Elder Care

Family Contracts

Formal contracts where relatives agree to care for elderly family member have been around for a while, but are gaining in popularity for a couple of reasons.

Care by a trusted family member may be a better choice for the aging persons who want to stay in their own homes. As the economy tanks, these arrangements can mean income for an adult child who has the time to provide care. It can also be a money saver for the Parent. Formal arrangements for compensation will not be considered gifts, but as expenses that reduce the size of the parent’s estate. This can be very important if nursing care is required later on because elderly individuals must pass state-specific means tests for income and assets to qualify for Medicaid.

Another advantage of the intra family agreements is harmony. Often a parent will bequeath a larger share of the estate to a child who has provided care, which can lead to resentments and will contests from siblings who feel slighted.

If this kind of arrangement makes sense for your family, there are certain things you need to know. In order to pass legal must, caregiver agreements must be arms-length, written contracts completed in advance and for which the compensation for services is reasonable. You can’t do it after the fact.

Also, be aware that caregivers are required to pay income taxes on compensation. Payroll taxes may need to be withheld depending on how the contract is structured (independent contractor or employee status).


With that in mind, here are some tips for a good contract.

Have a good estate plan that includes powers of attorney that will ensure your wishes are respected.

Be specific about the duties the caregiver will perform. Medical care, meals, housekeeping, handling financial affairs, etc.

Be specific about the cost of the agreed services. Base compensation on average rates for similar services in your area.

Stipulate specific payment schedules, weekly, monthly, etc. If it is an up-front lump sum payment, put safeguards in place to ensure performance.