply for Medicaid nursing home benefits.  While that is true to an extent, there are numerous exceptions to that rule.  One such exception is that Michigan’s Medicaid regulations provide that payments to a family caregiver are not divestment if there is a written obligation (caregiving contract) and payment is made at the time services are rendered.

In order to fit within Michigan’s detailed caregiver payment rules, payment for the services must be made at the time services are rendered and cannot include payment for past care.  For instance, if Jennifer has been providing care for her mother, Mary, for the last 5 years, Mary cannot turn around and pay Jennifer a lump-sum payment of $20,000 in 2012 for the previous care without it being considered a divestment.  The regulation allowing such caregiver contracts also have strict signature and notary requirements that have to be done just right to fall within the exception.  A physician’s evaluation, which documents a certain level of need for care must be obtained before entering into the care contract and must be kept as proof in case there is ever a need to apply for Medicaid later.  The pay also has to be reasonable, which will need to be evaluated on a case-by-case basis based on the elder’s level of care that is needed.

In addition, Michigan’s Medicaid regulations provide that care can only be provided in the home, be it the elder’s home or the caregiver child’s home.  This means that payment for care coordination provided by a caregiving child in a nursing home, adult foster care, or assisted living facility do not fall within the rules and such payments in those circumstances would be considered a divestment.

It should also be noted that payments to the caregiver child are considered taxable income and must be reported on the caregiver’s annual income tax return.

To ensure compliance with Michigan’s Medicaid regulations, the care contract should be prepared by an experienced elder law attorney.  The above items I noted are just some of the requirements and if the arrangement is not done just right in conformity with Michigan’s Medicaid regulations, all such payments could be considered a Medicaid divestment.  In addition, whether an elderly parent should pay their adult child for care is a question that should be considered in the context of a broader long-term care planning evaluation, which considers the elder’s entire financial and health situation.  In the right situation, paying a family member for caregiving can be an excellent solution for the elder and will also help the adult child who may have quit their job in order to take care of mom or dad.


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