The Caring Way to Compensate Children… Care Contracts
Parents who have family members providing for their personal care needs should consider executing an employment contract (“care contract”) with the children who are providing them services which would be paid to home health care professional if their children were not there to help. There are at least three reasons for clients to consider paying their family members:
1. Tax Planning: If a parent has a taxable estate, paying for personal services is one means of reducing the size of the estate. Paying a family member $500 per month, for example, for assistance with bill paying, transportation to physicians and screening of household help are services for which a geriatric care manager would be compensated. Monies paid to the child would be “taxable income” reported in the year it is paid.
2. Medi-Cal Qualification: Payment for personal services can be part of a “spend-down” when a Medi-Cal application may be submitted in one’s future.
3. Familial Reward: Children and other family members often devote themselves to the care of an aging, ill parent. They sometimes do so at great personal and financial cost. It is neither disloyal nor disrespectful to ensure payment as one form of reward or acknowledgment.
To minimize the chance either IRS or Medi-Cal will challenge the legitimacy of the employment arrangement, a detailed, written employment contract setting forth the employment arrangement is strongly recommended. Medi-Cal will want to characterize any payment as an uncompensated transfer to deny eligibility unless written proof of payment and proper taxes are paid on the earnings. It is always helpful to seek legal assistance in executing any plan of compensation.
Ms. MacDonald’s practice is limited to Estate Planning, Probate & Trust Administration. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite A-209 in Valencia, California. She can be reached at 661-294-6464.
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