Family Caregiver Compensation Guidelines

As large segments of the American population grow older, they will require increasing levels of care and assistance in their daily lives. These Americans and their families will have to make decisions about what care is right for the person and who will provide the care. But perhaps the biggest consideration in the care is how much it will cost. As many elders will require some level of care for the rest of their lives, the cost of the care can quickly accrue, especially if they require skilled care in an intensive facility at a hospital or nursing home facility.

Due to the high costs of some levels of care, many families feel that it is their filial duty to care for their elderly relatives. This family-provided care is often at the cost of abandoning careers, steady paychecks, and full-time employment, as many elders require near constant assistance with mobility, basic hygiene functions, and medical care. While family members sacrifice their lives to care for another, this sacrifice is often uncompensated. Complicating matters more is that these care arrangements are often on an informal basis, which means after the relative has passed there may not be a formal process available for the caregiver to receive compensation. Federal law is also lacking options to compensate the family caregiver; Medicare and Medicaid do not provide compensation for a family caregiver unless the family caregiver is actually licensed in home health care.

The following article discusses the various ways a family caregiver can receive payment or compensation for providing care to their family members.

Caregiver Compensation Agreement

This is arguably one of the best options to follow when a family member is caring for an elderly relative. A Caregiver Compensation Agreement is a contract between the parties that enumerates what the responsibilities of the caregiver are and what compensation is to be given for the services rendered. Additionally, this agreement allows the caregiver to be compensated during the elderly relative’s lifetime or after the relative has passed.

This kind of agreement has several implications that other forms of compensation may not have. First, if the family caregiver is receiving income from the elderly relative during their lifetime, the obligation of the caregiver is to pay income taxes on the compensation. This includes both state and federal income taxes, plus Medicare and Social Security taxes. If the caregiver is to receive compensation after the death of the relative, then the compensation portion of the transfer will be taxable as income. For example, if the elderly relative is going to make an inter vivos gift of their home worth $100,000 to the family caregiver, who only rendered services worth $50,000, then the $50,000 of compensation will be taxed as income and the other $50,000 will be subject to any applicable gift or estate taxes.

Another issue that caregiver compensation agreements face is the pushback from other relatives. Some families may feel that compensating a family caregiver is greedy and repulsive, as they view caring for a relative a filial, moral, and/or religious duty. However, these families must realize that if the family care giver were to provide care to another unrelated elder, they would be compensated for their services.
Caregiver Compensation Agreements will undoubtedly receive pushback from cultural conflicts within the family. Coupling these views with the possible tax implications, many caregivers avoid formal agreements that secure their right to compensation.

Compensation through a Testamentary Gift

Testamentary gifts have some of the same tax implications as Caregiver Compensation agreements. If language in the Will provides that a transfer is to be made as compensation for a family caregiver’s services then the transfer may be subject to income taxes. This is why many transfers of property made in Wills lack language that indicate that the transfer is really for compensation and not as a gift (most testamentary gifts are not taxed due to changes in state and federal law).

Testamentary gifts have some risk attached to them. The elderly relative is able to change their Will before their death and write the family caregiver out of the Will or substantially lower the gift. Additionally, if the elderly relative was transferring some form of property to the caregiver, the property could lower in value and the caregiver could not receive an adequate amount of compensation.

Compensation through Power of Attorney

Many family caregivers are often designated agents through the elderly relative’s formal power of attorney. This role can create some tension, as many caregivers feel that they cannot compensate themselves under the auspices of the power of attorney. While this is true for “gratuitous agents,” who acts as agent for the elderly relative without right to compensation, most formal agents can be compensated and have the power to compensate those who render services to the elderly relative. As long as the agent acts with care, competence, and diligence, and does not violate the terms of the Power of Attorney, then the agent can compensate themselves as a family caregiver.

Of course, it should be mentioned that the agent should also keep careful records detailing any expenses that arise from the care of the elderly relative and the compensation that they give themselves as the caregiver. The agent should be careful not to overcompensate themselves, as they could be found to violate the duty of good faith to the relative. Typically, the market value of similar services is a good measure of how much compensation a family caregiver should receive.

If you are currently a family caregiver or are going to become a family caregiver, it is important that you consult with an attorney to fully understand your right to compensation and how you should be compensated. This is especially important if you are a caregiver and an agent under a Power of Attorney.

Authored by: Mary E. Zoldak

Serving Columbus and Central Ohio

MacLaren Law LLC provides counsel for the estate and business planning needs of Columbus, Ohio and its surrounding communities, including: Bexley, Dublin, Upper Arlington, Worthington, Westerville, Pickerington, Pataskala, Delaware, Plain City, New Albany, Gahanna, Newark, Zanesfield, Marysville, Powell. MacLaren Law also serves Franklin, Delaware, Knox, Licking, Union, and Muskingum counties.