If a child or family member is providing personal care services to a parent or relative, then a personal service contract may be an effective Medicaid planning technique.  Under the rules, you are permitted to provide reasonable compensation for care services being provided for you.  What is reasonable, will be based upon the type of services being provided and the going rate if you had to hire someone to provide such services in your community.

Personal Services Contracts should be handled with care, as the Medicaid department is likely going to examine them very closely.  Here are a few pointers:

  • It should be in the form of a written contract entered into prior to the rendering of the personal services;
  • It should include specific details about what services are being provided;
  • Both the person receiving the services (or their agent under a Durable Power of Attorney) and the person providing the services should sign the contract;
  • The contract should be signed, dated, and notarized;
  • You should call a few services providers to establish what a reasonable compensation rate is for the services being provided (be sure to document your findings);
  • Once service begins, you should keep detailed accounts of all services provided and compensation made.

Services that might be provided under such a contract may include, among other things: preparing meals, cleaning, laundry, assistance with grooming and personal hygiene, bathing, grocery and personal shopping, monitoring physical and mental conditional and nutritional needs in cooperation with health care providers, arranging for  transporting, visiting weekly and encouraging social interaction, interacting with and/or assisting in interacting with health care professionals, etc.

Many parents and children do not realize the personal care contracts are an option and by the time they meet with an elder law attorney, the children have already provided months or years of care.  Unfortunately, it is not recommended that you try and enter into a personal services contract after the fact for services that have already been given. If a parent transfers funds to a child to recognize prior care given, Medicaid will treat such transfer as a gift and will calculate the appropriate penalty period based upon the size of the transfer.

Finally, remember that whenever a person is hired to perform services in exchange for compensation, that person is required to report the income.  In other words, if you enter into a personal services contract with a child or family member, they are obligated to report the payments received from you as income on their annual income tax return.  It is recommended that you consult with your accountant to ensure compliance with all tax rules including any applicable income tax withholding rules, social security rules, and employee compensation rules.

Additional Information on North Carolina Medicaid Assistance for Nursing Home Care:

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Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning