Many people are willing to voluntarily care for a parent or loved one without any promise of compensation. Even so, a growing number of people in Michigan are entering into caregiver contracts (also called personal service or personal care agreements) with their family members. Having such a contract has many benefits. It rewards the family member doing the work.  For the older person, it may enable them to be cared for at home instead of in a facility.  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. Care contracts are also an important part of Veteran's benefits planning, as amounts paid under a care contract can be considered an "unreimbursed medical expense" that may help the Veteran or their widow qualify for Improved Pension benefits (Housebound pension and Aid and Attendance).

The following are some things to keep in mind when drafting a caregiver contract:

Meet with an Elder Law attorney. It is important to get an attorney's help in drafting the contract, especially if qualifying for Medicaid or Veteran's benefits is a goal. For instance, Michigan's nursing home Medicaid regulations prohibit the use of care contracts if an elder has already moved to a nursing home.  Also, the contract must be in writing, must be signed and notarized in a specific manner, and certain medical evidence must be documented as proof of the need for the care being provided under the contract.  The failure to follow the Medicaid regulations could result in the payment being considered a gift or divestment if the elder ever moves to a nursing home and needs to qualify for Medicaid.  The effect of a payment being considered a divestment is that Medicaid will not pay for an elder's care in the nursing home for a period of time.

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.

Payment. Payment to the caregiver can be made in weekly or monthly installments. 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. Also, prepaid, lump-sum contracts are considered a “divestment” under Michigan's Medicaid program.

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 for 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.

A properly drafted caregiver contract is very useful in the right circumstances