What Is a Personal Services Contract — and Could It Help Your Family Pay for Care?
By Jason Neufeld, Elder Needs Law | Serving all of Florida
If a loved one needs long-term care but doesn't yet qualify for Medicaid, a personal services contract could be one of the most powerful — and perfectly legal — tools available to protect your family's hard-earned assets.
The problem most Florida families face
Here's a situation that comes up constantly: a parent or grandparent needs help paying for care — whether that's at home, in an assisted living facility, or in a nursing home. The family knows Medicaid could help. But there's a catch: the person has too many assets to qualify right now.
In Florida, Medicaid has strict asset and income limitations. If your loved one has more than the allowed amount, they simply don't qualify — not yet. The obvious thought might be, "Can't we just give the money away?" Unfortunately, that creates a whole new problem.
Florida Medicaid reviews all financial transactions made within the past 5 years. If gifts were made during that window, Medicaid imposes a penalty period — meaning benefits get delayed. Most families in this situation cannot afford to wait 5 years.
So what can you do? This is exactly where proper Medicaid planning comes in — and a personal services contract (also called a family caregiver agreement) is one of the most valuable tools in that toolkit.
What is a personal services contract?
A personal services contract is a formal, written agreement between the person seeking Medicaid and a family member — most often a son or daughter — who is already providing real, ongoing care and support.
The key insight here is that Florida law does not require family members to provide care for free. Sons, daughters, grandchildren — they are under no legal obligation to manage mom's finances, drive dad to his doctor's appointments, or spend hours on the phone coordinating care without compensation. A personal services contract formalizes what's already happening and pays the caregiver fairly for their time.
What counts as "services" under this agreement? Practical tasks — managing finances, coordinating medical care, transportation, handling household matters — alongside what's sometimes called "companionship care," like regular check-ins, meals together, and emotional support. People pay privately for these services every day through home care agencies.
How the contract is actually calculated
The process starts by taking a realistic look at what the caregiver is actually doing on a typical week. From there, an hourly rate is assigned that reflects what a private home care agency would charge for the same services in Florida. Then the math works like this:
Weekly rate × 52 weeks = Annual rate Annual rate × Life expectancy (Medicaid table) = Total contract value
It's worth noting that Medicaid uses a different life expectancy table than Social Security, so getting this calculation right matters. The total figure — often in the low six figures depending on the situation — becomes the value of the contract. Every case is different; $150,000 is a number that comes up often, but yours could be higher or lower.
How does this protect assets without a penalty?
Here's where it gets important. Before the contract is signed, if a parent writes a $150,000 check to their child, Medicaid sees that as a gift — and a penalty follows. After a properly drafted, Medicaid-compliant contract is in place, that same payment is no longer a gift. It's a payment for services rendered at fair market value.
Once the contract is properly drafted and signed, the payment can be made immediately — even days before submitting a Medicaid application — and Florida Medicaid will not penalize it. The caregiver will keep records of their time and services in case of an audit.
The tax side of things
There's one significant drawback worth knowing upfront: the payment is taxable income. A family member receiving $150,000 for services — regardless of who they're related to — will owe ordinary income taxes on that amount. This is the tradeoff, and it's why this strategy is rarely used alone.
Two common approaches to managing the tax burden:
- Accept the payment as a lump sum — The caregiver reports the full amount as income in the same tax year. Straightforward, but it may push them into higher tax brackets.
- Spread payments through an annuity — Instead of receiving $150,000 at once, the funds go to an annuity company, which pays the caregiver monthly over several years. This keeps income in lower tax brackets and can meaningfully reduce the total tax burden over time.
Consulting a CPA about the tax implications before signing anything is always a smart move.
Why this matters beyond Medicaid planning
There's a real and growing crisis of unpaid family caregiving in this country. Adult children — often part of what's called the "sandwich generation" — are simultaneously raising their own kids while providing substantial care to aging parents, all while managing their own financial pressures. A personal services contract is one way to acknowledge that what they're doing has genuine value, and to compensate them for it in a way that's completely legal and ethical.
As Jason Neufeld of Elder Needs Law puts it, Medicaid planning is asset protection for the middle class. Wealthy families can simply pay privately. Those with very little may already qualify. It's everyone in between who needs thoughtful, strategic planning — and a personal services contract is one meaningful piece of that puzzle.
Resources
Website: elderneedslaw.com Medicaid Planning Resources: medicaidplanninglawyer.com The Book (Amazon): https://www.amazon.com/Medicaid-some-your-long-term-expenses/dp/1513634712
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. Laws and regulations may change. Consult a qualified Florida elder law attorney and a licensed CPA before making any decisions about Medicaid planning.
Changes are coming to Florida probate law! Beginning July 1, 2026, Florida’s summary administration limit is increasing from $75,000 to $150,000, allowing many more families to qualify for a faster and simpler probate process. This update means less time in court, lower costs, and fewer headaches for loved ones handling an estate after a loss. For many families, this could make settling a small estate much more efficient and affordable. If you have questions about how these new rules may affect your family or estate plan, schedule a consultation.
