For some families, when a relative needs in-home care, an available adult family member may be an attractive option to act as a caregiver. In order to act as caregiver, however, the adult family member may have to forgo their own employment opportunities and possibly harm their own family’s future financial well being. One solution to this quandary is for the adult family member to be paid for the services they provide. There are, however, some pitfalls to avoid when paying a family member to provide care.
The biggest pitfall is in the area of taxes. For the benefit of both the relative providing the care and the one who is paying for the care, it is important that any income paid to a family caregiver be reported to the government. If income goes unreported, then the caregiver may end up risking significant penalties for unpaid taxes from a future audit. Informal payments may also end up jeopardizing benefits for the elderly relative.
A lack of documentation may also create problems for paid family caregivers. If the parties involved cannot prove that the paid relative is actually providing services, then the payments to the relative may be reclassified from income to a gift by the government in an audit. Reclassifying the payments as a gift can create gift tax complications.
A similar problem can arise if the caregiver is paid an amount that is out-of-line with market rates for similar services. Payments that are too high may trigger suspicions that the caregiver arrangement is just a ruse to avoid taxes or improperly qualify someone for government benefits.
The solution to avoiding these pitfalls is to create a written contract that spells out exactly what services will be provided, the level of compensation, the length of the contract, and contingency clauses in case the contract needs to be modified or terminated. In the context of paid family caregivers, this type of contract is often called a personal care agreement.
In Missouri, there are several requirements for a valid personal care contract. Missouri requires that the contract be written and specifically list what type of services will be provided, how often care will take place, and for how long services will be provided. The contract must also be signed before any services are provided. Missouri also requires documentation that the care provided is needed, that the care is necessary to avoid placement in a care facility, and that the care provided is not already being provided by another paid party. The compensation provided must both paid within two months of the receipt of care and in line with the fair market rate in the county where the person receiving care resides.
These contracts can be complicated. If you and your family are considering paying a family member to provide care, please contact an elder law attorney to help create a proper personal care agreement that meets your family’s needs.