As large segments of the American population grow older, they will increasingly require care and assistance in their daily lives. These individuals and their families must make crucial decisions about the type of care needed and who will provide it.
Perhaps the most significant consideration in this process is the cost of care. For many older adults who will need some level of assistance for the remainder of their lives, expenses can quickly accumulate—especially when skilled care is required in intensive settings such as hospitals or nursing homes.
Due to the high costs associated with professional care, many families feel a strong filial obligation to provide care for their elderly relatives themselves. However, family-provided care often comes at a steep personal price: individuals may have to leave their careers, sacrifice steady incomes, and give up full-time employment, as many older adults require near-constant assistance with mobility, personal hygiene, and medical needs. Despite these significant personal sacrifices, family caregivers are often uncompensated for their time and effort.
Complicating matters further, informal caregiving arrangements rarely involve formal agreements or legal structures. As a result, once the elderly relative passes away, there may be no legal avenue for the caregiver to receive compensation for the care provided. Federal law also offers limited options for compensating family caregivers: Medicare and Medicaid generally do not provide payments to family caregivers unless the caregiver is licensed in home health care.
The following article explores several ways a family caregiver can secure payment or compensation for the essential services they provide to their loved ones.
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Family Caregiver Compensation After Death:
When a loved one passes away, the emotional toll is enormous. But for family caregivers, another question often arises: Can family caregivers receive compensation after the person they cared for has died?
Whether you’ve been providing care for years or stepped in during your loved one’s final months, understanding your rights around family caregiver compensation after death is crucial. Let’s break it down.
Caregiver Compensation Agreement:
A Caregiver Compensation Agreement is often one of the most effective solutions for family caregivers seeking formal recognition and payment for their services. This written contract sets out the caregiver’s responsibilities and specifies the compensation they will receive for the services rendered. A compensation agreement can provide for payments during the elderly relative’s lifetime or can stipulate compensation to be paid after the relative’s passing.
However, such agreements carry significant legal and tax implications. For example:
- Tax Obligations: If the caregiver is paid during the elderly relative’s lifetime, that income is taxable at both the federal and state levels and is also subject to Medicare and Social Security taxes.
- Post-Death Compensation: If compensation is provided after the relative’s death, it will generally be treated as taxable income to the caregiver. Consider this example: if an elderly relative transfers a home valued at $100,000 to a caregiver who provided $50,000 worth of services, then $50,000 of the transfer may be taxable income, while the remaining $50,000 could be subject to gift or estate taxes.
Another potential challenge is family resistance. Some family members may view financial compensation for caregiving as improper or morally objectionable, believing caregiving to be a familial, moral, or religious duty. However, it’s important to recognize that if the caregiver provided similar services to an unrelated person, they would expect and receive compensation for their work.
Despite the benefits of clear agreements, concerns about cultural expectations and tax consequences often discourage caregivers from entering into formal compensation agreements.
Compensation Through a Testamentary Gift:
A testamentary gift—a gift specified in a will—can also serve as a form of compensation for a family caregiver. However, testamentary gifts have similar tax implications as compensation agreements. If a will explicitly states that a transfer is intended as payment for caregiving services, the transfer could be considered taxable income to the caregiver.
To avoid this, many testamentary gifts omit any language indicating that the transfer serves as compensation rather than a gift. This is because most testamentary gifts are not taxed under current federal and state laws.
However, testamentary gifts involve significant risks:
- The elderly relative can change their will at any time before death, potentially reducing or eliminating the caregiver’s gift.
- The value of the gifted asset (such as real estate or investments) could decrease, resulting in inadequate compensation for the caregiver’s services.
Compensation Through Power of Attorney:
Family caregivers are sometimes named as agents under the elderly relative’s Power of Attorney (POA). This role, however, can create uncertainty, as many caregivers believe they cannot pay themselves for their caregiving services while acting under a POA.
While this is true for gratuitous agents—those who serve without any expectation of payment—most formal agents can, in fact, be compensated for their services, provided:
- The POA document does not explicitly prohibit compensation.
- The agent acts diligently, competently, and in good faith.
- The compensation is reasonable and reflects the market value of similar services.
If a family caregiver acts as both a caregiver and an agent under a POA, it is essential to:
- Maintain thorough records documenting all caregiving expenses and any payments made.
- Avoid overcompensating themselves to prevent potential allegations of breaching fiduciary duties.
Consulting with an attorney is highly advisable to ensure that compensation arrangements are lawful and properly documented.
Importance of Legal Guidance:
If you are a family caregiver—or anticipate becoming one—it is crucial to seek professional legal advice to fully understand your rights to compensation and the available legal mechanisms for securing fair payment. This is particularly important if you are also serving as an agent under a Power of Attorney.
MacLaren Law LLC provides counsel for estate and business planning needs in Columbus, Ohio, and surrounding communities.
Disclaimer: MacLaren Law LLC is not affiliated or associated in any way with Kestra IS or Kestra AS. This article is for informational purposes only and does not constitute legal advice for any individual. Please seek legal counsel regarding your individual situation before taking any action based on the information discussed herein.
Frequently Asked Questions:
Is a caregiver entitled to compensation if the person they were caring for dies?
Yes, in most cases. A caregiver is typically entitled to payment for all hours worked up until the date of death. This includes unpaid wages, overtime, and sometimes unused vacation or sick leave, depending on the employment agreement and local labor laws.
Who is responsible for paying the caregiver after the client dies?
If the caregiver was privately employed, the responsibility to settle outstanding wages typically falls on the deceased person’s estate. If the caregiver worked through an agency, the agency usually handles final payment.
What happens to a caregiver’s contract when the care recipient dies?
The caregiver’s employment usually ends automatically upon the death of the client. However, wages owed up to that date must still be paid. If the caregiver was employed through an agency, they may be reassigned to a new client.
