What Is a Personal Services Contract?

Medicaid Planning
Jason Neufeld
May 20, 2020
 

Also known as a Family Caregiver Agreement, a Personal Services Contract is a popular Medicaid planning strategy.

The Florida Supreme Court noted that Florida nursing-home law only requires nursing homes to provide slightly over two hours of actual care per resident per day – which means nursing home residents may spend most of the day without personal hands on care. Enter the 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 the skilled nursing home or assisted living facility (e.g. 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 (someone with or without formal care-giving training or experience).

The payment for services under a personal service contract is based on the resident’s life expectancy and is made to the caregiver in a lump sum payment up front.

However, its important to note that the Medicaid caregiver agreement is not just for nursing home residents. Personal services contracts can be used to obtain eligibility for Florida Medicaid waiver (i.e. community medicaid) applicants who are in need of financial assistance paying for home health care and assisted living facility bills. Oftentimes my Medicaid clients are living with an adult son or daughter who is cooking, cleaning, helping to bathe, taking them to doctors appointments, etc... these are idea candidates who would benefit from utilizing the personal services contract / family caregiver agreement Medicaid planning strategy.

Why Use a Personal Services Contract?

If the Medicaid applicant were to just give $50,000 to their adult child, Medicaid would treat that transfer as a gift – and would impose a penalty (which could cost the applicant tens of thousands of dollars). However,transferring $50,000 (if that amount is, as further described below, calculated to be of fair value) as payment for care-giving services to be rendered pursuant to the terms of a personal-services contract, then Medicaid would not treat that transfer as a gift. 

The personal-services contract then becomes a useful tool to help the Medicaid applicant legally spend-down their assets in order to help qualify for Medicaid in 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.

Even though we expect our children to help us for free and out of love; the fact of the matter is that being a care provider can be time consuming and difficult - almost a part-time job.

There is no legal requirement that anyone (family member or not) provide these services for free. In fact, this very issue was challenged, and ruled upon (in favor of using the family caregiver agreement) by the 4th District Court of Appeal in Thomas v. Dept of Children & Families, 707 So 2d 954 (Fla.4th DCA 1998).

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)?

A professional geriatric care manager(who can be employed as part of a Medicaid qualification strategy, if there is no trusted family member or friend willing, able or available to assist) would charge between $75.00 to $130.00 per hour. So for a non-professional family member such as an adult child (who is not a nurse, geriatric care manager, social worker, medical professional, etc…) we would use a highly discounted rate.

Caregivers must keep time sheets to justify money received - DCF will request these timesheets upon application being made and can audit timesheets at any time thereafter.

Life expectancy is calculated using the Florida Medicaid life expectancy tables.  The earlier a personal-services contract is signed, the better for Medicaid-planning purposes. You'll notice that the above link refers to two different life expectancy tables. This is because of the caregiver agreement is to protect SSI, then a different life expectancy chart must be used as the basis for calculating fair market value of a personal services contract.

Why Sign a Personal Services Contract Before Medicaid is Needed?

Life expectancy creates the major financial limitation when utilizing a personal-services contract as part of a Medicaid-planning or Medicaid-qualification strategy. 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.

There is no need to enter into a personal services contract only when an elder is immediately sick and facing huge long-term care costs (although we elder law attorneys often have to work on this basis). Signing a personal services contract as part of pre-planning (instead of crisis planning), allows the pre-planner to lock in that 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!

The only restriction to signing a family caregiver agreement in advance of applying for Florida Medicaid is the contract must be valid. That is, the caregiver must already be assisting the eventual Medicaid applicant.

Benefits of a Medicaid Personal Services Contract

  • Assists in getting assets out of applicant’s name, without penalty, to help qualify for Medicaid to pay for assisted living or nursing home care.   
  • A form of estate planning: Ideally, a personal services contract involves giving money to someone who would have inherited as a beneficiary under a Last Will or Revocable Trust anyway. 
  • We want to keep the money in the family instead of it going to the nursing home or government. This benefits the Medicaid recipient because now, their adult child (or other caregiver) has plenty of money to provide for the Medicaid recipient's other care needs.
  • While preferable, the caregiver does not necessarily need to live locally. There are books written about long-distance care giving. However, long-distance caregivers, inherently, will not be able to justify the same number of hours of care as a caregiver who lives with the Medicaid applicant and actually helps with activities of daily living.

Personal Service Contract Restrictions and Risks.

