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Sharing Family Resources Without Penalty

Ideally, families provide care out of love. Compensation is a secondary concern, and family resources are shared as a token of appreciation.

However, for many families during economically challenging times, the lines between ownership of parents’ and their children’s resources become blurred.

If you enjoyed the television series that chronicled the Walton family during the Depression, you remember the love of that inter-generational family as they supported one another. I can’t remember any episode about legal paperwork to justify tuition support paid by Grandpa to help John-Boy get his college education. But, neither can I recall an episode about Alzheimer’s disease or the Waltons’ need for government help to pay for skilled nursing care.

Family members are often geographically scattered now and unable to help with home care. People live longer. Government programs have been created to pay for nursing care services. Times have changed since the Walton family’s era.

Today, tokens of gratitude, or gifts of love in the form of shared family resources are problems with the government when applying for financial assistance for nursing care. Paying the tuition of a grandchild, or putting an adult child’s name on a house deed or bank account, might be intended as a fair and just reward. However, if the reasoning that justifies the fairness of that gratuitous action is not appropriately documented at the time of the exchange, such a gesture can result in severe hardship for the family. At the time of an application for assistance, a retrospective attempt to document and justify a previous gratuitous action is risky, if not impossible.

It would never occur to most people to have a written agreement in place to document the activities of family members to care for a loved one at home. As long as family caregiving remains a private matter for the rest of the older person’s life, it is unlikely that the government will have any occasion to be concerned about token gifts or unreported payments among family members for caregiving. However, it is unwise to discount future possibilities. Home care can become impossible sometimes, such as after a debilitating stroke or the progression of Alzheimer’s disease.

When care of an aging parent can no longer be provided safely in the family home, a skilled nursing facility is often the best option. Complex regulations to qualify for government assistance (Medicaid) for care in a nursing home have been established to prevent families from scamming the government Since the average cost of nursing home care in Pennsylvania is more than $100,000 per year, the stakes are high to avoid being disqualified or penalized from receiving Medicaid.

If family resources were shared, and a person “gave away” money or property totaling more than $500 in any single month, within the 60 months preceding a Medicaid application, it is considered to be “gifting.” Gifting is not a crime, but financial assistance for nursing care will not be provided until after a penalty period is imposed. A Medicaid application is usually submitted when an individual’s resources have been exhausted. If a gifting determination is made at this time, payment for care during the penalty period creates a financial crisis.

As a practical matter, the family for whom a penalty period has been assessed has to find a way either to recover the gifted money, or somehow otherwise pay for nursing care until the penalty is over. Pennsylvania court actions have referenced long-overlooked “filial responsibility” laws to require family members to pay nursing home costs for a parent who lacked money to do so, and was ineligible for government assistance because of gifting.

Consider the adult child who volunteers to reduce his/her hours of compensated employment outside the home in order to be available to help a parent. For some families, it becomes impossible to pay for household expenses unless the parent helps the caregiver financially to make up for lost wages. Often, families agree among themselves that it seems acceptable for the parent to pay some of the caregiver’s bills, whether it is a mortgage, home repairs, or other expenses that might total more than $500 per month.

What seems fair and reasonable within a family creates problems when applying for Medicaid. Financial transfers from a parent to a child generally are considered to be a penalty-triggering gift unless they are reported as wages to the IRS. Under-the-table payment of wages to a caregiver to avoid taxes can lead to a penalty even if paid in cash, since significant cash withdrawals from a parent’s accounts need to be documented when applying for assistance.

This problem can be avoided by using a family caregiver agreement; and substantial wealth of a parent, including the family home, can be transferred to a child legitimately. The caregiver agreement should be based on a written care plan prepared by a qualified professional. The caregiver agreement references the care plan and details which services the caregiver is providing, the hours “worked” as a caregiver and the compensation to be paid.

Compensation for caregiving services must reflect the value of the services. The U.S. Bureau of Labor Statistics wage rates show an average of $11-$12 per hour wage for a personal care aide to assist with housekeeping, laundry, errands and meal preparation. Private agencies charge twice that to provide and supervise such a caregiving employee. A family caregiver compensation rate for non-medical caregiving in the range of $10 to $20 per hour can therefore be justified. A registered nurse, whose ordinary market value in wages might be twice that of a personal care aide, may only justify the higher wage as a family caregiver if he or she is actually providing nursing services in relation to a care plan.

It would be helpful if families could see into the future and know whether or not government assistance will be required. Without this ability, families who are sharing family resources are wise if they seek counsel and educate themselves about the potential pitfalls of private arrangements.

Family caregiving can be accomplished without creating financial risk down the road.

Dave Nesbit, Attorney