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FIVE BENEFITS OF CAREGIVER AGREEMENTS
Patricia Bloom-McDonald • Aug 06, 2019

Long-term caregiving has significant financial consequences for caregivers, particularly for women.  Caregivers face the loss of their own income, loss of employer-based benefits, shrinking of savings to pay for caregiving costs and a threat to their retirement income due to fewer contributions to retirement vehicles.

One way to compensate an adult child willing to devote so much of his or her time to caring for an ailing or aging family member is through a caregiver agreement.  The agreement is essentially an employment contract between the caregiver and the recipient of care.  The family member and the caregiver stipulate to a caregiver’s tasks, the hours spent caregiving, and financial compensation.  Often it is hard to accept that a caregiver may want or need to be compensated for services rendered because love doesn’t pay the mortgage or for groceries, but having a binding legal contract in effect can protect both parties down the road.

Here are five important ways a caregiver agreement can help your family.

Caregivers get paid for the job they do

It offers a great way to support the person for their time and effort in caring.  This may be a caregiver’s sole source of income or a second job.  How much to pay a caregiver is up to the family.  A good place to start is to look at how much a home health agency would charge.  These rates often come with minimum requirements and vary based on needs and time etc.  After research and discussion, set a salary and establish a schedule for payment.

Define the caregiver relationship

A detailed caregiver agreement sets boundaries.  It makes clear the extent of the services being provided and the amount of money the caregiver is getting paid.

Keep peace among family members

Having a caregiver agreement in place helps minimize the conflict between family members over the handling of care.  The existence of a contract helps elevate the validity of the arrangement and value the services provided by the caregiver.

Clear the way for Medicaid

With regard to Medicaid eligibility, payments made to a caregiver under contract can reduce the care recipient’s countable assets, which in turn may accelerate Medicaid eligibility.  Absent an agreement in writing, the money a recipient pays a caregiver may be deemed a gift by Medicaid. This triggering event may cause a period of delay where recipient may not qualify due to the current 5 year Medicaid look-back period.  At the time of Medicaid application, Medicaid will total all payments made to caregiver for the past 60 months and divide that by the average monthly cost of a semi-private room at a nursing home in the state. This quotient is the penalty period which equals the number of months Medicaid will not pay for nursing home care. The monetary and emotional cost to the family for the delay in Medicaid far outweighs the time and cost to properly execute a caregiver agreement.

Keep care and money in the family

Many recipients find comfort in having care from a devoted family member over a stranger and the money the family pays for care stays in the family.

Caregiving is a journey.  The journey changes daily, weekly monthly and yearly.  The caregiver agreement sets the stage for the journey and makes the pathway to caregiving a two-way street.  It fosters open communication among caregiver, recipient and family members.  It begins a relationship with an elder law attorney and may also be an opportunity to review, update or prepare legal documents including Authorization to Release Health Care Information, Health Care Power of Attorney, Living Will, General Durable Power of Attorney, Will and Trust(s). It paves the way for Medicaid planning, if necessary.  The elder law attorney initiates the formation of a support team for the caregiver which includes professionals such as a financial advisor, banker, CPA, trust officer, insurance agent and local resources such as department of aging, religious organizations, hospitals and support groups.

With the understanding of the caregiver role, organization of legal documents and establishment of a support team, the caregiver relationship is on track for success. Having a detailed, written caregiver agreement allows a caregiver to be Compassionate; Alert to current needs; Resourceful and Energetic in their care for a loved one.

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Using a Credit Card When You Have a Special Needs Trust

