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Caregiver Compensation: Being Fair to Relatives Who Provide Care

Paying reasonable compensation to family caregivers is good for the person receiving the care and avoids unnecessary legal and financial squabbles.

Ryan Scharber


Many families find themselves needing to provide care for an elderly relative, which raises the question: What is fair compensation for the family member or members who actually perform the services of a caregiver?

When faced with such a situation, families might consider any of three responses: (a) do nothing, (b) amend the needy relative’s estate plan for the caregiver’s benefit, or (c) create a personal care agreement among the parties to ensure that the caregiver is equitably compensated for their services.

To illustrate the scenarios associated with these responses, let’s give names to three characters:

  • Mary, an elderly woman;

  • Christine, Mary’s daughter and primary caregiver; and

  • Jill, Mary’s other daughter, who pays Mary’s bills and, upon Mary’s death, will serve as personal representative of her mother’s estate.

Now let’s examine how Mary and her daughters might address Christine’s caregiving services under each of the responses listed above.

Do Nothing

Doing nothing is a popular option and in some cases may seem reasonable, especially if family members are on relatively good terms with one another. But from a legal standpoint it can produce the most troublesome consequences of the three courses of action. The consequences are rooted in Arizona law, which presumes that most forms of personal care by a relative are provided out of “love and affection.”

In this scenario, Christine began “helping out” her mother as might be expected of a loving daughter. As Mary’s needs became greater, Christine found herself devoting more time and energy to her unofficial caregiving role – to the point that she transitioned from full-time employment to part-time work to achieve the flexibility needed to take care of her mom. Under Arizona law, if Christine were to seek payment for her services, neither Mary (while she is living) nor Jill (on behalf of Mary’s estate after Mary passes away) is legally obligated to pay Christine for her services. Even if Christine had moved from another state and stopped working altogether in order to give her mom needed services that were clearly exceptional in nature, Christine is put in the difficult position of justifying to her mother or sister the value of her services in the hope of getting paid.

Keeping meticulous records of her time and efforts might aid in Christine’s cause, but if she gets paid at all she may have to settle for compensation far below the market value of her services. Further, this scenario greatly increases the risk of an estate controversy, pitting sister against sister in an expensive battle over money.

Change the Estate Plan

The second option – updating Mary’s estate planning documents to provide for compensating Christine – is better, because it at least provides a legally enforceable mechanism, but it has some limitations.

First, if the only provision for paying Christine is contained in Mary’s will, Christine faces the dim prospect of getting paid only after her mom’s death.

Also, it is difficult to accurately estimate in advance how much care Mary is going to need, and for how long, which could result in a significant shortfall between the fair market value of the services Christine rendered and the compensation she ultimate receives.

Third, if the costs of Mary’s care deplete her estate, there will be nothing left for Christine (or for Jill) by the time Mary passes away. Due to advances in medical technology and to greater longevity, this is an increasingly common scenario. When Mary’s needs for care exceed what Christine is able to provide, Mary’s assets may be quickly expended, either to pay for more advanced personal care services directly or to ensure that Mary will be eligible for publicly funded long-term care assistance.

Make a Contract

The third and best option – a personal care agreement between Mary and Christine that describes the terms of service and payment – avoids all of the pitfalls described above and provides additional benefits as well.

It allows Christine to receive compensation for her services as they are rendered, via a legally enforceable agreement. Such compensation can (and should) be narrowly tailored to ensure that it reflects fair market value for the services rendered.

Further, if it is adequately documented, this transfer of assets is not considered a gift from Mary to Christine; rather, it is an expense that reduces the value of Mary’s estate for the purposes of qualifying for government benefits without triggering a potentially lengthy penalty period. In order to avoid having Christine’s compensation characterized as a gift, the personal care agreement should:

  • be described in a writing executed prior to the start of services;

  • include a detailed explanation of which services Christine will provide (along with some examples of services she will not provide) and on what schedule or frequency;

  • compensate Christine at a rate comparable to those available from local third-party providers;

  • provide a way for either Mary or Christine to terminate the agreement; and

  • be properly notarized when it is signed by Mary and Christine.

Once the personal care agreement is in place, it will still be important for Christine to keep detailed records regarding the services she provided, but all parties involved should then be able to rest assured that Christine will be compensated fairly, via a document that does not invite frivolous legal challenges, and in a manner that allows Mary to begin spending down her estate if long-term care benefits may be needed in the future.

How Much Compensation?

In this article we alluded more than once to the “fair market value” of the caregiving services provided, which leads to the inevitable question, “How much should a family caregiver be paid?”

In setting a reasonable rate of compensation, the parties should survey a few reputable home care agencies in the immediate area to find out the going rate for services provided by the hour or day. With that information as a guideline, the parties can come up with a number that is high enough to fairly compensate the caregiver, but not so high that the payments start to look more like a wealth transfer than a fair payment for necessary services rendered.