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Who Helps the Elderly? The most common wish of an elderly person is to remain in his or her own home as
long as possible. Many times this requires the assistance of a family member to act as caregiver, and in
many cases the family member moves in. This is usually with the consent and encouragement of other
family members, who are usually siblings. For purposes of our discussion herein, we will call the elder
“Grandma”, although obviously facts are not gender specific.
The basic question that occurs, especially on Grandma’s death, is what effect, if any, the caregiver’s time and
attention (and possibly lost wages) has on the dispositive provisions of the estate plan.
Is There Compensation? Is the caregiver providing the services out of the goodness of his or her heart? The
answer to that question usually depends on one’s point of view. Grandma may feel that the caregiver should
be specially compensated. The other family members, usually siblings, often feel that the caregiver is
receiving room and board, if there is a live-in arrangement, and that the care provided is out of love and
affection. Sometimes the family members recognize that there should be some special disposition, but are
not certain as to amount or how that should be done, especially if Grandma does not change a will or trust to
reflect the services provided.
In Medicaid matters the State presumes that caregiving services provided by a family member are motivated
by love and affection and that any compensatory payment will be regarded as a gift unless there is a written
agreement in advance.
What Goes to Court? There are frequent cases involving the compensation of caregivers, whether members
of the family or non-members. Often claims will be filed against an estate or trust, claiming that
compensation in one form or another was promised and not delivered. Litigation in these matters is often
nasty and always expensive.
On the other side of the coin, there is also frequent litigation when Grandma changes her will or trust to
provide for a caregiver, based on allegations of undue influence. These cases are usually brought by family
members whose shares of an inheritance are reduced or eliminated by these end of life changes.
What Do the Courts Say? Usually cases wind up in court when there is no previous written contract for
services. Whether an end of life estate plan change stands up under attack will depend on the facts and
circumstances of each case and what probative evidence there is that Grandma was not subject to undue
influence by the caregiver.
With respect to claims for compensation, these are also fact specific and often depend on statements made
by Grandma to other parties, including bankers or attorneys, about the desire to compensate a caregiver. To
prevail for a compensation claim, a caregiver’s position usually must be established by other evidence, which
is often difficult where a family member is involved.
Of course, there are the usual soap-opera scenarios where the caregiver is of the opposite sex. While
Michigan does not recognize common law marriages or “palimony,” the Courts have recognized implied or
express contract claims which are substantiated by the decedent’s actions, statements or writings.
What Is the Answer to These Dilemmas? As our population ages and more persons need assistance in
their old age in order to stay in their own homes, we recommend that the problem be addressed up front
before Grandma dies. A written compensation agreement is always recommended where there is a
possibility of Medicaid. However, going beyond that, a family should recognize that a caregiver provides
valuable services by staying with an elderly person (24-7 in-home care can cost over $10,000 per month, in
our experience). Room and board is certainly not sufficient recompense for these essential services.
What if Grandma makes a special provision in her will or trust for caregiver, whether a family member or not,
for the purpose of providing a property share to the caregiver? In these cases, it is almost assured that there
will be a challenge by some family member whose share of an estate is reduced. In these cases, we like to
have written statements of intent as well as witnesses to a decedent’s declarations of intentions.
What Are Some Other Issues? If there is a claim for compensation, as a result of a written contract or
otherwise, a claimant has to realize that any such payments constitute taxable income and that there are both
FICA and income tax consequences. Since these are regarded as personal services, there is generally no
corresponding income tax deduction to Grandma (although medical expense deductions are claimed in
some cases).
What are the consequences if Grandma has a written agreement which says the caregiver will receive her
house at death as compensation for all the services provided? Presumably this would be a satisfaction of a
debt and would be subtracted from a taxable estate where estate tax is an issue. These issues become a lot
more complex than meets the eye.
Section 83 of the Internal Revenue Code contains specific provisions concerning income tax consequences
when property is transferred in consideration for caregiving services. This could be in the form of an annuity
or transfer or a residence. The purpose of this newsletter is not to go into all the possibilities and the
consequences to all parties, but rather to provide an alert to the problems that a caregiving arrangement can
present, both for the caregiver and for Grandma.
Conclusion. There are continuing controversies concerning what should be the tax and property
consequences of caregiving arrangements. Controversies related to these matters are not only expensive,
but can be extremely divisive to families. We strongly recommend that the issues be addressed ahead of
time and that fair arrangements be worked out, considering especially the value of the services provided. If
you have any questions concerning elder law issues, such as caregiver compensation, please do not
hesitate to call Jim Modrall at (231) 941-9660 or any of the other attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A.
Pezzetti, Jr., John M. Grogan, Vicki P. Kundinger, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H.
