Personal Service Contracts & Asset Protection

When meeting with families to develop a prudent elder law plan, we often learn information that is extremely helpful in ultimately preserving assets. Very often, children are integrally involved in helping their elderly parents. While it is not always the case, there is typically one child who devotes a significant amount of time to his or her parents' care. We have seen children take leaves from their jobs in order to organize their parents' financial situations and manage their health care needs. Managing the medical and fiscal affairs of an elderly parent can often be a daunting full time job.
If such a relationship does in fact exist, the first plan of action should be to develop an official arrangement for such care by having the child and parent enter into a personal service contract. A personal service contract is an agreement between an elderly or disabled individual and one or more individuals who undertake to provide personal care services for the rest of the elderly person's life or for a specified period. Such services can include monitoring the parent's health status; securing qualified health care professionals, including doctors, nurses and home health attendants; providing social interaction and entertainment; visiting the parent on a regular basis; and lending assistance with respect to the parent's bill paying, daily money management, etc. In exchange for receiving these services, the parent can make a lump-sum payment or pay a salary to the caregiver child.
If the personal service contract is drafted properly and the payment meets certain criteria, such payment will be treated as a compensated transfer of assets and would not create a Medicaid penalty period. The elderly person is viewed as receiving something in exchange for such payment, namely, the binding promise of care for the remainder of his or her life. While this arrangement allows for the preservation of the parent's assets in the hands of a child, family member, or friend, it also provides the elderly individual with a tremendous sense of security. Through a formalized arrangement with a paid caregiver, the elderly individual is assured a higher level of responsive and personalized care. In addition, the funds received by the caregiver can in fact be used for the benefit of the parent if the need arises.
While Medicaid has recognized the viability of personal service contracts, they must be drafted with the utmost care. Services should be specifically enumerated, the term of the contract must be actuarially sound and the contract should include the formula used to determine the value of the services to be provided. In order to protect the elderly individual and to ensure Medicaid eligibility, the services of an elder law practitioner should be sought.
Ronald A. Fatoullah, Esq., CELA is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Great Neck, Forest Hills and Brooklyn, NY. Mr. Fatoullah has been named a &#8220fellow” of the National Academy of Elder Law Attorneys and is a former member of its Board of Directors. He also serves on the Executive Committee of the Elder Law Section of the New York State Bar Association. Mr. Fatoullah has been certified as an Elder Law Attorney by the National Elder Law Foundation. Mr. Fatoullah is a co-founder of the Senior Umbrella Network of Queens, and currently serves on its Board of Directors. This article was written with the assistance of Debby Rosenfeld, Esq., Senior Staff Attorney at the firm. The firm can be reached by calling 718-261-1700, 516- 466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.