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Primarily in Florida, Personal Services Contracts ("PSK"), which are also referred to as Caregiver Agreements, are widely used as a spend-down tool for Medicaid and Veterans benefits planning. A PSK generally services four purposes: 1. It reduces an applicant's countable resources to an acceptable level, which entitles the applicant to receive benefits; 2. It outlines the duties and obligations of the parties; 3. It establishes the compensation that will be paid to the caregiver; and 4. It dictates the duration of the immediate annuity, which is usually stretched over the care recipient's life expectancy. Meet Carl Jones. Carl Jones, a 77-year-old single individual, entered a nursing home October 1, 2011. As a result of his advanced Parkinson's disease, which greatly limits his mobility, Carl receives personalized daily assistance from his son Tom in addition to the services provided at his nursing home facility. Carl has personal property, one car, $315,000 in non-IRA bank accounts, and monthly income from social security and pension of $2,100. The nursing home bill is $6,200 per month. Tom would like to immediately qualify his dad for Florida Medicaid benefits. Carl's Planning Goals. In that Carl's care has become more extensive, Tom had reduced his full-time employment to only part-time in order to meet Carl's needs. Carl now has two goals: 1. Reasonable compensate Tom for his care; and 2. Become eligible for Florida Medicaid benefits to meet his monthly expenses. Provisions of the PSK. After consulting with an elder law attorney, Tom's care was valued at $30 per hour. With Tom usually providing three hours of care a day, he was on average providing 91.251 hours of care a month. With Carl being 77 years of age, his Florida Medicaid life expectancy is 9.34 years/112.08 months. With Tom's care of 91.25 hours per month at $30 per hour multiplied by Carl's life expectancy of 112 months, the total cost of Tom's personal services is valued at $306,600. Carl Purchases an Immediate Annuity. In order to minimize federal income taxes to Tom, pay the compensation consistently on a monthly basis, and not worry about whether he will have the funds in the future, Carl purchased an immediate annuity with a single premium cash payment of $302,0342. The immediate annuity reflected Carl as the "annuitant" and "primary beneficiary," and Tom as the "owner" and "payee." In that the annuity is "owner driven," versus "annuitant driven," if Tom dies and Carl survives him Carl gets the remaining scheduled payments. In the alternative, if Carl predeceases Tom and scheduled payments remain Tom continues to receive them. At the same time, Tom may alter the primary beneficiary to designate his intended heirs. Remaining Spend-Down Amount. With the total countable resources of $315,000 reduced by the premium of $302,034 for Carl's immediate annuity, and Carl's individual resource allowance of $2,000, an amount of $10,966 in countable resources remains. Carl decides to purchase a pre-paid funeral plan as a quick and easy method of converting the remaining spend-down amount into an exempt resource. Plan Benefits. Upon funding the PSK, and purchasing the pre-paid funeral plan, Carl is immediate eligible for Florida Medicaid benefits. He has also ensured that his personalized care needs are met and his son, Tom, is compensated accordingly. Income Tax Consequences. From the IRS' viewpoint, in that tom never had dominion and control over the cash payment amount of $302,034, Tom only pays federal income taxes on the annuity payments that he receives in a given calendar year. The reason for this relates to the fact that Carl and his insurance agent sent the annuity application, along with the premium payment, directly to the insurance company, and Tom never acquired any right to cancel the annuity contract, or seek a full refund. ______________________ 1 This amount was determined by multiplying three hours by 365 days and dividing the resulting figure by 12 months. 2 This is the investment amount necessary to provide Tom with a monthly payment of $2,737.50 in accordance with his hourly wage of $30 and average monthly care of 91.25 hours per month.
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Insurance Planning, Medicaid Planning, Annuity, Annuities,
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