25 May, 2023
A special needs trust (SNT) allows you to meet your needs while receiving government benefits, such as Medicaid/MassHealth and Supplemental Security Income (SSI). When you have a special needs trust, you can use it to pay for goods and services government benefits do not cover, such as therapy, education,and housing. Since receiving income directly from your trust would jeopardize your eligibility for benefits, your trustee cannot give you cash from your SNT. When you use a credit card for permitted transactions, and your trustee pays off the balance with funds from your trust, these payments to a credit card company are not considered income. An SSI or Medicaid/MassHealth recipient who is capable of managing their own affairs can therefore use a credit card to make small purchases, and the trustee of the special needs trust need not micromanage every transaction. In the past, beneficiaries of SNTs sent their bills to their trustees for payment. Today, an individual with an SNT who qualifies for a personal credit card may find that using a credit card is more convenient. Credit cards have several benefits. Using a credit card to manage payments from your special needs trust allows you to maintain independence, gain access to some of the advantages of a credit card, and easily keep records while preserving your eligibility for Medicaid/MassHealth and SSI. Although credit cards can help people manage their special needs trusts, there are also several important restrictions and considerations to keep in mind. Consult with a special needs planner to ensure all transactions are acceptable under the trust's rules and comply with government regulations. The Benefits of Using Credit Cards When You Have a Special Needs Trust If you have a special needs trust, using a credit card has many benefits, including: Independence : Allowing you to maintain your independence. You can use your card to make qualifying purchases yourself. Your trustee does not have to make the transactions for you. Access to the Typical Advantages of a Credit Card : Using it responsibly can help you establish or build credit history, which may be important for your future financial needs. Record-Keeping : Credit cards provide easy record-keeping and a convenient way to monitor transactions from your special needs trust, which can also help special needs trustees fulfill their duty to maintain records. When you use your card, your trustee can observe your purchases and ensure that all expenses are allowable under the trust’s rules. Your statements can help your trustee keep track of funds leaving the trust. Benefits Eligibility : While adhering to Medicaid/MassHealth and SSI’s income and asset limits, you can access funds from your SNT. Credit cards can help prevent your trustee from accidentally providing you with cash payments that could affect your eligibility for government benefits. Considerations When Using a Credit Card for Your Special Needs Trust While you can use a credit card to access funds from your special needs trust for certain transactions , restrictions apply. If your trustee sees a charge on your card that could affect your benefits eligibility , they can flag it for review. You cannot use your credit card to pay for food and shelter, which SSI would cover. When administering your funds, your trustee must ensure that any expenditures are for your sole benefit if you have a first-party special needs trust. While using a credit card is appropriate, you should not use a debit card. Debit cards are considered cash income. Best Practices When using a credit card for a special needs trust fund, remember several best practices. Choose a card with low fees and interest rates. Set a clear budget and monitor transactions regularly. Keep thorough records and receipts of expenses. Consult with your special needs planning attorney. A special needs planning attorney can help you navigate the rules that apply to your trust and understand how to use a credit card to preserve your Medicaid/MassHealth and SSI eligibility. 

How an ILIT can help offset estate taxes

12 May, 2023
With the Federal estate tax exemption possibly about to be lowered, it may be time to think about steps you can take to keep your estate from being taxed. An irrevocable life insurance trust allows you to pass on money to your heirs while avoiding both the federal estate tax, as well as any applicable state estate tax which is currently $1 million in the Commonwealth of Massachusetts. Senate Democrats have proposed lowering the current estate tax exemption from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. While it is unclear if this proposal will pass, it is likely that some change to the estate tax is coming. Even if Congress does not take any action, the current rate will sunset in 2026 and essentially be cut in half, to about $6 million per individual. In the Commonwealth of Massachusetts, the current estate tax exemption is $1 million for individuals and is taxed at dollar $1.00. A proposal to raise it to $3 Million and the tax to start at $3 Million (not at $1.00) has been submitted in the legislature but has not yet been voted on or enacted. One way to make up for any estate tax your estate may have to pay is by setting up an irrevocable life insurance trust [ILIT]and funding it with a policy that has a death benefit that would pay your heirs some or all of the amount your estate will be taxed. If you purchased such a life insurance policy directly, it could end up being taxed as part of your estate. But if a trust owned the policy, it could pass outside your estate. While a life insurance trust can be highly beneficial, it is also complicated to set up and maintain properly. The following are some of the requirements: Trustee . If you are setting up the trust, you cannot also serve as a trustee. If you are the trustee, you have control of the trust, which could lead to the trust being included in your estate. You will need to name another trusted person or financial institution to act as trustee. Policy ownership . The trust must own the life insurance policy. If you transfer an existing policy to the trust and die within three years, the policy will still be considered a part of your estate. To avoid this risk, the trust can purchase a policy directly rather than receive an existing policy. Premiums . You need to transfer funds to the trust to pay the policy premiums, which creates an issue with gift taxes. A transfer to a trust is usually not subject to the $15,000 yearly gift tax exclusion. For a gift to qualify for the exclusion, the recipient must have a "present interest" in the money. Because a promise to give someone money later does not count as a present interest, most gifts to trusts aren't excluded from the gift tax. To avoid this, you can use something called a “Crummey” power which gives beneficiaries the right to withdraw the funds transferred to the trust for up to 30 days. As part of the process, the trustee needs to send them a letter, known as a Crummey letter, letting them know about the trust funding and their right to withdraw the funds. After the 30 days have passed, the trustee can use the funds to pay the annual insurance premium. You run the risk of the beneficiaries withdrawing the funds, but if they know that by allowing the money to stay in the trust they will receive more money later, it shouldn’t be a problem. Beneficiaries . The beneficiary of the life insurance policy is usually the trust. Once the funds are deposited in the trust, the trustee can distribute the assets to the beneficiaries in the way specified by the trust. For example, if your beneficiaries are minors, you can wait to have the trustee distribute the assets. Keeping the assets in the trust will also protect them from your beneficiaries’ creditors. The downside of an irrevocable life insurance trust is that you do not have the ability to change it once it is set up, although the policy would effectively be canceled if you stopped paying the premiums. If you are considering this type of trust, discuss it with your attorney.
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