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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.
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
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
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;
Jill, Mary’s other daughter, who pays Mary’s bills
and, upon Mary’s death, will serve as personal representative of her
Now let’s examine how Mary and her daughters
might address Christine’s caregiving services under each of the responses listed
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
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
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