The personal services contract is “executory” so the caregiving services are to be provided “as needed” to be called in at a later date. The services provided must not duplicate services already being provided by the assisted living facility or nursing home.

Also the personal services agreement must be prospective, not retroactive (a caregiver cannot be paid for services previously provided or performed).

In addition, once the contract amount is “called in” by the caregiver, it cannot be refunded or returned (or Medicaid would count it as a resource available to the applicant).

  • ‍Because personal service contracts are non-refundable, the most worrisome major risk of transferring money to a caregiver, in one lump sum, is losing control of the asset: what if the caregiver takes the money and moves to Fiji? This is why it is important to enter into a personal services caregiving agreement only with someone you trust. We can plan around this risk (if a concern) by providing money to an escrow agent who distributes the money per a set schedule.
  •  A personal-services contract may create inconsistencies with an existing estate plan. For example: if three children were supposed to inherit money equally, but now one child (the designated caregiver under the personal services caregiver contract) gets a lump sum in advance. This could be perceived as unfair to the other two children.
  • The IRS will treat this transfer of money as a taxable event (i.e. it is income to the caregiver). We are not tax professionals and will always advise our clients and their care provider (under a personal-services contract) to seek the advice of a qualified tax professional. For more on personal service contracts and income taxes - and ways to diffuse the tax burden on the caregiver, click the link above.
  • Potential caregivers have to be careful if (a) they themselves are on needs-based government benefits; or (b) the caregiver is on disability (SSI or SSDI) - i.e. being paid as a caregiver through a personal services contract could jeopardize the caregiver's benefits by giving them a job or an influx of money.

Can a Medicaid Caregiver Agreement work for SSI-Eligibility in Florida? 

Family Caregiver Agreements / Personal Services Contracts are not restricted to only Florida Medicaid programs. In fact, a personal services contract can work in an SSI-setting as well. SSI refers to Social Security Income, qualification for which is based on the applicant's disability and limited resources. Unlike Florida long-term care medicaid (which has a five-year look back period), SSI has a three-year look back period when evaluating the transfer of assets for less than fair market value. Fortunately, the social security administration has ruled that personal services contracts can assist with SSI eligibility determinations (link is to relevant POMS section discussing the SSA case on point).

An individual’s eligibility for SSI may depend or be conditioned on the disposal, at fair market value, of resources that exceed the resource limitations, and the failure to dispose of property in an appropriate manner may render the individual ineligible for SSI. See Act § 1613(b)(1); 20 C.F.R. § 416.1240. An individual who gives away or sells a nonexcluded resource for less than fair market value is ineligible for SSI for a prescribed period. See Act § 1613(c)(1)(A)(i). Resource transfers for less than fair market value made after December 14, 1999, may result in a period of ineligibility of up to thirty-six months. See Act § 1613(c)(1)(A)(ii)(I); POMS SI 01150.001(A), (C)(3); POMS SI 01150.110(A). The agency evaluates transfers of cash for services based on the current market value (CMV) of the services and the frequency and duration of the services under the agreement. See POMS SI 01150.005.
A valid transfer of resources is based on a legally binding agreement. If a transfer is not valid, the individual still owns the property and it counts as a resource for SSI purposes. See POMS SI 01150.001(B)(1). Accordingly, the validity of the contract is of primary importance.
Applicant and Applicant’s niece both executed the Contract in Florida. Florida courts follow the general principle that the place where a contract is made governs the validity, interpretation, and obligations of a contract. See Jemco, Inc. v. United Parcel Service, Inc., 400 So. 2d 499, 501 (Fla. Dist. Ct. App. 1981). In addition, the Contract recites that Florida law governs. Therefore, Florida law governs the construction of the Contract.
Florida will recognize the validity of personal services contracts in general and under the proper circumstances. In Thomas v. Florida Dep’t of Children & Families, 707 So. 2d 954 (Fla. Dist. Ct. App. 1998), the court held that a lifetime contract between a mother and daughter, wherein the daughter agreed to supervise her mother’s health care and provide personal services in exchange for $67,725.00, was valid for determining the mother’s eligibility for Medicaid benefits.
We conclude the Contract is a legally binding agreement [in Florida] that validly transferred Applicant’s resources to his niece for fair market value. See POMS SI 01150.001(B)(1).

A validly drafted and executed personal services contract can help both Florida SSI and Florida Medicaid recipients maintain or achieve eligibility.

Jason Neufeld
Jason is committed to assisting and protecting the most vulnerable members of society, through his substantial legal work with the elderly.