Personal Services Contract
What is a personal services contract? Essentially, a personal services agreement is a contract between the Medicaid applicant and a designated caregiver for services that are not provided by a skilled nursing home or assisted living facility. These services may include: attending care plan meetings at nursing home, dealing with lawyers, attending appointments with doctors, being an advocate, driving the elder to appointments or even to events for entertainment, and more. The caregiver is usually a family member, such as an adult child, but it can really be anyone, not necessarily with formal caregiving training or experience.
The payment for services under a personal services contract is based on the resident’s life expectancy and is often made to the caregiver in a lump sum payment up front or at the very least a substantial down payment.
Why Use a Personal Services Contract?
If a Medicaid applicant gives $50,000 to their adult child, Medicaid would treat that transfer as a gift and would impose a penalty. However, transferring money as a payment for caregiving services to be rendered pursuant to the terms of a personal-services contract, then Medicaid would not consider the transfer as a gift.
The personal services contract then becomes a useful tool to help the Medicaid applicant legally spend-down their assets to help qualify for Medicaid in a way that would not impose a penalty. Courts have ruled that a properly-drafted and fair personal services contract is not a gift and completely appropriate.
What is a Fair Rate to Pay on a Personal Services Contract?
Here is the formula: Fair Market Value on a Personal Services Contract = hourly rate x estimated hours per week x 52 x life expectancy. But what is a fair hourly rate, Medicaid will not accept an unreasonable amount.
Life expectancy is calculated using the Medicaid’s life expectancy actuarial tables. The earlier a personal services contract is signed, the better for Medicaid-planning purposes.
Why Sign a Personal Services Contract Before Medicaid is Needed?
The older someone is, the lower their life expectancy. The lower their life expectancy, the less money can be transferred to the care giver. The less money that can be transferred, penalty-free, to a caregiver, the more we need to rely upon other Medicaid strategies that may not allow for as much money to stay in the family.
Preparing a personal services contract as part of pre-planning, instead of crisis planning, allows the individual to lock in a higher life-expectancy rate. This allows more assets to be transferred out of the Medicaid applicant’s name when the time comes to qualify and apply for Medicaid. The personal services contract is drafted to be payable on demand, so no actual money needs to change hands immediately. Money can be transferred to the service provider the day before the elder applies for Medicaid.
Personal Services Contract Restrictions and Risks.
- There are restrictions and some big risks with personal care contracts.
- The personal services contract is “executory”, so the caregiving services are to be provided “as needed” to be called in later.
- The services provided must not duplicate services already being provided by the assisted living facility or nursing home.
- The personal services agreement does not allow a caregiver to be paid for services previously provided or performed.
- Once the contract amount is “called in” by the caregiver, it cannot be returned, or Medicaid would count it as a resource available to the applicant.
- Because personal services contracts are non-refundable, the biggest risk of transferring money to a caregiver need space here is losing control of the asset.
- The personal representative could take the money and retire.
It is critically important to enter into a personal services caregiving agreement only with someone you trust.
The advocates at Assisted Living Made Simple are here for you. We can assist you and your family in selecting the right living situation to meet your needs. Our advocates are familiar with the assisted living facilities in your area and can guide you in the right direction.
These blog posts are intended to provide information only and not legal advice. For legal advice contact a qualified elder attorney.