Douglas Shepherd, Jonathan J. Siebers and Karin Church at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
long as possible. Many times this requires the assistance of a family member to act as caregiver, and in
many cases the family member moves in. This is usually with the consent and encouragement of other
family members, who are usually siblings. For purposes of our discussion herein, we will call the elder
“Grandma”, although obviously facts are not gender specific.
The basic question that occurs, especially on Grandma’s death, is what effect, if any, the caregiver’s time and
attention (and possibly lost wages) has on the dispositive provisions of the estate plan.
Is There Compensation? Is the caregiver providing the services out of the goodness of his or her heart? The
answer to that question usually depends on one’s point of view. Grandma may feel that the caregiver should
be specially compensated. The other family members, usually siblings, often feel that the caregiver is
receiving room and board, if there is a live-in arrangement, and that the care provided is out of love and
affection. Sometimes the family members recognize that there should be some special disposition, but are
not certain as to amount or how that should be done, especially if Grandma does not change a will or trust to
reflect the services provided.
In Medicaid matters the State presumes that caregiving services provided by a family member are motivated
by love and affection and that any compensatory payment will be regarded as a gift unless there is a written
agreement in advance.
What Goes to Court? There are frequent cases involving the compensation of caregivers, whether members
of the family or non-members. Often claims will be filed against an estate or trust, claiming that
compensation in one form or another was promised and not delivered. Litigation in these matters is often
nasty and always expensive.
On the other side of the coin, there is also frequent litigation when Grandma changes her will or trust to
provide for a caregiver, based on allegations of undue influence. These cases are usually brought by family
members whose shares of an inheritance are reduced or eliminated by these end of life changes.
What Do the Courts Say? Usually cases wind up in court when there is no previous written contract for
services. Whether an end of life estate plan change stands up under attack will depend on the facts and
circumstances of each case and what probative evidence there is that Grandma was not subject to undue
influence by the caregiver.
With respect to claims for compensation, these are also fact specific and often depend on statements made
by Grandma to other parties, including bankers or attorneys, about the desire to compensate a caregiver. To
prevail for a compensation claim, a caregiver’s position usually must be established by other evidence, which
is often difficult where a family member is involved.
Of course, there are the usual soap-opera scenarios where the caregiver is of the opposite sex. While
Michigan does not recognize common law marriages or “palimony,” the Courts have recognized implied or
express contract claims which are substantiated by the decedent’s actions, statements or writings.
What Is the Answer to These Dilemmas? As our population ages and more persons need assistance in
their old age in order to stay in their own homes, we recommend that the problem be addressed up front
before Grandma dies. A written compensation agreement is always recommended where there is a
possibility of Medicaid. However, going beyond that, a family should recognize that a caregiver provides
valuable services by staying with an elderly person (24-7 in-home care can cost over $10,000 per month, in
our experience). Room and board is certainly not sufficient recompense for these essential services.
What if Grandma makes a special provision in her will or trust for caregiver, whether a family member or not,
for the purpose of providing a property share to the caregiver? In these cases, it is almost assured that there
will be a challenge by some family member whose share of an estate is reduced. In these cases, we like to
have written statements of intent as well as witnesses to a decedent’s declarations of intentions.
What Are Some Other Issues? If there is a claim for compensation, as a result of a written contract or
otherwise, a claimant has to realize that any such payments constitute taxable income and that there are both
FICA and income tax consequences. Since these are regarded as personal services, there is generally no
corresponding income tax deduction to Grandma (although medical expense deductions are claimed in
some cases).
What are the consequences if Grandma has a written agreement which says the caregiver will receive her
house at death as compensation for all the services provided? Presumably this would be a satisfaction of a
debt and would be subtracted from a taxable estate where estate tax is an issue. These issues become a lot
more complex than meets the eye.
Section 83 of the Internal Revenue Code contains specific provisions concerning income tax consequences
when property is transferred in consideration for caregiving services. This could be in the form of an annuity
or transfer or a residence. The purpose of this newsletter is not to go into all the possibilities and the
consequences to all parties, but rather to provide an alert to the problems that a caregiving arrangement can
present, both for the caregiver and for Grandma.
Conclusion. There are continuing controversies concerning what should be the tax and property
consequences of caregiving arrangements. Controversies related to these matters are not only expensive,
but can be extremely divisive to families. We strongly recommend that the issues be addressed ahead of
time and that fair arrangements be worked out, considering especially the value of the services provided. If
you have any questions concerning elder law issues, such as caregiver compensation, please do not
hesitate to call Jim Modrall at (231) 941-9660 or any of the other attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A.
Pezzetti, Jr., John M. Grogan, Vicki P. Kundinger, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H.
Douglas Shepherd, Jonathan J. Siebers and Karin Church at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |
| September 2006 FAMILY MEMBER AS CAREGIVER by James R. Modrall III, J.D., C.P.A. |