Family Caregiver Contracts

Although people are willing to voluntarily care for a parent or loved one without any promise of compensation, entering into a written caregiver contract (also called personal service or personal care agreement) with a family member can have many benefits. It rewards the family member doing the work. It can help alleviate tension between family members by making sure the work is fairly compensated. In addition, it can be a be a key part of Medicaid planning, helping to spend down savings so that the elder might more easily be able to qualify for Medicaid long-term care coverage, if necessary.

The following are some things to keep in mind when creating a family caregiver contract, particularly if subsequently filing an application for Medicaid coverage for long-term care may be necessary:

• Meet with your attorney. It is important to get your attorney’s help in drafting the contract, especially if qualifying for Medicaid is a goal.
• Caregiver’s duties. The contract should set out the caregiver’s duties, which can be anything from driving to doctor’s appointments and attending doctor’s meetings to grocery shopping to help with paying bills. The length of the term of the contract is usually for the elder’s lifetime, so it is important to cover all possibilities, even if they are not currently needed. Additionally, the caregiver should maintain a written log to contemporaneously document the services provided.
• Payment. In Illinois, for Medicaid purposes, the payments should NOT be a lump sum.  It is generally recommended that payments be made on a weekly, bi-weekly, or monthly basis, following the submission of the logs for the services rendered. Likewise, for Medicaid purposes, it is very important that the pay not be excessive. Excessive pay could be viewed as a gift for Medicaid eligibility purposes. The pay should be similar to what other caregivers in the area are making, or less.
• Taxes. Keep in mind that there are tax consequences. The caregiver will have to pay taxes on the income he or she receives.
• Other sources of payment. If the elder does not have enough money to pay his or her caregiver, there may be other sources of payment. A long-term care insurance policy may cover family caregivers, for example. Also, there may be state or federal government programs that compensate family caregivers. Check with your attorney and/ or your local Agency on Aging to get more information.

Simply put, family members serving as caregivers can have many benefits for all involved.  The bottom line, though, is that a written caregiver contract is strongly recommended, particularly when Medicaid coverage for long-term care may be on the horizon. Thus, meeting with an attorney, who is knowledgeable about personal care contracts and the Medicaid eligibility rules for long-term care, is strongly recommended, prior to entering into such an arrangement with a family member.

The Elder Law Center, P.C. (a division of Mickey, Wilson, Weiler, Renzi, Lenert, & Julien, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.

Medicaid for Long-term Care & Planning for One’s Home

Planning for long-term care, and protecting one’s home in the process, is a concern for many.  In general, selling one’s one home in order to qualify for Medicaid coverage for nursing home (or other covered long-term) care is not necessarily required.  Despite this fact, there is a common fear amongst individuals applying for, and those who anticipate needing to apply for, Medicaid coverage for nursing home (or other covered long-term) care that they will lose their home; or, that their spouse will lose the home and will have nowhere to live. While this fear, and the desire to protect one’s home, is certainly understandable, it is important to understand that giving away one’s home to his/her children (or someone else) may not be the best way to protect it.  In fact, doing so may lead to severe unintended consequences.  Accordingly, here are three reasons why individuals should NOT transfer their home, without first consulting with their elder law attorney regarding the potential negative consequences that may occur and to learn what other options might be available in their particular circumstance:

