What is a Personal Services Contract?

Under Florida’s Medicaid program, individuals applying for benefits must meet specific income and asset eligibility requirements. Individuals applying for long-term care benefits cannot have countable assets that exceed $2,000.  However, an individual may become eligible for Medicaid benefits by creating a Personal Service Contract. Personal Service Contracts are a fair market value strategy to achieve Medicaid eligibility by compensating an otherwise unpaid family or friend caregiver.

A Personal Service Contract is an agreement between a Medicaid applicant (the care “Recipient”) and their designated caregiver (known as the care “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 countable assets, while compensating their caregivers for their valuable 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 opportunities, serving as an advocate in various settings including healthcare, residential, and legal or financial, attending care plan meetings at the hospital or long-term care 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 work. 

If a Medicaid applicant gives a large sum of money to a family member or close friend, Medicaid considers that a gift, and imposes a penalty period.  The 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, tax professionals generally consider the amount transferred to be ordinary income subject to tax consequences. It is imperative for the care provider to consult their own tax advisor regarding the consequences of a Personal Service Contract. Additionally, if a caregiver is disabled or receives need-based government benefits or other subsidies, receiving payment through a Personal Service Contract could jeopardize their benefits.

The Medicaid planning process can be difficult, but our Board Certified Elder Law Attorney at COHEN SAMUELS can ensure that your family gets peace of mind every step of the way, from planning to implementation, application, and approval.