Why does a family caregiver need a written agreement?

A written personal-care agreement protects both the family caregiver and the care recipient in three ways. First, it documents compensation as legitimate income for the caregiver (not a taxable gift from the parent). Second, it demonstrates during any future Medicaid application that transfers between parties were compensation for services, not asset-shifting to evade the 5-year look-back. Third, it clarifies the working relationship and reduces family conflict about who is doing what for what compensation.

Will a family caregiver agreement help with Medicaid look-back?

When properly executed, yes. Medicaid applies a 5-year look-back to any application for long-term care coverage. Money transferred from a parent to a child during that window is presumed to be a gift and creates a penalty period unless the family can demonstrate the transfer was for fair-market value services. A dated, written, notarized personal-care agreement with regular payment records is the strongest evidence that transfers were compensation. Speak with an elder law attorney before relying on the agreement — Medicaid rules vary by state.

What hourly rate should a family caregiver charge?

Use a fair-market rate anchored to what a home care agency would charge in the same location for equivalent services, minus the agency margin. If a companion care aide runs $28-$36 per hour in a given market, a family caregiver providing similar services can reasonably charge $18-$25 per hour (below the agency rate because the family caregiver is the direct provider, not agency-billed). Rates far below market undermine the compensation argument; rates far above market invite scrutiny.

Does the family caregiver need to file taxes on the income?

Yes. Payments received under a personal-care agreement are earned income to the caregiver and must be reported on their federal tax return. If the care recipient's household is the caregiver's employer, they may be subject to household-employment tax rules (Schedule H). This is one of the trade-offs of the agreement structure — legitimacy for Medicaid purposes comes with the requirement of proper tax reporting. Consult a CPA experienced in household employment before implementation.

Can the care recipient live in the caregiver's home?

Yes, and the arrangement can strengthen the agreement. When the caregiver provides care in their own home rather than the recipient's home, the compensation reasonably covers a broader set of services (housing supervision, meal preparation, laundry, transportation). The rate in this arrangement is typically higher per week (often a flat weekly rate) reflecting the 24-hour presence the caregiver provides. Structure the agreement to reflect the actual care setting.

Family Care Agreement Generator — Free IRS & Medicaid-Compliant Template

⚠️ Important disclaimer: This tool generates a template based on your inputs. It is not legal advice and is not a substitute for review by a licensed elder-law attorney in your state. Medicaid rules, income tax treatment, and household-employment obligations vary. Before signing any personal-care agreement, review with an attorney and a CPA — especially if Medicaid eligibility, tax reporting, or household-employment tax exposure are relevant. This template covers the standard fields most attorneys start with; state-specific language is left for your attorney to add.

Live generator

Fill · preview · print

Every field on the left updates the preview on the right in real time. Nothing is stored or transmitted.

Care Recipient

Full legal name

Date of birth

Address

Family Caregiver

Full legal name

Relationship to care recipient

Address

Services

Services to be provided (comma-separated)

Compensation

Hourly rate ($)

Hours per week

Payment cadence

Payment method

Term

Effective date

Termination — either party may terminate with (days notice)

Personal Care Agreement

Between Care Recipient and Family Caregiver

Parties

Care Recipient:
[Care recipient's full legal name]
DOB: [Date of birth]
Address: [Address]

Family Caregiver:
[Caregiver's full legal name]
Relationship: [Relationship to recipient]
Address: [Address]

1. Services

The Family Caregiver agrees to provide the following personal care and companion services to the Care Recipient: [List of services]. Services shall be provided in the Care Recipient's home, or such other location as the parties mutually agree in writing.

2. Compensation

The Care Recipient shall pay the Family Caregiver at an hourly rate of [$XX] per hour, for approximately [XX] hours per week. Compensation shall be paid [weekly / bi-weekly / etc.] by [check / ACH / direct deposit]. The hourly rate reflects fair-market compensation for services of this nature in the local market, based on published home-care agency rates for equivalent services.

3. Records and Tax Reporting

The Family Caregiver shall maintain a written log of services provided and hours worked each week. Payments made under this Agreement constitute earned income to the Family Caregiver and shall be reported by the Family Caregiver on their federal and state tax returns. The parties acknowledge that the Care Recipient may have household-employment tax obligations under IRS Schedule H depending on total annual compensation.

