Families are often interested in creating care agreements between a parent, who is in need of care, and a child. The agreement is a written contract setting forth the type of care to be provided and the monthly fee to be paid to the caregiving child for the care.  This fee is used to offset the loss of income that an otherwise employable child would be giving up while caring for a parent. It is also improperly used to pass the elderly parent’s money to the child, and then attempt to qualify for Medicaid.

Care Agreements Are Disfavored by Medicaid

Many of these care agreements are disallowed by Medicaid.  County agencies, including Hunterdon County Social Services, see these agreements as impermissible transfers, triggering a penalty period—a denial of Medicaid benefits for a period of time.  In fact, many county social service agencies hold that a child should provide such services out of love and affection, with no compensation. These holdings can be appealed, if the family wishes to do so, but the trail is very difficult. A recent decision by the New Jersey Appellate Court, E.A. vs. DMAHS, 2015 W: 4390078 (App. Div. July 20, 2015—Unpublished), affirming the disallowance of a Hunterdon County care agreement, is instructive as to what such agreements should contain.

A Penalty Period Will Be Assessed

In E.A. vs. DMAHS, the Hunterdon County Board of Social Services, which handles Medicaid applications, determined that E.A. was eligible for Medicaid benefits to pay for nursing home care.  However, it imposed a 936-day penalty period because a total of $244,510 was transferred to her daughter, under a care agreement.  It determined that these payments were made during the five-year look back period and were transfers made for less than fair market value.  Therefore, no Medicaid benefits would be paid for 936 days. The penalty period starts when the applicant runs out of money.

 New Jersey Courts Require Certain Provisions In Any Agreement

The Court held, “The mere existence of a pre-existing care agreement for services does not automatically establish that the services were rendered for fair market value.  Notwithstanding a care agreement, the applicant still bears the burden to establish the types of care or services provided, the type and terms of compensation, the fair market value of the compensation, and that the amount of compensation or the fair market value of the transferred asset is not greater than the prevailing rates for similar care or services in the community.  The care agreement in this case fell short of meeting that burden.”

The Hunterdon County Caregiver Abused The Situation

Indeed, in this case, the caregiver had made many large withdrawals from EA’s bank accounts, in excess of the payments due to her under the care agreement; had received pay for caregiving during months EA was in a nursing home and did not require care; full payments were made to the caregiving child, even though an in-home health aide was being paid for by EA; the caregiver child had no records of care given and she never declared any of the income received on her personal income tax returns; the caregiver child was being paid at the same rate charged by private service agencies, even though she was not trained or licensed; and the care agreement did not specify the types of care or the terms of compensation for each service provided.

Care Agreements May Not Be Worth The Effort

Accordingly, great care should be exercised in drafting care agreements.  Even then, they are likely to be disallowed by county social services.  Caregivers should be satisfied with the pay received for specific services and not overreach. Those interested in pursuing these agreements will have to appeal in order to get them recognized, and final approval, after further time and money are expended, is not guaranteed.  The services of an Elder Law Attorney will be required.