Reimbursement for Beleagured Families – Family Agreements and Private Reverse Mortgages
Sometimes family members caring for an aging and physically disabled relative, lose track of the fact that they need care themselves. They may not have a Will or a Power of Attorney. They may also never have never thought of whether the services they provide should be compensated. This factor is especially significant in Pennsylvania where over 80 percent of Pennsylvanians who need long-term care receive it through their own resources or from family and friends without public help.
Families are bearing the brunt of both the work and the expense associated with caring for loved ones.
One way to deal with these issues is preparation of a personal service contract, an agreement sometimes referred to as a “family agreement,” after identifying the person or persons who are or will be providing care for a family member. This would arrange now to reimburse them for their time and expense. In the absence of such a written contract, it is likely that the time and at least some, if not all, of the expense incurred by the caregiver will be regarded as a gift and never compensated at all.
If a parent owns real estate but is short on funds, the agreement can be secured against the real estate and repayment recovered on sale of the property. To do this in a process called a “private reverse mortgage,” you should seek legal help.
The caregiver may be an immediate family member, a relative, friend, neighbor or professional service provider. The idea is to establish the rules and assure that fair (not excessive) compensation is provided.
Here is how it works.
Mrs. Harris lives at home and is unable to shop for groceries, climb stairs, cook, or clean because of her frail physical condition. Her daughter, Jennifer, comes to care for her four days a week. She buys her mother’s groceries, bathes and helps to dress her, balances her checkbook, pays her bills, and prepares her mother’s tax returns. Jennifer worked as a bookkeeper and still works in that capacity parttime. The other children live in other states and rarely visit but are in touch by telephone.
Mrs. Harris has investments of $50,000 in stocks, bonds, and cash which she received when her husband died a few years ago. While physically weak, she is competent to make her own decisions.
A written family agreement also known as a personal services contract can compensate Jennifernow a reasonable amount for her time and services from Mrs. Harris’s funds. Payment could be on an hourly, weekly, monthly or other basis including sometimes a lump sum paid in advance provided that the payment is reasonable for the amount of time and type of services to be provided. Reasonable could be decided based on what comparable services cost in the community and should definitely be documented.
Jennifer, who is giving up time from her employment and from her own family to assist Mom, would likely feel greater motivation to provide the services. If Mrs. Harris were to die, Jennifer would have received reimbursement for her services outside the Will. Often, in families, one family member assumes the primary responsibility for care. When their parent passes on, an equal split among the children would not seem fair.
If Mrs. Harris were to enter a nursing home after receiving Jennifer’s services at home and later need to apply for Medicaid, the sums she paid to Jennifer under a written agreement may also have benefited her by reducing the amount that Mrs. Harris would need to spend down” before qualifying for Medicaid. If properly structured, handled and described, gifting should not be an issue. Some expenses can be handled as reimbursement in which case there would not be tax consequences. It cannot be overemphasized, however, that the agreement needs to be handled in a business-like manner.
The personal services contract should specify the services provided, the amount of compensation, and the basis for compensation. Without a written agreement, it would almost certainly be assumed by the government that Jennifer offered her time and services for free. The agreement needs to be entered into before the services for which compensation is being provided.
When in doubt, family members should request professional assistance to assure that they are acting properly.
For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.