Of all the problems that arise when an elder needs personal assistance with daily matters, perhaps the least recognized are those that arise when a caregiver is compensated. In this article we will review the legal issues arising from compensation of private and family caregivers. These issues become more complex when the caregiver handles the elder’s finances and compensates herself.
Employer & Employee: Under the laws of most states when a person is paid for caregiver services, an employer employee relationship is created. Being an employer creates a host of legal duties and responsibilities. These are not avoided by claiming the caregiver is an “independent contractor.” The employer-employee relationship is defined and controlled by law.
How does the law determine whether the caregiver is an employee or an independent contractor? Perhaps the best guide is found in IRS Publication 15a. It lists some 20 factors to consider. In general in-home personal services are presumed to be supervised. Examples of unsupervised in-home services include the work of tradesmen such as a plumber or electrician.
Is the child the employer if she hires someone to take care of her parent? If a child acts for the by oral authority or a power of attorney and directly hires the person, then the elder is the employer. If the child chooses, hires and pays a person to perform caregiving service for a parent, then the child is the employer. If an agency is hired then the agency is the employer.
Duties of the Employer
Legal Employee: You must have proof the person you employ is legally able to work. You need to have a completed U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification in your file.
Employment Discrimination Laws: Employment Discrimination laws commonly ban discrimination based on race, age, sex and other factors. While the federal law only applies to employers over a minimum number of employees, you may be subject to state or city anti-discrimination laws.
Minimum Wage: Check and see what the minimum wage is in your area.
Employment Taxes: If you pay any one person more than $2,100 per year, you are responsible for FICA taxes and those are Social Security and Medicare taxes. The employer is also responsible for withholding the employee’s share of those taxes. Currently the total tax rate is 15.3%. If the employer does not withhold and pay the tax the IRS will impose penalties, interest and proceed to collect from the employer.
The employer is responsible for withholding income tax from the employee. The employer may
be relieved of this duty if the employee fills out a “W9″ form indicating the number of dependent deductions results in no tax due. You should check your state income tax requirements.
Federal and State Unemployment Compensation: An employer is also responsible for paying unemployment taxes. A terminated or laid off employee may be able to collect unemployment compensation on the employer’s account.
Failure to Pay Taxes: An employer who fails to pay required taxes may find that the penalties and interest equal the amount of taxes owed.
Workers Compensation: What if the caregiver injures her back or knee helping lift the elder? What if she falls down the stairs and fractures a bone? She can file for workers compensation to cover her medical expense and her wage loss. Your homeowners’ insurance will likely not cover employees. You should have workers compensation insurance.
While the list of employer requirements looks formidable it can be easily met if you consult an accountant use a payroll service.
Other Issues:
Completing the duties of an employer is not the end of considerations when compensating caregivers.
Government Benefits: If the care recipient is a wartime veteran or a surviving spouse of an eligible vet then caregiver payments will be a factor in eligibility for VA “Aid and Attendance” pension benefits. The VA considers such payments to be “unreimbursed medical expense” where the need for services are caused by a medical condition, which must be supported by medical evidence.
Unlike the VA, many state long term care Medicaid programs presume that payments to caregivers were made to qualify for benefits. The Medicaid program only allows an applicant to have $2,000 of cash assets and has a five year “look back” or review of financial transactions made within time period. In many states the payments are deemed “divestment of assets” which means the payments were transfers of assets for less than fair market value, made for the purpose of qualifying for Medicaid benefits. This conclusion can be avoided with advance planning. For example the Michigan Medicaid program requires a certification of need for the services by a doctor and a personal service contract that conforms to the Medicaid agency’s requirements.
Child Caregiver Compensation Issues: Compensating a child brings additional legal issues. This compensation includes not only pay for service, but can include gifts of cash or property to the child.
It helps to understand the issues concerning child caregivers if one keeps foremost in mind the legal presumption that children should not be paid for helping parents. Under the general law
children are presumed to provide commercially valuable services for free, for “love and affection.” It does not matter how valuable the services are or how much a parent was paying for the same service before the child began to help.
Even if the child is not paid, any unaccounted loss or use of the parent’s money may be presumed to have been taken by the child. A parent may have agreed to the child’s taking of the money as a gift. However, if the parent suffers from cognitive decline or memory problems she may not remember making the gift and the child will face legal consequences.. There must be evidence that the parent understood what the payment was for and that the parent freely consented to the payment. Oral consent is not enough.
