Understand Life Care / Personal Care Agreements for Aging Care and their Medicaid Impact

Definitions

Life care agreements, also referred to as independent care agreements, are written agreements that set forth care arrangements for an elderly individual in exchange for payment. There are two types of life care agreements: Personal Care Agreements and Institutional Care Agreements. While definitions for both types of agreements are found below, this article’s focus is on personal care agreements, rather than institutional agreements.

Personal Care Agreements
Life care agreements are made between an elderly person and another individual, most often a relative or close family friend. Most commonly they are intended to last for the lifespan of the elderly individual, but that is not always the case. Often the creation of a life care agreement is part of an eligibility planning strategy for Medicaid, but again this is not always the case. These agreements can also be called caregiver agreements, family care contracts, elder care contracts, or personal services agreements.

Institutional Continuing Care / Life Care Agreements
Continuing Care Retirement Communities (CCRC) are communities that provide seniors with a continuum of care services from no care (independent living) to full care (nursing home) and everything in-between (assisted living). One’s care needs are covered regardless of age or changes. These communities have a variety of different contracts or agreements. Because one enters these communities with the expectation of spending the remainder of their life at the community, their contracts are also called life care agreements.

 

Value of Life Care Agreements

There are many reasons why one would want a life care agreement. First, many elderly individuals prefer to age in place, at home, and having a life care agreement allows an individual to do this. In addition, since often times it is a family member or a close friend who provides the care, there is a level of trust and intimacy already developed between the two individuals. A life care agreement defines the relationship, establishing clear expectations and boundaries. Since there is compensation for care provided, the arrangement becomes a business agreement. This also helps to keep the peace in the family and other family members from feeling that the caretaker is unfairly being given money that should one day be their inheritance. Life care agreements show that payments to the individual are legit expenses, not simply money or property being gifted.

 

Important Components of Life Care Agreements

Date / Length of Time - A start date of services rendered is imperative when putting together a life care agreement. It is important to note that the contract cannot be retroactively dated. This means that if services were provided prior to the drafted personal care contract, they cannot be included. The duration services are to be provided should also be included in the contract. One can opt for a short-term contract, such as six months, or have the contract cover the remainder of the elderly individual’s life.

Expectation of Services - The services that will be provided for the elderly individual should be included in the contract. The list of tasks should be in-depth, as well as specific. Examples of services one may provide include personal care assistance, meal preparation, housecleaning and laundry, medication management, running errands, transportation, companionship, and financial tasks, such as paying the bills. In fact, any of the Activities and Instrumental Activities of Daily Living can be included. Remember, if the contract is long-term, include tasks that one may foresee as being needed in the future as the senior ages. It’s also important to include the location(s) in which services will be provided (caregiver’s home, elderly individual’s home, etc.), the frequency with which the services will be provided, and the hours one will provide them. It’s okay to allow some flexibility when it comes to the hours of care provided. For instance, one can put in their contract verbiage such as “no fewer than 10 hours per week” or “no greater than 40 hours per week”.

Compensation - The amount the caregiver receives for compensation for services must be fair and reasonable. Taking a look at the average hourly pay for a caregiver in the area in which one resides is a good starting point. For instance, if you live in an area where the going rate is $15 / hour, this would be reasonable compensation for services provided. Once the hourly amount is agreed upon, payment is generally set up on a weekly, bi-weekly, or monthly basis. However, payments in lump sums are another option. Payment is not limited to cash; many agreements include the transfer of property in lieu of or in addition to cash payments.

In the event that property is transferred at the onset of the life agreement contract, one can think of it like an annuity. An annuity is a lump sum of cash that is paid out in specified intervals over a period of time to an individual as income. However, in this instance with the transfer of property, the elderly individual does not receive income, instead he or she receives personal care and assistance.

When calculating lump sum payments (including property), the life expectancy of the person requiring care will need to be taken into account. For example, say a senior is 80 years old and is calculated with a life expectancy of 7 years. This means compensation needs to be calculated for 7 years’ time. If the individual will be compensated $15 / hour for 10 hours / week, this equals $150 /week. Multiply $150 / week by 52 weeks, which equals $7,800 and then multiple that by 7 years. The end amount comes to $54,600 and is a fair and reasonable compensation amount for care provided.

Calculating lump sum agreements are more complicated than weekly, bi-weekly, and monthly payment arrangements. It is strongly suggested one seek assistance when making a lump sum arrangement. Make note, all states may not allow for a lump sum payment that is based on the life expectancy of the senior.

Modification Clause - Include a statement that the only way the agreement can be modified is if both parties agree to the change in writing.

