Payment for Future Services in a Family Care Contract May be Improper
A new ruling out of New York raises questions about the efficacy of a Family Care Contract where a lump sum payment is made in return for promising a lifetime a care services. Medicaid may find the Care Contract to really be a disguised gift and apply a penalty period.
A Family Care Contract is an agreement whereby a parent might pay a child or other relative to provide care in lieu of hiring an outside third party to provide that same care. While it is reasonable on its face that a daughter-in-law should be entitled to the same compensation dad would pay a caregiver (after all, you shouldn't be financially punished for being related), it is easy to see that these types of agreements could be abused. In making a Medicaid application, Medicaid will closely review these contracts to see if services were actually provided and a fair market rate was paid. The concern is that a Family Care Contract could not be "real" and instead just a shield for gifts or transfers, which should generate a transfer penalty period. To see what a Family Care Contract Should have, look to my prior post Caregiving Contracts Valuable Tool Between Family Members.
Some attorneys have taken the position of transferring a large sum to the caregiver child as an "advance payment" for future services. New York in Matter of Barbato v. New York State has recently looked at several cases where a large sum was given to a child to prepay for a lifetime of services under a Family Care Contract. In those cases, the appeals court found that there was a transfer or gift from the parent to the child, and not a payment for services. This is a huge distinction. A "transfer" causes a penalty period, where a person who otherwise is qualified for Medicaid cannot receive it (i.e.: in a nursing home and has no assets left). A payment for services does not create such a penalty.
The New York court's approach is well reasoned - if the agreement does not set objective standards, it can be a windfall to the caregiver if either (1) less services needs to be provided, or (2) the person dies in a short timeframe. And a windfall seems like a gift. Anyone
In the 5 Care Contracts at issue, all provided a large lump sum payment in return for a lifetime of care. One said "15 hours a week of care" and others care "as needed".
The court found that the agreements didn't have standards to show that the "services" provided were at fair market value. Also, there was no refund provision if the person died before the dollars were reasonably spent.
For more detail, look to ElderLawAnswers.com.
