Funding a Caregiver Agreement with an Immediate Annuity

PRLog (Press Release) - Aug. 31, 2011 - According to recent statistics, the majority of long-term care provided in the family home is provided by the children of the homeowner.  The care is typically provided without a formal agreement, and is gratuitous in nature.  As a result of the care occurring at different times during the week, the child is typically unable to work and is left without any formal compensation.  The child's financial future can be placed in grave jeopardy if the care is provided over many years.

Is there a better way to handle the situation?  Without question, the answer is "yes!"  What the family needs is a caregiver agreement.  A caregiver agreement is a written contract, which specifically describes the services to be provided and the terms of compensation.  The amount of the compensation, or the fair market value of the asset to be transferred, should not exceed the prevailing rates for similar care or services provided in the community.  To the extent that the compensation exceeds the prevailing rate, the excess will be treated as an uncompensated transfer by Medicaid, delaying potential benefits.

For example, assume that Alice is receiving $2,500 worth of long-term care per month from her daughter, Jenny.  Jenny, who lives only a few doors down from her mother, helps her to bathe, dress, and eat in the morning.  Jenny also makes sure that her mother's medications are taken properly; Alice had a history of taking too many.  If Alice needs to go to the doctor's office, Jenny takes her.  Most evenings, Jenny brings her mother a meal, does any laundry and dishes, and makes sure that Alice gets into bed.  In the morning, the same routine repeats itself.

With Alice being 84 years of age, Jenny believes that her mother will need the same level of care for the next seven years.  To adequately compensate her daughter, Alice purchased a single premium immediate annuity ("SPIA") with $210,000 of cash assets.  The SPIA is scheduled to pay $2,500 per month for 84 consecutive months - seven years.  The SPIA reflects Alice as the "annuitant" and "primary beneficiary," and Jenny as the "owner" and "payee."  In that the SPIA is "owner-driven" versus "annuitant-driven," if Jenny predeceases Alice, Alice gets the remaining scheduled payments.  In the alternative, if Alice predeceases Jenny and scheduled payments remain, Jenny continues to receive them - at which point Jenny may alter the primary beneficiary to designate any intended heirs.  At the end of each year, Jenny understood that she was required to report all of the SPIA payments she received in a given year as compensation on her federal and state income tax returns.

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Krause Financial Services specializes in helping families qualify for Medicaid benefits through the use of Medicaid Compliant Annuities, and Veterans Aid & Attendance benefits through the use of various life and annuity insurance products.