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CATEGORIES:  Elder Law, Special Needs Law, Winston Salem, North Carolina, NC.

Family caregivers may provide essential care to disabled seniors, or to special needs/disabled adults of any age.  Such family care may allow the senior or special needs adult to remain in the home environment that he or she prefers, and can provide numerous other benefits.

If the senior or special needs adult has available funds, it may make sense for them to pay the family caregiver for those services.  But if the disabled adult may need future Medicaid benefits, improperly documented transfer of the disabled adult’s assets to a family member (to compensate for care services) may be viewed by Medicaid as a sanctionable gift transfer.  Such transfers violate Medicaid’s 5-year lookback provisions, which penalize the disabled adult for any gifts made during that time.

Family Members May Create Valid and Enforceable Contracts With Each Other

Our federal and state legal system allow family members to create valid and enforceable contracts with each other.

Likewise, Medicaid (and other public benefits programs) also allow a disabled adult to transfer assets to a family caregiver in return for services.  Specifically, the Health Care Financing Administration (HCFA), in Transmittal No. 64, Section 3258.1.A.1., provides that relatives and family members can be paid for care provided to loved ones, and that such payment shall not result in a penalty period, provided that fair market value compensation has been paid to the caregiver for the services rendered.  A written agreement, which should already be in place at the time care services are provided, is suggested as acceptable proof of such an arrangement.

Types of Services Documented by a Care Agreement

Care agreements (caregiver agreements) are quite flexible, and can be tailored to meet client needs.  An elder law attorney who structures a care agreement for a disabled adult (the “Principal” in the agreement) may include the following types of care services to be provided by the “Caregiver”:

  • Monitoring physical and mental health;
  • Finding, providing, and managing appropriate medical and dental care providers;
  • Providing assistance with activities of daily living (ADLs), such as bathing, toileting, continence, dressing, feeding, and transferring;
  • Providing personal hygiene services such as assistance with haircare, shaving, fingernail and toenail care;
  • Assisting with personal shopping;
  • Providing nutrition and meal services;
  • Providing laundry services;
  • Providing housecleaning services;
  • Providing visitation, socialization, and entertainment services;
  • Providing social services advocacy, and government services advocacy;
  • Serving as a spokesperson;
  • Providing financial management services.

Real Property Upgrades, Rent, Utilities, and Upkeep

If the disabled adult is living within the caregiver’s home, the following types of non-caregiving provisions may be added to the care agreement, in order to provide compensation documentation for other benefits provided by the caregiver to the disabled adult:

  • Reimbursements for improvements made to the home in order to accommodate the disabled adult;
  • Rent proportional to the amount of the residence occupied by the disabled adult;
  • Proportional compensation for utilities and housing upkeep costs.

Tax Issues

The IRS and the NC Department of Revenue normally view the caregiving relationship formally (as an employer/employee or employer/contractor relationship).  Funds received by the caregiver are typically classified as taxable income, with the disabled adult potentially subject to employer rules and procedures with respect to reporting, compensation, and taxes.

A family using a care agreement (or entering into a compensated care relationship) should seek ongoing advice from a CPA or other appropriate tax professional, with respect to the care agreement and employment relationship.

Fair Market Value

As mentioned above, the compensation to the caregiver must be set at fair market value for the services performed.  The caregiver should keep and maintain a daily journal detailing the care he or she provides to the disabled adult, noting the time spent on each activity.

Other Benefits

Social Security Credits

A family member who either leaves outside work (either wholly or partially), or does not seek work, in order to care for a disabled relative may then stop receiving Social Security work credits.  Such credits may be essential to maximizing Social Security retirement benefits for the caregiver.

In using a care agreement, where a caregiver consistently reports to the IRS her income received for taking care of a disabled relative, the caregiver keeps adding Social Security credits to her employment record.  This helps insure that the caregiver will maximize her Social Security retirement benefits as much as possible.

Transparency for Other Family Members

It is common for only one family member to serve as primary caregiver for a disabled adult.  A care agreement can reward the family caregiver for her time and effort.  In addition, the care agreement helps clearly document how the disabled adult’s money is being spent on caregiving, so that all family members can better understand the care relationship, in a way that can prevent family disagreements or misunderstandings.



Andrew Olsen, Caregiver Agreements and Elder Care Mediation, in Top Elder Care Planning Strategies, (2016).