 

Life Care Agreements Impact on Medicaid Eligibility

By using a life care agreement, an elderly parent can reduce their income or assets, receive care from a family member and help themselves to become eligible for Medicaid-funded nursing home care and still keep their financial resources within the confines of their family. To understand how this works, some background information on Medicaid is necessary.

In order for seniors to be eligible for Medicaid long-term care, there are both income and asset restrictions, which are set forth by each of the 50 states. Medicaid candidates must have income and assets valued under Medicaid’s limits, which essentially mean the elderly individual must be impoverished. When an elderly individual applies for Medicaid, there is a 5-year look back period (2.5 years for California) where all financial transactions are examined. If it is found that cash gifts were given or assets were transferred under fair market value during this period, it can result in a period of Medicaid ineligibility. This potential period of ineligibility is to discourage seniors from giving away assets in order to qualify for Medicaid.

If a life care agreement is in place and has been drafted correctly, it will show that the payments to friends or family (which must be at fair market value) for care were a valid expense. Therefore, one would not be in violation of the Medicaid look back period. Note: If no written agreement is in place, payment for services will be considered gifts and one will be in violation of the look back period.

Example #1
Mary is 75 years old and requires care assistance in her home. Her daughter, Anna, has agreed to provide the care and Mary pays Anna $500 / month in exchange. While payment is for services rendered, a life care agreement was not drafted. Therefore, Medicaid adds up all payments to Anna in the last 5 years, considers them to be a gift, and a penalty period is put into effect. Had a life care agreement been established, there likely would be no violation of the Medicaid look back period. Learn more about the Medicaid Look Back Period here.

Example #2
John Sr. has Parkinson’s Disease and lives with his adult son, John Jr. His son’s wife, Alice, is a stay-at-home Mom and takes care of the couple’s 3-year child. John Sr. has $80,000 in retirement savings, and only $733 / month in Social Security Income. He requires assistance with laundry, bathing, transportation, meals and managing his medications, approximately 20 hours / week. As Parkinson’s is a progressive condition, the family knows John Sr. will require nursing home care eventually, but his $80,000 in saving make him ineligible for Medicaid nursing home care since the asset limit is only $2,000.

The family creates a Life Care Agreement that pays Alice $20 / hour for 20 hours / week of care. After 4 years of care, John. Sr. has spent down his assets to zero, which qualifies him for Medicaid. Alice receives compensation for her many hours of work and John Sr. assets remain in the family unit.

As mentioned above, each state has an asset restriction that one must meet in order to be eligible for Medicaid. A properly drafted personal care agreement can assist in “spending down” one’s assets in order to qualify for Medicaid. Just remember, it is vital that the personal care agreement be properly drafted, so not to violate the Medicaid Look Back Period. It is strongly recommended that one seek assistance when drafting a personal life care agreement if he or she expects to apply for Medicaid in the future. It is also recommended that one keep a daily log, documenting the care provided in exchange for payment. One can be connected with a Medicaid planning expert to discuss if this strategy would be appropriate for their family.

 

Pros and Cons

Pros

  • Flexibility – Offer flexibility to determine as needs change. For instance, they can accommodate services that may be needed as one ages or as a condition such as Alzheimer’s progresses. Those services in the agreement even if they are not currently needed. The location where services are rendered can also be flexible, as it can be in the home of the senior, in the caregiver’s home, or the caregiver role can change to that of an advocate if the individual moves to a nursing home.
  • Helps Family Members Help Each Other - Often times, the care of an elderly individual comes down to an adult child, which is frequently done without compensation. However, the adult child may have to reduce his or her work hours in order to provide the needed care, or have to leave their job altogether. Life care agreements allow the child to be compensated in exchange for the services rendered. Also, there is a level of trust and comfort that has already been established in the relationship.
  • Legal Spend-Down for Medicaid - Offers a way to legally reduce income or assets to help gain Medicaid eligibility, at the same time keeping those resources within the family.

 

Cons

  • Can Be Vague - If the expectations and services to be provided aren’t clearly outlined in the life care agreement, conflict can arise. For instance, if the contract states that personal care will be provided as needs arise, it should be clearly stated what constitutes personal care so expectations are in alignment. Does this include bathing the senior, helping him or her to use the bathroom, feeding him or her, etc.? Also, it’s important to be clear that a life care agreement is not a replacement for nursing home services. For the most part, relatives and friends do not have the skills to provide a nursing home level of care.
  • Friction Between Elderly and Family Member - Emotional feelings can also create conflict between the senior and caregiver. For example, a parent may feel like the adult child should provide care without compensation or the adult child may feel like a parent is asking too much of him or her.
  • Vulnerability - If an elderly individual uses their house as a lump sum payment for care, the senior could potentially end up in a position with no house and no caregiver if conflict arises.