According to statistics by The National Alliance for Caregiving and AARP, roughly one-third of the U.S. adult population is providing care for someone who is ill, disabled or aged. That's more than 65 million caregivers.
While most care provided by family, friends or neighbors is normally done out of love and affection, there are ramifications to such informal arrangements that may lead to significant issues involving taxes, liability, Will contests, undue influence, theft, property damage, caregiver burnout and future Medicaid and Veterans benefits eligibility issues.
Let's look at a typical situation that can lead to problems.
Susan, one of three adult children of Mary, wants to make sure her mother is safe, so they decide to live together in Susan's home. Susan takes care of her mother's needs, such as meals, transportation and assistance with some physical limitations. Mary insists on helping financially, so each month Susan receives about $1,000 from her mother. Sometimes payment is by check and other times with cash or a combination of the two. Once in awhile, Mary just decides to pay Susan's credit card bill.
In addition, Mary wants to help out Susan's son, Paul, who is entering his freshman year at college. Paul has become closer with his grandmother in his last year of high school and has been instrumental in helping with chores around the house. So, Mary decides to cash in one of her CDs and give $30,000 to Susan to be used for tuition.
While Susan is not totally accepting of her mother's charity, she gives in as Mary explains to her how thankful she is for Susan's caregiving and that Mary's other children just "aren't around anymore."
When the living arrangement began, Mary was able to stay at home alone during the day while Susan worked full-time. After a couple years, Mary has required increased assistance and her daughter is now afraid to leave her at home alone because Mary has begun to wander, which also has kept Susan from getting a good night's sleep over the past few months.
The stress on Susan has negatively affected her own career. So, Susan decides to hire her friend Kelly, who is unemployed and has no medical training, to keep an eye on Mary during the day. Susan pays Kelly $10 an hour "under the table" (a not uncommon happening).
One day, Mary has a fall in her daughter's home and is taken to the hospital where she is diagnosed with advanced dementia and must be transferred to a skilled nursing facility following her rehab. Since this facility costs $9,000 a month, Susan has decided to apply for Medicaid to pay for her mother's nursing home care.
Unfortunately, when the Medicaid application is submitted, the county Assistance Office requests five years of prior bank statements, which show dozens of financial transactions between mother, daughter and Kelly. In addition, the cashing of the CD and gift for Mary's grandson's tuition sends up another red flag. This discovery leads to the assumption that Mary intended to divest herself of her assets in order to expedite her eligibility for Medicaid.
Susan argues that payments she received from her mother were in exchange for the caregiving services provided. However, without a written contract between the two, the county assumes the care was provided out of love and affection.
Furthermore, the county requests copies of Susan's income tax returns (and Kelly's income tax returns) to verify that these payments were indeed an exchange of value for services. Of course, neither Susan nor Kelly ever reported this income on their tax returns and now may have another government agency -- the Internal Revenue Service -- to which to answer.
As Mary spends weeks scrambling to assemble the financial information requested by the county, the monies owed to the nursing home continue to grow. Eventually, Susan's older sister, Linda, drives across the state to see what's going on and begins to interface with the nursing home as agent under her mother Mary's Power of Attorney.
Linda reviews her mother's financial information and discovers the gift of Mary's CD to pay her nephew's tuition and decides to call her brother, Alec, who is an attorney living in New York City. Alec advises Linda that Pennsylvania has a filial responsibility statute that makes adult children responsible to pay for their parents' long-term care costs. However, since Alec lives outside Pennsylvania, he believes only Susan and Linda may have liability for Mary's care costs.
Finally, it turns out Kelly was not such a good friend after all, as several months after Mary enters the nursing home, Susan discovers that a significant amount of personal jewelry is missing from her home along with some cash she kept hidden in her bedroom dresser.
While this scenario may seem extraordinary, it happens not infrequently.
When considering entering into a caregiving arrangement, both the provider and the person needing assistance should discuss and coordinate various issues in advance and seek professional assistance. While no family relationship is perfect, many issues can be avoided if dealt with in advance.
Julian Gray and Frank Petrich are both certified elder law attorneys with over 55 years of combined elder law experience who practice in the Pittsburgh area at Gray Elder Law. Send questions for consideration in this column to firstname.lastname@example.org and visit their website at www.grayelderlaw.com.