Women 50+ who leave the workforce to care for a parent forfeit an average of nearly $325,000 in wages, future Social Security benefits and retirement assets. Reducing their hours or leaving a job may mean buying health insurance, while also paying for caregiving-related expenses—like medications and gas for driving their parent to doctors. These expenses all add up.
Research calculates the annual unreimbursed out-of-pocket expenses average $7,000, says Forbes’ recent article entitled “Who Pays for Mom? Creating The Family Care Agreement Over A Holiday Zoom.”
However, there may be another option for families to plan and handle caregiving, which is to hold a family meeting to draw up a family care agreement. Discussing the issues can make it better for the caregiver when siblings consider what their unpaid sibling may be sacrificing, and what action is needed to fairly protect her finances.
A family care agreement, also called a “personal care agreement,” is a written agreement that details the responsibilities of the family caregiver and their compensation. It’s a formal contract that can include an “escape clause,” if the caregiver or other family members decide in coming years that the arrangement isn’t working and want to end it.
Compensation for the caregiver can include paying healthcare premiums, as well as paid vacation and sick days. Since the family care agreement can designate the caregiver as an independent contractor, the family can include funds to start an IRA (such as a Simplified Employee Pension or SEP). This type of formal arrangement can reward efforts on behalf of the family and protect against burn-out and long-term resentment.
The caregiver should maintain records of her hours and expenses. This is essential, if the person receiving care later needs to apply to Medicaid for help paying for institutional care. The records will show that the money paid to the caregiver was for legitimate expenses.
Caregivers may need some education on financial management because the caregiver’s financial responsibilities frequently evolve from simply paying bills to filing taxes and managing assets for the care recipient. They also may have to deal with Medicare or Medicaid, choosing options and a drug plan.
Reference: Forbes (Dec. 20, 2020) “Who Pays For Mom? Creating The Family Care Agreement Over A Holiday Zoom”