Read more in WSJ.com about a growing trend for families to compensate adult children or relatives who serve as caregivers to elders. This trend may be fueled by a recognition of the financial sacrifices that family caregivers often make — frequently finding it necessary to cut back or quit a job in order to fulfil their caregiving duties. Also driving this trend may be the Nation’s current high unemployment rate, finding sons, daughters or relatives out of work and available to care for elderly family members, inducing seniors to hire their children or relatives as paid caregivers. Important tips on ways to do this, and the tax and legal issues involved are included in this helpful article in the Wall Street Journal Online, WSJ.com.
Some families pay the caregiving relative at the going wage. But, employee tax withholding requirements may apply. Other seniors prefer to gift assets to their caregiving child or relative, utilizing the senior’s $13,000 annual exclusion (per donee) from gift tax and $1,000,000 (or more, depending on year) lifetime exclusion from gift tax, to reduce the elder’s taxable estate for Estate Tax purposes.
Important advice: to avoid exacerbating tensions, be sure fully to disclose such compensation arrangements to the entire family in advance. For tax and estate reasons, it is also advisable to document the arrangement in writing — often called a “Care Contract.”