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- This Little-Known Estate Planning Strategy Can Help Family Members Care For You</p>
<p>Jennifer TaylorJuly 1, 2025 at 11:24 PM</p>
<p>Pgiam / iStock.com</p>
<p>If you can't fully care for yourself anymore, you might rely on loved ones to help out. You're certainly not alone in this situation.</p>
<p>Nearly two-thirds — 63% — of informal caregivers are family members, but only 9% are paid, according to the One America 2024 Caregiver Study.</p>
<p>No doubt, you're grateful for your loved ones' help and want to compensate them for their time. Keep reading to find out how to use an estate planning strategy to pay them back in a manner that works for everyone.</p>
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<p>Caregiving Agreement (Offering Regular Payments)</p>
<p>"A caregiving agreement between parent(s) and an adult child or grandchild is something we elder law attorneys do regularly," said Evan Farr, certified elder law attorney (CELA), certified analytics professional (CAP) and principal attorney at Farr Law Firm, P.C. "It requires entering into a written contract clearly spelling out the terms of the care."</p>
<p>In most states, he said a geriatric care manager should be involved with the creation of this agreement, to help ensure that Medicaid doesn't consider these Payments gifts in the future. This can also help avoid family fights caused by siblings believing the caregiver is overpaid.</p>
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<p>"This type of agreement is often used as a way to engage in 'smart spend down' of assets for the elder, who is eventually hoping to qualify financially for Medicaid," he said. "In this scenario, the parent of course pays the child on a regular basis for the child's care."</p>
<p>In this situation, the parent is technically supposed to register as an employer and treat the child as an employee — including issuing a W-2 and paying payroll taxes, he said. This might sound intimidating, be he noted there are several online companies that can handle this for you.</p>
<p>"Of course not everyone cares about being tax-compliant and many people deal with the money themselves and don't worry about taxes," he added.</p>
<p>Caregiving Agreement (Offering Future Payments)</p>
<p>If the parent doesn't currently have the money to pay the child and the child is okay with that, they can enter into an agreement for future payment, Farr said. This would typically occur upon the sale of the parent's home.</p>
<p>In this case, the parent and child would agree to a type of loan called a delayed payment agreement, he said. This can either carry interest or not, depending on the terms of the loan.</p>
<p>"This delayed payment agreement is similar to a revolving line of credit promissory note, where the caregiver keeps track of their hours and eventually gets paid the total amount of their hours — plus any interest — when the house is sold," he said.</p>
<p>Revocable Living Trust With Caregiver Compensation Provisions</p>
<p>In a revocable living trust with caregiver compensation provisions, the parent changes their living trust to direct caregivers to be paid out of income from their investment accounts or other trust assets, said Seann Malloy, founder and managing partner at Malloy Law Offices, LLC. This prevents the parent from having to make payments from their checking account.</p>
<p>"This approach is well-suited to elderly individuals who are informally cared for by family members — where the family caregivers experience reduced work or out-of-pocket costs of care," Malloy said, who practices civil litigation, with a focus on estate planning. "It is a way of guaranteeing that compensation is fair and at the same time maintaining family unity and transparency."</p>
<p>He said one of the main advantages to this approach is that it doesn't involve cashing in investment accounts or selling property. However, he noted that it does have potential drawbacks, including the need for the agreement to be properly worded to avoid IRS scrutiny.</p>
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<p>This article originally appeared on GOBankingRates.com: This Little-Known Estate Planning Strategy Can Help Family Members Care For You</p>
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