Personal Finance

Thursday, May 28, 2015

Don’t go broke caring for an elderly family member

Financial Planner, Mike Repak, discusses written care agreements and how they can protect you.



Caring for an elderly parent or family member can be stressful. In families with multiple siblings, it can sometimes be unclear who will care for their parent(s) when they no longer can care for themselves. In many cases, caregiving responsibilities can fall unevenly on family members. While most would take on this extra responsibility gladly for free, it’s important to protect your time, money, and efforts by having a written or family care agreement drawn up by a lawyer.

Having a written care agreement can protect you by:
  • Making sure you aren’t affected financially because you are the caregiver for your elderly parent, or loved one
  • Establishing how to satisfy certain needs in exchange for compensation

The cost of medical care is a major issue confronting the elderly and their loved ones today. A lengthy illness can deplete a lifetime of savings as families struggle to get the necessary care. For costs not covered by Medicare, Medicaid is available, but eligibility requires that your other assets are depleted first. Naturally, people who are aware of this will try to impoverish themselves to qualify for Medicaid, but a number of rules have been enacted to limit that. One rule, enacted in 2005 calls for a “5-year look back” on gifts, meaning that any gift made by a Medicaid applicant in the 5 years prior to applying for Medicaid must be disclosed. These gifts can cause a period of ineligibility for Medicaid and/or may have to be reversed in order to qualify for Medicaid benefits. An important exception to the penalty for gifts occurs when money is paid for something of value. In other words, if someone pays a fair price for goods or services, no gifting has occurred, and a “transfer for value” has taken place instead. A written care agreement can support the “transfer for value” that occurs if a parent pays a child for services.

What should a written care agreement cover? A written, or sometimes called family care agreement is a legal document that details the care for an elderly parent, or loved one, in exchange for compensation. The compensation should be an agreed upon amount, based on current hourly rates for similar services and what the parent can afford. For example, charging someone $1,000 for basic housecleaning would most likely raise a red flag, but $25 per hour might seem like a fair hourly rate. To enable a parent to live independently, the caregiver will often have to help them with their laundry, meals, daily medications, housecleaning, financial management, driving to medical appointments and often times, grooming. The agreement should be as specific as possible, covering the services provided and the payment received. Recordkeeping and invoicing should be handled in a business-like fashion. Some lawyers even suggest using a payroll service to process payments. Tending to their loved ones’ needs can turn in to a part, or even full-time job. The agreement could be prepared by an attorney and the attorney locator function available at www.naela.org will help you locate an Elder Law attorney in your area that can advise you on this. For those people who would prefer to write something on their own, Item #85 in the book 101 Law Forms for Personal Use published by Nolo is a good starting point.

Feel free to contact us should you have specific questions on what types of financial information should be included.

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Michael Repak
Vice President/Senior Estate Planner
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Mike provides advice and guidance in all aspects of financial, tax, and estate planning issues. He earned his Bachelor’s degree from William Paterson University in Wayne, New Jersey, and has a Master’s degree from the University of Wisconsin in Madison, Wisconsin. He has a CPA/PFS credential, and Series 7 and 66 securities licenses. He received his J.D. from the University of Florida and his LL.M. in Tax Law from NYU. 

He has been an adjunct professor in the MBA program at Temple University and is a sought-after speaker for professional conferences and events. He is also frequently featured as a Money Doctor on www.360financialliteracy.org, the public education site of the American Institute of Certified Public Accountants. Mr. Repak has served on several non-profit and civic boards, is a graduate of Leadership Philadelphia, and a member of the Union League of Philadelphia.


Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any taxrelated statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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