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Personal Service Contract: Can Medicaid Come After Unused Caregiver Agreement Funds?

Personal Service Contract: Can Medicaid Come After Unused Caregiver Agreement Funds?
Medicaid Planning
Jason Neufeld
May 20, 2020

A personal services contract, a/k/a family caregiver agreement, a/k/a medicaid caregiver agreement is a contract between a Medicaid applicant (or Medicaid recipient) and a third party, usually a family member or close friend, for the payment of care-giving services. This is a medicaid planning tool that is a win-win. The Medicaid recipient receives care while simultaneously being able to transfer a significant amount of resources out of their name - in a way that will not trigger the Medicaid five-year look back gift penalty to help achieve or maintain Medicaid eligibility.

In addition, the caregiver (often a family member who was working for free) gets the benefit of real compensation for their services that will take some financial stress off of their shoulders.

I have linked to articles below that will give more of a background on the basics of medicaid family caregiver agreements

In a Florida medicaid-planning context, personal services contracts are often paid in one lump sum in exchange for care into the future. The amount of caregiver compensation is tied to the care-receiver's life expectancy (per the Social Security Life Table found in Appendix A-14 of the Florida Medicaid ESS Policy Manual. If the personal services contract is being used for SSI recipients, then use the SSA life expectancy table at this link.

But what happens if the Medicaid recipient passes away before their life expectancy?

Can Medicaid Try to Recover Unused Personal Service Contract Funds Previously Paid to the Caregiver?

The process Florida Medicaid uses to try to get paid back for services that Medicaid paid for is known as Medicaid Estate Recovery. Medicaid Estate Recovery takes place after a Medicaid-recipient has passed away (if they are over the age of 55). Medicaid becomes a general creditor and will make a claim on their assets that pass through probate.

Because the Medicaid recipient paid their caregiver, what was then, fair market value for care-giving services to be rendered into the future - the funds no longer belong to the Medicaid recipient. They fully belong to the caregiver.

Remember, the Medicaid recipient could have, if they so chose, prepaid for services to an independent third party caregiver service. Instead they chose to pay a family member or friend for the same caregiving efforts. I think most people would agree that family, most of the time, would be able to provide superior caregiving to a beloved parent or grandparent compared to a stranger.

This all assumes, of course, that the contract was bona fide, for fair market value, and that services are actually being rendered.

If you enter into a sham contract, where care services are not provided, all bets are off.

For this reason, I always provide my Medicaid clients with a timesheet to give to their caregiver (who I often meet with as well) to fill out as services are being provided. Medicaid has the right to audit the validity of a family caregiver agreement to ensure that it is, in fact, not a sham. If they do so, the caregiver should be ready to justify their payments with proof. Time sheets provide that proof.

Can Medicaid Argue that Significant Unused Caregiver Agreement Funds are a Gift if the Medicaid Recipient Dies too Soon?

Clients often provide some version of this hypothetical scenario:

  • Lets say Mom would benefit from Medicaid long term care. She has an extra $100,000.00 in her bank account preventing her from qualifying based on the Medicaid asset test.
  • Also assume that, given mom's age and number of hours of care needed, etc... that $100,000.00 would be reasonable compensation to pay to a caregiver.
  • Lets also say that Mom is 75 years old, which gives her a life expectancy, according to Appendix A-14) of 12.55 years.

OK - so then you hire an experienced elder care lawyer at Elder Needs Law, PLLC (which goes without saying as we serve all of Florida), to draft a proper personal services contract since the daughter is already providing significant care giving services. After the caregiver agreement is signed, mom transfers $100,000.00 to daughter as payment.

Daughter dutifully keeps track of time spent caring for her mother: driving her to the doctor, driving her to exercise classes, picking up prescriptions, cooking, cleaning, taking mom to the theater, etc...Daughter does this for three years until, sadly and suddenly, Mom passes away.

Can Medicaid ask daughter to returned a portion of the care-giving funds paid if, for example, Mom dies in three years (significantly before the 12.55 year life expectancy Mom had when she signed the Medicaid caregiver agreement)?

In other words, why doesn't Medicaid argue: "daughter, you didn't have the opportunity to provide a large portion of the care services Mom prepaid for - so give it to us!"

Medicaid Estate Recovery Against a Caregiver

First, I should mention that I have never seen Medicaid try to make this argument. I have also never heard from my Florida elder law colleagues, of Medicaid ever trying to recover funds from a caregiver.

Second, I believe that if Medicaid tried to make this argument, there would be litigation and Medicaid would likely lose. The reason I believe this is because the personal services contract that I draft provides that the caregiver is to render the services outlined in the caregiver agreement for the rest of the Medicaid-recipient's life. It is not limited to their life expectancy.

This means that if the Medicaid recipient exceeds their life expectancy, the caregiver must still provide services to the best of their ability.

In short, if the care-receiver passes away sooner than expected, the caregiver will have gotten the better deal. But, it is just as likely that the Medicaid-recipient will get the "better deal" if and when they exceed their life expectancy. Contracts don't have to be fair if both parties understand and agree to the bargain that they are entering.

Finally, I should mention that, currently, Medicaid doesn't look too deeply into this. If the family caregiver agreement passes the initial exam (when it is reviewed by DCF attorneys, which is why you want an experienced elder law attorney drafting this document, its not a "DIY" project), and DCF is satisfied that the caregiver is properly tracking their hours and that those hours roughly match those provided in the medicaid caregiver contract, that will likely be the last time the issue is brought up. After a Medicaid recipient passes away, if there is no probatable estate, Medicaid's estate recovery usually ends there.

Personal Services Contracts / Family Caregiver Agreements are valuable Medicaid planning tools, but should not be abused. To learn more about PSKs and other Medicaid planning strategies, please schedule a consultation today.

More Articles on Personal Services Contracts

What is a Medicaid Personal Services Contract?

Medicaid Caregiver Agreements and Income Taxes

What happens to personal service contract money after medicaid recipient passes away? 

Jason Neufeld

Jason Neufeld is the Founder and Managing Partner of Elder Needs Law, a Florida estate planning and elder law firm he created in 2017. With more than 15 years of experience practicing law, he represents clients in a wide range of legal matters, including Medicaid planning, estate planning, elder law, probate, Medicare, and life insurance.

Jason received his Juris Doctor from the University of Miami — School of Law and is a member of the Florida Bar and the Broward County Bar Association. He has received numerous accolades for his work, including being named a Rising Star and Super Lawyer by Super Lawyers and among the Florida Legal Elite by Florida Trend in 2024.

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