Child is a “Fiduciary”: In short a “fiduciary” is a person trusted to handle the affairs of another and in this article we address the caregiver’s handling the financial affairs of the elder. An elder may have very haphazard record keeping of finances. But, when a child is trusted to take care of all the parent’s business, the child is a “fiduciary.” The child is held to a high standard of conduct such that all actions may only benefit the parent. If the caregiver fails to meet the standard he or she will be responsible for any harm or loss the parent suffers. How does a person meet the high standard?
When the child handles the parent’s finances, complete and detailed records must be kept. For example many elders still like to have cash in the home to make payments. It saves them trips to the bank. If the caregiver is managing the finances the practice is risky unless the monthly cash withdrawals are modest. Otherwise the caregiver may have no record of where the money went and as a fiduciary be responsible for any loss. It may be presumed that the caregiver took the money.
Mom Leaves the Nursing Home: A hypothetical may provide a useful context to show how problems can develop. Suppose a parent is in a nursing home, is paying $8,000 a month and receives horrible care. Suppose a daughter steps up and provides 24 hour care for her mother in her home and Mom does much better. By any commercial measure the daughter is providing care worth more than $8,000 a month. After six months the daughter is exhausted and her mother, who has memory problems, agrees that daughter should have a nice vacation. Daughter arranges for mom’s care in the home and goes on a great Las Vegas vacation at a cost of $10,00 out of mom’s bank account. Mom does fine, daughter comes back and brother who never offers to help finds out about the expensive vacation. Mom does not remember agreeing or the payment. What could happen?
Elder Financial Abuse: The brother could file an elder abuse charge. If a child has control of the parent’s finances and takes payment out of the account, without proof of informed consent by the elder, then the child may be accused of theft or elder abuse. This can result in criminal charges.
Control of Parent: The brother may hire an attorney and file a guardianship petition for control of the parent and the parent’s money. This can be a whole article in itself, but in short it can be very expensive and the elder may end up footing the bill. If the court grants the petition it may not appoint either child as guardian. The court may take the elder under its continuing supervision with an attorney or professional guardian managing the parent’s affairs. That guardian may remove Mother from the home, place her in a nursing home and demand a full accounting from the daughter. That can start a series of court expensive actions.
Inheritance: What if the mother makes a Will favoring the daughter for providing care for her? Major court battles can erupt after a parent dies. If a child receives more than the others, through the Will or a joint bank account, expect the “knives to come out.” The siblings will hire attorneys and begin court action. Where a child has had significant time alone with the parent and control of the parent’s finances, the favored gift may be overturned by the court.
The Will: can be contested on grounds of “undue influence” which means the child used his or her position to make the parent decide to give the caregiver a larger share of the estate. The greater the need for a full-time caregiver the easier it is to prove undue influence or elder abuse. If the will contest is successful the caregiver will not get the gift and could end up with an even smaller share of the estate.
Even without charges of undue influence, lifetime payments or gifts may result in a probate court contest. A court may rule that the money is an advance on inheritance leaving the caregiver with a diminished share of the estate and no recognition for the years of service that the child may have rendered.
Recommendation: This article has not exhausted the “What if” scenarios that can occur in the caregiver – elder context.
When the caregiver – elder relationship is begun there must be an agreement on the terms and conditions of the caregiving relationship. What about compensation? Even if government benefits are not contemplated a legal contract is a good idea.
And finally, while the parent’s “business” is her own private affair, when a child is a caregiver a family meeting at the outset is simply wise.
Be prudent, be safe. Talk to an elder law attorney and make sure you “do it right.”
Jim Schuster has been licensed as an attorney since 1978 and has focused his practice in Elder Law since 1996. Jim has been a member of the State Bar Elder Law and Advocacy Section since 1996 and served on the Section Council in all capacities, finally being Chair of the Section in 2003 – 2004. Jim has had articles on Elder Law published in the Michigan Bar Journal, Michigan Lawyers Weekly, the Detroit Legal News and Laches, the publication of the Oakland County Bar Association. He has also presented course material for the Institute for Continuing Legal Education. To learn more about Jim, visit www.jimschuster.com