What is a Personal Services Contract?

Under Florida’s Medicaid Long-Term Care program, individuals must meet specific income and asset eligibility requirements to qualify for benefits that help pay for long-term care at home, in assisted living, and in skilled nursing facilities. Individuals applying for these benefits cannot have countable assets that exceed $2,000. 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 member for providing various types of care and oversight.

A Personal Service Contract is an agreement between a Medicaid applicant (known as a “Recipient”) and their designated care provider (known as a “Provider”). The Provider is usually a family member who receives payment for promising to provide various services specified in the contract.  For Medicaid planning purposes, the Personal Service Contract allows a Medicaid applicant to reduce their assets, while compensating their care provider 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 care provider is difficult, time consuming, and can be expensive for the applicant, but the Personal Service Contract allows the care provider, 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 would deem the transfer as a gift, and impose a penalty period. The cornerstone of a Personal Service Contract relies on the premise that the services provided by the care provider 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 taxable as ordinary income. 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 care provider is disabled or receives need-based government benefits themselves, receiving payment through a Personal Service Contract could jeopardize their benefits.

The Medicaid planning process can be difficult, but the attorneys at COHEN SAMUELS PLLC can help families protect their assets and make the Medicaid Planning process efficient so you can focus on your loved one. Contact our firm at 561-600-1250.