Our clients (let’s call them Frank and Mary) live in a very pleasant retirement community, and that is where they want to stay. They would prefer not to have the “intrusiveness” of assisted living. They like being in the safety and privacy of their own home. Frank is 85, Mary is 83. The growing problem is that Mary’s dementia is getting more severe. She can no longer dress herself or shower. Frank is too unsteady himself to help her. They prepare their own meals and seldom go out. She looks lost and he looks worried. One of their nieces has agreed to come and provide some care every day. They can afford to pay her for the care she will provide. They have about $400,000 in total savings in addition to the value of their home which is worth about $300,000. They want to pay their niece. How should they do this?
• First, report all payments. If they pay her as a gift, with no expectation or requirement that she provide them care, then the payments will not be income to her. However, if their payment is consideration for their niece’s caregiving, then it would be taxable income and there are tax filings, payments into Social Security and worker’s compensation, and other insurance requirements that must be done.
• Second, if later on Mary needs nursing home care and applies for Medicaid, the payments will be reviewed as part of the Medicaid application. If found to be gifts, Mary will be disqualified unless money is returned.
• Also, if Mary’s condition later deteriorates and she needs nursing home care, and if Frank is still alive, she will be able to qualify almost immediately. Mary (or someone acting through her Power of Attorney) will have to transfer her interest in the assets to Frank. He can keep the condo and purchase an annuity for himself to bring his remaining assets below the allowable asset limit for a spouse at home, now $117,560.
• As things now stand, Mary may be able to qualify for the Frail Elder Waiver (FEW), the MassHealth program designed to keep frail elders at home and out of nursing homes, as long as Mary’s income (Frank’s income is not counted) is below $2,176 per month and as long as she has transferred her assets to Frank. Once Mary has qualified for the FEW, she can then qualify for the Personal Care Attendant (PCA) program, through which MassHealth may pay her niece to provide care. To the extent that Mary needs more care than MassHealth will pay for, Frank can supplement the niece’s pay from his savings.
These options may not be available if Frank and Mary have “given” assets to their niece. Those gifts may cause Mary to be ineligible for one or more MassHealth programs. The safer solution would be for Frank and Mary to hire their niece as an employee and pay her for her work. Certainly this will add a bookkeeping and tax reporting burden, although there are companies that can do this work for you. It will also mean that their niece will have to pay income tax on the money she receives, but at least the niece will not be faced with the need to give the money back to her Aunt Mary so that Mary can qualify for MassHealth.
Frank and Mary should consult with a Geriatric Care Manager (GCM) about the services they need and what the market rate is for those services. Also, they should enter into a Personal Services Agreement (PSA) with their niece. All this documentation will help them prove, if they need to later on, that the amounts paid to their niece were appropriate and were not gifts.
This case, which actually came up last week, also brings up a broader question. Given their ages and the amount of their assets, Frank and Mary can probably afford to pay their niece and will not have to apply for MassHealth, unless Mary needs nursing home care. What should they do? Do they have a moral obligation to pay for services privately if they can? I addressed this question in a Letter to the Editor of the Worcester Telegram & Gazette that was published on February 14. Frank and Mary have no legal obligation to avoid obtaining benefits from government programs that were designed to help them, just as they had no moral obligation back, when they were working, to pay more in income taxes than they were required to. Their obligation, like that of every American, is to play by the rules, whatever our elected government officials decide those rules should be.