Does money left in a personal service contract after a person dies go back to Medicaid?

As a Florida elder care lawyer who drafts a significant number of family Medicaid caregiver agreements, I often hear the same question after a client passes away. The answer, when the contract was done right, is that the money stays with the caregiver. Florida Medicaid has no claim on it for three reasons. The payment was fair market value compensation for services, not a gift, so no transfer penalty applies under 42 U.S.C. 1396p(c)(1). Once paid, the money belongs to the caregiver, and Medicaid estate recovery under Fla. Stat. 409.9101 reaches only assets in the deceased recipient’s own probate estate. And a properly drafted Florida contract is non-refundable by design, because any right to a refund would make the funds a countable resource and defeat eligibility in the first place. What protects the caregiver is the paperwork, which is covered below, because DCF scrutiny of these agreements is real and has grown sharper in recent years.

What happens to Medicaid caregiver agreement money after the Medicaid recipient dies?

In other words, can the caregiver keep the money transferred through a personal services contract or family caregiver agreement after the Medicaid recipient passes away? The link above covers the nuts and bolts of how these agreements work in Florida. Be aware that not all states allow lump-sum caregiver agreements; Florida is one of the states that does, and its appellate courts have upheld properly drafted contracts as legitimate spend-down planning.

A short summary on personal services contracts in Florida

The Medicaid applicant or recipient can sign a bona fide services contract with anyone he or she chooses, including family members and friends, to prepay the fair market value of caregiver services to be rendered for the rest of their life. The payment amount is calculated from a reasonable hourly rate and the recipient’s remaining life expectancy under the tables in Appendix A-14 of DCF’s ESS Policy Manual, the same manual whose asset rules we cover in our guide to the Florida Medicaid ESS policy manual. Your elder law attorney will counsel you on how much can be transferred and still be considered fair and reasonable in the eyes of Florida Medicaid, administered by the Agency for Health Care Administration. You also want to discuss the matter with a Medicaid lawyer because the family caregiver agreement has income tax consequences for the caregiver as well.

What does the caregiver do with the money after the Medicaid recipient passes away?

The short answer is nothing.

Assuming the personal services contract was valid and real work was done and documented, Florida Medicaid is not entitled to any of the money back. Medicaid only has a claim against assets that belong to the Medicaid recipient. Under Fla. Stat. 409.9101, estate recovery is limited to the recipient’s probate estate, and money lawfully paid to a caregiver during life is the caregiver’s money, not the recipient’s.

Adult children of Medicaid clients sometimes ask whether they should set up a separate bank account to hold the money so it is clearly reserved for mom or dad. My answer is invariably no. The care receiver is paying fair market value for services. If the money is really being held for the care receiver’s benefit, then Medicaid has a right to count it as an available asset when determining eligibility, and the whole plan unravels. The same logic is why the contract itself must be non-refundable. This strategy must be real, not a sham transaction, and the caregiver will be asked to document their time providing services.

The nature of the caregiver contract strategy is that it is a genuine fair market value transaction. The Medicaid recipient could, if he or she chose, pay a professional third party caregiving company for these services. Call that fictional company Home Help for Mom, Inc. Would Home Help for Mom, Inc. give the money back after the client died? No. Would Medicaid have a right to pursue the company after the recipient passes away? No. Absent fraud, Medicaid has no right to demand anything from someone who is not receiving or applying for Medicaid benefits.

What if mom or dad passes away shortly after the personal services contract is signed?

This is what makes people nervous. Say the family caregiver agreement allows $100,000 to be transferred to the caregiver, and the care receiver passes away after only a month, or even a week, of care. Can Medicaid take the position that the caregiver did not provide $100,000 worth of services?

The structure of the contract answers the objection. The caregiver is obligated to care for the recipient for the rest of his or her life, however long that turns out to be, and the price was set in advance from the DCF life expectancy tables. If the care receiver outlives the tables, the caregiver provides more service than was paid for and has no right to ask for additional money. If the care receiver dies early, the caregiver keeps the payment for the lifetime obligation they accepted. That is how any prepaid lifetime arrangement works, and it is why a properly calculated, properly documented contract holds up. The risk in early-death cases is not a payback demand so much as DCF questioning validity at the application stage, which brings us to what has changed since this article was first written.

How DCF reviews these contracts now

DCF sees every personal services contract, because the transfer must be disclosed with the Medicaid application. Reviewers check that the hourly rate matches what the local market charges for comparable non-medical services, that the life expectancy math follows the tables, and that the contract was signed before services and payment began, since payment can never be retroactive. Caregivers must keep timesheets, and DCF can request them at the application and audit them afterward. Rates that exceed fair market value get recharacterized as gifts, and in 2026 every recharacterized dollar is measured against a transfer penalty divisor of $10,645, Florida’s average monthly private-pay nursing home cost, so an inflated contract can cost months of eligibility. A generic template from the internet does not survive this review. For what happens when contract funds sit unspent, see our companion article on unused Medicaid caregiver agreement funds.

Key Takeaways

• Money lawfully paid under a valid personal services contract belongs to the caregiver, and Florida Medicaid cannot demand it back after the recipient dies.
• Estate recovery under Fla. Stat. 409.9101 reaches only the deceased recipient’s probate estate, not compensation paid to others during life.
• A proper Florida contract is non-refundable on purpose, since any refund right would make the funds a countable asset.
• Early death does not create a payback obligation, because the caregiver accepted a lifetime care obligation priced from DCF’s life expectancy tables.
• DCF reviews rates, timesheets, and timing at the application, and overpayments are penalized as gifts against the $10,645 monthly divisor in 2026.

Frequently Asked Questions

Q. Does Medicaid estate recovery apply to caregiver agreement money?

A. No. Fla. Stat. 409.9101 limits Florida’s estate recovery claim to assets in the deceased recipient’s probate estate. Money paid to a caregiver during the recipient’s life is the caregiver’s property and is outside the estate.

Q. Why can the caregiver keep money if the recipient dies within weeks?

A. Because the contract obligated the caregiver for the recipient’s entire lifetime and the price was set from the life expectancy tables in DCF’s ESS Policy Manual. The bargain runs both directions, since a recipient who outlives the tables receives extra care at no extra cost.

Q. Can the family hold the money in a separate account for the parent’s benefit?

A. No. If the funds are actually held for the care receiver’s benefit, Medicaid can count them as the applicant’s available asset, which defeats eligibility. The payment must be genuine compensation the caregiver owns outright.

Q. What makes DCF challenge a personal services contract?

A. Rates above local fair market value, missing timesheets, payments for services rendered before the contract was signed, or refund provisions. Any of these can lead DCF to treat the transfer as a gift under 42 U.S.C. 1396p(c)(1) and impose a penalty period.

Q. Does the caregiver owe taxes on the payment?

A. Yes. The lump sum is ordinary income to the caregiver in the year received, which is one of the trade-offs to price into the plan. The caregiver should review the numbers with a tax professional before the contract is signed.

Get the Contract Right the First Time

If a family member is already providing care, or is about to, start with three steps. Write down the services being provided and the weekly hours so fair market value can be calculated honestly, stop any informal transfers of money until a contract is in place since payment can never be retroactive, and schedule a consultation with a Florida Medicaid planning attorney at Elder Needs Law, PLLC to draft the agreement before services and payment begin. Bring one document, a simple list of the care receiver’s assets and monthly income, since that list determines how much can flow through the contract and what other planning tools should work alongside it. Done right, the caregiver is compensated fairly for real work, the applicant qualifies for Medicaid on schedule, and no one ever has to give the money back.