Personal Services Contract: a legitimate way to transfer assets for Medicaid qualification purposes
May 17, 2010 at 11:59 am 2 comments
Families looking for ways to transfer assets from an elderly family member’s estate in a legitimate manner that won’t cause disqualification from receipt of Medicaid benefits should consider a ‘personal services contract’ for such purposes.
This method of asset transfer may or may not be a good fit, depending on a family’s circumstances. Generally, if the elderly family member is in need of various types of assistance (discussed below in more detail), then he or she can pay a family member to provide this assistance by way of a contract created for this purpose.
If drafted correctly, the payments made pursuant to the contract should be considered ‘qualified’ asset transfers (expenditures) under current Medicaid guidelines in Tennessee and will not trigger a disqualification of receipt of Medicaid benefits at the time of application.
At a minimum, such a contract should be in writing, and should specify the following: (1) services to be performed stated in reasonable detail; (2) value of the services, as determined in the geographical marketplace where such services are to be peformed; (3) frequency of payment – a lump sum, or periodic (weekly, monthly, quarterly).
Services to be performed. The contract should identify the specific services, including frequency, that the family member is to perform. Generally, these services fall in the following categories:
• general bookkeeping and bill-paying, which could include preparation of tax returns;
• personal assistance, including shopping for necessities, helping with household chores, errand-running, and the like;
• caregiving services, which are generally viewed as encompassing those services similar to what is provided in an assisted living facility – eating, toileting, bathing, dressing, in addition to those activities described above as ‘personal assistance.’
It’s important to note that the agreement should not specify that the caregiver will provide any kind of medical care, as such reference could have the ultimate affect of disqualifying the elderly person from receipt of Medicaid benefits in that a third party (the caregiver) could be viewed as being legally responsible for the elderly person’s medical care.
Value of services. In determining value, it’s imperative to consult care providers in the local geographical area who offer similar services, in determining the compensation to be paid to the family member. The pay must fall within a ‘fair market value’ that should be documented at the time the agreement is entered into, whether the payment is a lump sum or paid periodically.
Timing of payment. The contract could provide for a single, lump sum payment to the caregiver, made at the time the contract is entered into by the parties. If a lump sum payment is chosen, then it must be actuarially sound – e.g. the life expectancy of the elderly person must be calculated by consulting the federal government’s life expectancy tables.
If a periodic payment schedule is used, then payment is based upon the value of the services provided within the specified time frame for payment. Further, if the payment is calculated based upon actual time spent (e.g. an ‘hourly rate’), then the person providing the services must keep accurate time records to support the payments made.
Also note that payments made pursuant to a personal services contract must be only for services performed after the contract is signed. Payments made for past services performed are subject to challenge as disqualified transfers.
Finally, it’s imperative to keep in mind that services provided as part of this kind of agreement must be substantive and that the agreement can be terminated only for cause. A sham agreement will be viewed as such by Medicaid authorities and any payments made there under will be viewed as a ‘disqualifying transfer’ under Medicaid guidelines. Ultimately, the elderly person could be disqualified from receipt of Medicaid benefits until he/she has spent the amount paid under the contract.
For more information about personal service contracts as part of sound Medicaid planning in Tennessee, please contact Caitlin Moon, cnm@csquaredlaw.com or 615.595.4044.
Entry filed under: Elder Law Matters. Tags: disqualified transfer, medicaid planning, personal services agreement, personal services contract, qualified transfer, Tennessee medicaid planning.
1.
Melanie McGahee | January 27, 2012 at 11:23 am
When the services for a Personal Services Contract are paid on a periodic basis–does the amount reduce the monthly income so that the medicaid recipient is below the income level allowed, or is the income counted, the overage transferred to the Miller Trust and then an amount that is allowed to be paid from the Trust account before the balance goes tot he Nursing Home?
2.
c2law | January 30, 2012 at 12:03 pm
Hi, Melanie,
Without having more specific information about your particular situation, I’ll do my best to respond to your query. Generally, a personal services contract is a way to legitimately transfer money (in return for personal services, of course) for the purpose of spending down assets (and not income) to qualify for Medicaid. Paying income on a personal services contract doesn’t have the effect of reducing income for qualification purposes. A qualified income trust (a “QIT”, also referred to as a “Miller” trust) is the vehicle for redirecting income (into the trust) so that a person can qualify for Medicaid. In Tennessee, only certain expenses may be paid out from a QIT, such as spousal support, the individual’s monthly allowance, and some insurance premiums.
For information that goes directly to a specific situation, I urge you to contact a qualified attorney in your area. A single consultation would probably respond to all of your questions.
Kind regards,
Caitlin Moon