4. Duties and Standard of Care

The Family Caregiver shall perform all services with reasonable care, in good faith, and consistent with the Care Recipient's expressed preferences and physician-directed care plan. The Family Caregiver shall promptly notify the Care Recipient's primary physician and designated family contact of any material change in the Care Recipient's condition.

5. Term and Termination

This Agreement shall be effective on [effective date] and shall continue until terminated. Either party may terminate this Agreement by providing [XX] days' written notice to the other party. Upon termination, any earned but unpaid compensation shall be paid within seven days.

6. No Gift; Full Compensation for Services

The parties expressly agree that all payments made under this Agreement are compensation for services actually rendered by the Family Caregiver at fair-market rates, and are not intended as, and shall not be construed as, gifts from the Care Recipient to the Family Caregiver.

7. Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the state in which the Care Recipient resides. Both parties acknowledge they have been advised to consult with an attorney before signing.

Care Recipient signature · Date

Family Caregiver signature · Date

Template generated by SeniorsAssistants. Have an elder-law attorney review before signing. Notarize for strongest evidentiary standing under Medicaid look-back.

Understanding the personal-care agreement

Three problems the agreement solves

Families sometimes pay one adult child to be their aging parent's full-time caregiver — an arrangement that can work well emotionally and financially, but that quietly creates three legal problems if the compensation is undocumented.

1. The IRS gift-tax problem

Absent a written agreement, monthly transfers from a parent to a child look to the IRS like gifts. Gifts above the annual exclusion (approximately $18,000 in 2024, indexed annually) are reportable on Form 709. A written personal-care agreement reframes those transfers as compensation for services — earned income to the caregiver, ordinary expense to the recipient. The caregiver then reports the income on their return; the recipient does not need to file Form 709. Cleanly reframing the transfers preserves the family's lifetime gift-and-estate-tax exemption for actual planned gifts.

2. The Medicaid 5-year look-back problem

When a parent later needs long-term care Medicaid, the state reviews all financial transfers made during the 5 years prior to application. Any transfer that appears to be a gift or below-fair-market-value exchange creates a penalty period — Medicaid delays coverage by the transferred amount divided by the state's monthly-cost rate. A well-executed personal-care agreement, with regular payments matching the agreement terms and traceable via bank records, demonstrates that transfers were compensation, not asset shifting. States vary in how strictly they scrutinize these agreements; some require the agreement predate the services, some accept retroactive documentation but weigh it less. Consult an elder-law attorney in the parent's state.

3. The family-conflict problem

Without a written agreement, other adult children often see the caregiver-child as receiving preferential treatment ("Mom is giving her $2,000 a month for taking care of her"). A written agreement that specifies hours, services, hourly rate, and payment schedule reframes the compensation as work done at fair-market value. It transforms an ambiguous family transaction into a documented professional arrangement, which reduces sibling conflict during and after the caregiving period.

What this template is not: This template covers the standard fields most elder-law attorneys start with. It does not cover state-specific language (mandatory arbitration clauses, notice-of-cancellation timing, homestead-declaration protections, etc.), household-employment tax setup, workers' compensation policy considerations, or the parent's cognitive-capacity certification. If the parent has any question of cognitive capacity, a physician's certification of contemporaneous decision-making capacity should accompany the signing.

Attorney review · what to bring

When taking this template to an elder-law attorney for review, bring: the completed template, both parties' government IDs, a rough estimate of the parent's total monthly household income and total assets, a summary of long-term care plans (aging in place vs. potential facility placement), and any existing power-of-attorney or trust documents. A one-hour attorney review typically runs $250-$500 and is money extremely well spent given what the agreement is protecting.

To estimate what an equivalent professional home care arrangement would cost — a useful benchmark for the fair-market rate — use our cost calculator. To understand all payment options for long-term care, see our paying for care guide.

Related tools

Round out the caregiving picture

🧮

Cost Calculator

Benchmark the hourly rate against 2026 home-care market rates in your area.

Calculate cost →

🔎

Care Type Quiz

Confirm the level of care matches what a family caregiver can realistically provide.

Take the quiz →

💳

Paying for Care

All the payment options: LTCi, VA A&A, private pay, reverse mortgage, life insurance conversion.

Explore options →

Ready to switch from family to professional care?

Many families transition from family caregiving to professional home care as needs grow. We match you to vetted private-pay providers when you're ready.

Find care near you