What is a Personal Service Contract?
Under Florida’s Medicaid program, individuals must meet specific income and asset eligibility requirements to qualify. Individuals applying for long-term care cannot have countable assets that exceed $2,000 (individual applying) or $3,000 (married couple applying). However, an individual may become Medicaid eligible by creating a Personal Service Contract. Personal Service Contracts are a strategic way to assist with Medicaid eligibility by compensating an otherwise unpaid family caregiver.
A Personal Service Contract is an agreement between a Medicaid applicant (known as a “Recipient”) and their designated caregiver (known as a “Provider”). The Provider is usually a family member or close friend who receives payment for providing caregiving services. For Medicaid planning purposes, the Personal Service Contract allows a Medicaid applicant to reduce their assets, while compensating their caregivers for their services. The Personal Service Contract outlines the details of the applicant’s care needs, including but not limited to: transportation to anything from doctors’ appointments to entertainment events, managing medications, paying household bills, assisting with obtaining medical and professional services, facilitating social events, being an advocate in various settings including healthcare, residential, and legal or financial, attending care plan meetings at the facility, and other services as needed, including assisting the recipient with their activities of daily living. Being a caregiver is difficult, time consuming, and can be expensive for the applicant, but the Personal Service Contract allows the caregiver, who often gives up other paid work to assist a loved one, to receive the benefit of real compensation for their assistance.
Typically, if a Medicaid applicant were to give a large sum of money to a family member or close friend, Medicaid considers the transfer as a gift, and imposes a penalty period. The cornerstone of a Personal Service Contract relies on the premise that the services provided by the caregiver would typically require payment to a third party for identical services; therefore, payment to a family member is considered a fully compensated transfer, for Medicaid eligibility purposes, and is not subject to the penalty period.
It is important to note that because the Personal Service Contract often requires the immediate distribution of funds as a lump sum payment, it is generally considered ordinary income and is subject to tax consequences. It is imperative for the care provider to consult their own tax advisor regarding the tax consequences of a Personal Service Contract. Additionally, if a caregiver is disabled or receives need-based government benefits, receiving payment through a Personal Service Contract could jeopardize their benefits.
The Medicaid planning process can be difficult, but the attorneys at SAMUELS WOOD PLLC want to help you protect your assets and make the Medicaid planning process efficient so you can focus on your loved one. Contact our firm at 561-864-3371.