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Financing a Family Caregiver Agreement with Home Equity – Keystone Elder Law

Part I of II

Rarely, if ever, does anyone express a preference to leave their home to receive care in a licensed personal care home or skilled nursing facility. There truly is no place like home.  Often, the final wish of a parent’s last will and testament is to give their home as an asset for their children.

The desires to hang on to a sense of personal independence and to leave a family legacy can cause an aging person to resist the opportunity to make wise choices. Sometimes this inability of an aging person to face reality leads to a crisis of undignified circumstances.  When a crisis occurs, family members’ lives are disrupted with the urgency of their parent’s issues.  This often involves a hospitalization that is followed by discharge to a nursing home.

Statistics suggest that more than half of us eventually will need to be relocated to receive long-term care. However, sometimes safe and appropriate home care can be provided as an interim or permanent solution.  Home care is usually more difficult for a family to manage than institutional care, but the effort can be rewarding.   Fortunately, advance strategic planning occasionally can allow an intergenerational family to cooperate to fulfill a parent’s wishes without extreme sacrifice.

For those who have above average wealth, or who wisely invested in long-term care insurance, employing a private agency at upwards from $20 per hour can be a viable option. For those who are on the edge of poverty, a publicly-funded program for home care services is available through the County Office of Aging.  Frequently, middle class persons who own their home, have only a few other assets, and a modest monthly income can feel caught in between.

Let’s consider a circumstance where Grandma or Grandpa lives alone, not far from their child or children and their teenage grandchildren.   The grandparents’ children are extremely busy, working and parenting their own teenagers, but they cooperate together to manage a schedule of family caregivers that allows one of them to stop by Grandpa or Grandma’s house to check on him or her once or twice every day.  Previously, we have written about the general challenges of such children, members of the “Sandwich Generation,” who are caught between the responsibilities of caring for their own children and parents at the same time.

Home care arrangements of frequent but not continuous family shifts are only safe and practical if the older family member is not bedridden or in need of 24/7 care. Home care can be manageable if what is needed is to provide supervisory help with management of medications, and some assistance with a couple of Activities of Daily Living (ADLs) such as bathing and dressing.  While helping with those things daily, other incidental activities such as shopping, meal preparation, laundry and housekeeping can also be provided.

Most home care agencies have a minimum shift of at least two hours. This is reasonable because of the consideration of the time and expense for a caregiver to travel to the location.  Also, the agency’s supervision cost can be similar whether a shift is one hour or eight.  Family members, however, who live nearby often can provide the minimum care needed during a one hour shift.

In some cases Grandma or Grandpa will have an unmarried child or grandchild who has no other family responsibilities or housing.  In that event, a live-in care strategy that is implemented and documented over a two-year period can result in a legal transfer of Grandma or Grandpa’s house to that family caregiver.  That scenario, which we generally refer to as “the caregiver exception,” is not the focus of this article.

Instead, we are focused on the circumstance where no unattached adult family member is available for live-in companionship, and/or the family caregivers have their own personal residence to go home to at nights. In those situations, it is possible to use a properly designed and documented family caregiving plan and legal contract to enable family members to be paid for caregiving services.  If such an arrangement is not documented properly, and the older person eventually needs care at nursing home that will cost over $10,000 per month, family members could face a legal struggle to avoid personal responsibility for that expense.

In cases where the older person has little cash other than monthly pension income, and the primary asset is home equity, the most widely recognized option would be to use a Home Equity Conversion Mortgage (HECM) for seniors that is guaranteed by the US Department of Housing and Urban Development (HUD). The common name for a HECM loan is a “reverse mortgage.”    While a reverse mortgage can be a viable tool if the borrower is independently and expertly advised, caution is necessary.  However, a HECM is not a useful strategy to ensure that a home can be passed on to an older person’s family.

This article instead suggests that it can be possible with a properly designed mortgage and promissory note to pay the family caregivers with equity from the older person’s home. This can be done without a HECM.  Such a strategy can enable a successful outcome for the older person who desires to stay home and pass on his or her home to family caregivers.

There are several issues to consider in implementing a family caregiving strategy which is funded by home equity. A written Care Plan should be prepared by a qualified and unrelated party.  The Care Plan should be referenced as an exhibit of a written Family Caregiver Agreement.  Caregiving compensation must be at hourly rates that do not exceed those hourly rates which would be charged by an independent home care agency.  A log of hours worked should be maintained.

The home equity should be documented as being reflective of market value. Mortgage and note documents should reflect requirements of Medicaid regulations.  The implications of probate and the potential for estate recovery should be considered.

Next week’s article will offer more details on how to implement a family caregiving strategy which is funded by home equity and complies with Medicaid-related requirements.

By Dave Nesbit, Attorney