The Importance of Care Contracts

My grandfather was an intelligent man. He was always prepared. Having built his home during the Cold War, it was equipped with a state of the art bomb shelter that he kept faithfully stocked in case of attack on the U.S. He was always collecting rainwater in case of drought. His car was always stocked with blankets and flashlights.Unfortunately there was one crucial life contingency for which he was not prepared: growing old.Grandpa had been diagnosed with dementia several years before he was forced to leave his home. Most of the time he was lucid. In other moments he was distant, forgetful, and barely recognizable. One daughter, my aunt, lived nearby. As our family watched Grandpa’s mind gradually deteriorate over time, no one wanted to conclude that he needed to leave his home to be safe. It was easier for my aunt to take on extra responsibilities to assist him. She started doing light cleaning for him and taking him to doctor’s appointments. Later she would manage his medications. Eventually she became his power of attorney and managed all of his financial affairs. He continued to live in his home.Years passed. Soon Grandpa’s confused moments outnumbered his lucid ones. A doctor informed us that Grandpa needed more care. It was decided between his children that my aunt would continue to care for him. She would do so on a full-time basis and would be compensated for her services. After several weeks of working 40+ hours or more to care for him, my aunt sat down with my grandfather to receive compensation. As his Power of Attorney she wrote a check for herself so his arthritic hands would not have to do so. Consistent with her duties as Power of Attorney, she asked Grandpa to initial on the ledger next to her record. At that moment, dementia reared its ugly head. Grandpa did not know my aunt. He believed he was being swindled by a con artist. Without saying a word he walked to his bedroom and retrieved a gun he kept in his bedside table. All ammunition for it had been removed years ago, but he pointed the weapon at his daughter believing her to be a stranger. She called the police. Within moments, Grandpa was taken by officers straight to a nursing home facility. He would never leave an institutionalized environment again. Nor would he ever return to his home.I will always regret that my grandfather’s tenure in the home he built ended the way it did. I will always feel terrible that my aunt had a traumatic experience after she worked so diligently for Grandpa to live there as long as possible. I still ponder what we could have done differently that would have led to a different outcome.I was not a lawyer when this happened more than a decade ago. I feel passionate about using my skills to help other families avoid the pain we experienced. Here are some legal realities of which I wish we had been aware back then:

1. My aunt could have been compensated for caring for my grandfather the day she began. She did not have to wait until she was caring for him full-time. They could have arranged a “Care Contract” and negotiated the terms. Grandpa was probably legally competent when she first started helping him. They might have established a routine and pattern in those lucid days that would not have triggered Grandpa’s dementia in later days.

2. When an adult child serves as the caregiver for a parent under a properly executed Care Contract, the caregiver’s compensation is immediately exempt from being considered a “gift” for tax purposes. Furthermore, the document is a written record of the aging parent’s intentions for the arrangement. This documentation will remain after dementia and other progressively debilitating conditions develop and can inform the courts of how to proceed and distribute funds when the parent loses capacity to make decisions. Had my aunt and her siblings realized this, they would not have been as hesitant to place my aunt in a caregiver role in the first place as they did not want to confuse later estate distribution issues.

3. Aging parents who hope to use Medical Assistance for long term care often have to meet a “spend down” requirement before they can do so. Compensation to a relative caregiver for personal services performed under a Care Contract counts toward a medical spend down. When Grandpa needed nursing home care later down the road, he might have qualified for government assistance had we compensated my aunt for the care giving she performed. His children may have hesitated less to place him in assisted living had they known more funds would be available to him. Grandpa’s children were unaware of these realities. Grandpa may have left his home for good on better terms had they known their options and executed a Care Contract. I do not recommend trying to create a Care Contract without legal representation for all parties involved. The document must be carefully executed to meet statutory requirements, and failure to meet even a seemingly insignificant qualification could invalidate the agreement later down the road.any other long-term care planning need.

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