1. Medicaid ineligibility.  Transferring one’s home to his/her children (or someone else) may make one ineligible for Medicaid for a period of time. The Medicaid eligibility and transfer penalty rules regarding the transfer of one’s home (when determined to be a non-allowable transfer) are harsh and unforgiving. Basically, the state Medicaid agency looks at any transfers made within five years of the Medicaid application. If the applicant has made a transfer for less than market value within that time period, the state will impose a penalty period during which the applicant will not be eligible for benefits. Depending on the value of the home, the period of Medicaid ineligibility could stretch on for years, and it would not even start until the Medicaid applicant is almost completely out of money.  Exceptions:  There are, however, some exceptions to the Medicaid penalty rules related to the transfer of one’s home.  The circumstances under which one can transfer his/her home without incurring a Medicaid penalty requires that very specific criteria (which may vary from state to state) be met. Thus, it is critical that individuals consult with a qualified elder law attorney BEFORE proceeding with such a transfer to determine whether their circumstance fits within any of the exceptions. 
2. Loss of control.  By transferring one’s home to another person or persons (usually one’s children), the individual will no longer own and/or have control of the home.  The recipients of the transfer will be able to do whatever they want to with the home.  In addition, if the recipients are sued or get divorced, the house will be vulnerable to their creditors.
3. Adverse tax consequences.  Inherited property receives a “step up” in basis when one dies, which means the basis is the current value of the property. However, when one makes a lifetime transfer of his/her home to a child (or someone else), the tax basis for the home is the same price for which the individual purchased the home. Thus, unless the recipient of the gift of the home meets the IRS rules to qualify the home as his/her residence for the required length of time, the recipient (usually the individual’s child or children) will incur capital gains taxes, when he/she sells the home (which may or may not be after the individual’s death).  Accordingly, it is important to seek both legal and tax advice BEFORE proceeding to determine the likely tax consequences to the recipient of the transfer.

Likewise, when planning for one’s home, understanding the rules regarding when the state may file either a lien, or an estate claim (upon one’s death) against the home is also important.  When Medicaid contributes to the cost of one’s long-term care in a nursing home (or other covered care), the state must attempt to recoup from one’s estate whatever benefits it paid for the individual’s care. This is called “estate recovery.”  Again, consulting with an elder law attorney regarding the Medicaid rules related to liens and estate claims, BEFORE proceeding with such a transfer, will allow one to carefully consider all of the necessary information, and crucial pieces, of putting together a plan that may result in protecting one’s home, should Medicaid coverage for long-term care be necessary.

Simply put, the bottom line is that there may be viable ways to protect one’s home for the benefit of a qualified person and/or from a potential lien and/or Medicaid estate recovery.  However, to determine what options may be available, consulting with an elder law attorney PRIOR to proceeding with a home transfer, is absolutely critical.

The Elder Law Center, P.C. (a division of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.

 

HUD Announces Changes to the Federal Reverse Mortgage Program

Seniors sometimes secure and use a reverse mortgage to pay for “in-home” long-term care. Specifically, a reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. There are many factors to consider before deciding whether to proceed with a reverse mortgage.  Before proceeding with a reverse mortgage, federal law requires the homeowners to meet with a Home Equity Conversion Mortgage (HECM) counselor to help individuals make an independent and informed decision as to whether a reverse mortgage is right for them. While a reverse mortgage may NOT be a viable option for most people, in the right circumstance (after careful consideration of the financial and other factors), some will decide to move forward with a reverse mortgage.

Thus, for those considering, or already moving forward with, a reverse mortgage, understanding the Department of Housing and Urban Development’s (HUD) recently announced changes to the federal reverse mortgage program is critical. Citing the need to put the program on better financial footing, HUD will raise reverse mortgage fees for some borrowers and lower the amount homeowners can borrow.

To start, HUD is changing the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Currently, homeowners pay 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who take out a loan that is more than 60 percent of their home’s value pay a 2.5 percent premium. The new rule will require homeowners to pay a standard 2 percent upfront mortgage insurance premium. Homeowners considering a large reverse mortgage may want to wait until after the new rules go into effect. To offset the upfront costs, the annual mortgage insurance premium rate will be dropped from 1.25 percent to 0.5 percent.

In addition, HUD is lowering the amount that homeowners can borrow. The average borrower at current interest rates will be able to borrow only around 58 percent of the value of their home, down from 64 percent.

The changes are set to go into effect on October 2, 2017. The changes will only affect borrowers who take out new loans; they will not affect existing loans.  The August 29, 2017 Mortgagee Letter announcing these changes can be found at:  https://portal.hud.gov/hudportal/documents/huddoc?id=17-12ml.pdf

For additional information regarding reverse mortgages, visit:

https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou

 

The Elder Law Center, P.C. (subsidiary of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.