August 28, 2026
4:05 am

Personal Care Agreements and the Medicaid Look-Back

Call the elder law attorney before the first payment, not after the Medicaid denial. A personal care agreement is the difference between money a parent paid for services and money a caseworker treats as a gift, and the thing that determines which one it is happens at the beginning: a signed, dated, prospective written contract at a documented market rate, with payments by check and a contemporaneous log of hours.

Households usually get here at an uncomfortable moment. One child has been doing everything for two years. A parent has been slipping cash or writing checks. Now a hospitalization has made nursing home care a real possibility, someone has said the words “five-year look-back,” and everyone is quietly wondering whether the last two years of checks are about to become a problem. Sometimes they can be repaired. Sometimes they cannot. Either way, the sequence of phone calls below is the fastest path to an answer.

This page is built around who to call, in what order, and the exact question to ask each. Every figure is stamped as of 2026 and must be confirmed with the agency named. Pine Lake Legacy provides education and a free policy review only, and does not give legal, tax, or Medicaid-eligibility advice — the calls below are how you get that advice from people licensed to give it.

In This Article

Call 1 — An Elder Law Attorney in the Applicant’s State (Before Anything Else)
Call 2 — The State Medicaid Agency, for the Rules in Writing
Call 3 — The Area Agency on Aging, to See If Public Money Can Pay Instead
Call 4 — A CPA, Because the Caregiver Now Has Taxable Income
Call 5 — The Life Insurance Carrier, Only If a Policy Is in the Picture
Call 6 — SHIP, and Then Build the File
Frequently Asked Questions

Personal Care Agreements and the Medicaid Look-Back

Call 1 — An Elder Law Attorney in the Applicant’s State (Before Anything Else)

This has to be first because everything downstream depends on state law, and Medicaid long-term care rules are state-administered within a federal frame. An attorney who does this daily will know the local caseworkers’ documentation habits, which is worth more than any national article including this one.

Ask exactly this:

“If my mother pays me under a written personal care agreement, will this state treat it as fair market compensation or as an uncompensated transfer?”
“Does this state require the agreement to be notarized, to be prospective only, or to be supported by a physician’s statement of need?”
“We have already been paying informally for two years. Can any of that be cured, and if so how?”
“What is the current transfer penalty divisor for this state, and where is it published?”
“Does this state permit a lump-sum prepaid care contract, or only periodic payments for services already rendered?”

That last question is the one that separates good outcomes from bad ones. A lump sum paid up front for a lifetime of future care is the version that most frequently gets recharacterized as a transfer, because the value received is speculative. Periodic payment for documented services already delivered is the version that holds up.

To find counsel, use the National Academy of Elder Law Attorneys referral directory or your state bar’s lawyer referral service. Expect an initial consultation in the range of roughly $250 to $600 as of 2026, and expect a full plan to cost more. Against a penalty period that can run tens of thousands of dollars, this is the cheapest money in the entire process.

Call 2 — The State Medicaid Agency, for the Rules in Writing

The attorney gives you judgment; the agency gives you the published rule and the current numbers. Both matter, because a caseworker applies the manual.

Ask exactly this: “Where in your eligibility manual is the treatment of personal services contracts described, and can you send me that section or a link?” Then: “What is the current average private-pay nursing facility rate you use as the transfer penalty divisor, and as of what date?”

The federal frame is set by 42 U.S.C. 1396p(c): a 60-month look-back for institutional long-term care, with a penalty period computed by dividing the total uncompensated value transferred by the state’s average monthly private-pay nursing facility rate. As of 2026 those divisors commonly sit in the range of roughly $7,000 to $13,000 a month depending on the state, and they are republished periodically — do not use a figure you found online without a date on it. The penalty does not begin when the gift was made; it begins when the applicant is otherwise eligible and receiving institutional care, which is the cruelty of it. California has operated on materially different rules from the rest of the country in recent years, so a California question must go to a California attorney.

Also ask: “Does this state require reporting of a change in resources within a set number of days?” Most set a short window, commonly 10 days, and the answer matters if any lump sum is coming.

Call 3 — The Area Agency on Aging, to See If Public Money Can Pay Instead

Before a family spends its own money and creates a transfer question, find out whether a program will pay the caregiver directly. Every state has an Area Agency on Aging network under the Older Americans Act, and the national Eldercare Locator run by the Administration for Community Living will route you to yours.

Ask exactly this: “Does this state have a self-directed or consumer-directed home and community based services program where an adult child can be the paid caregiver, what is the current waiting list, and who takes the application?”

If the answer is yes and the parent is eligible, this is strictly better than a private agreement: the payment comes from Medicaid rather than from countable assets, the payroll is handled by a fiscal intermediary, and there is no transfer question at all. Many states will not pay a spouse, and some will not pay any legally responsible relative, so ask specifically about adult children. Waits of months are common; get on the list the same day you call. Our page on the legal ways to pay a family caregiver ranks this route first for exactly this reason.

While on the phone, also ask about the state’s respite program, meals, and transportation. Households in this situation almost always qualify for something they are not receiving.

Order	Who to call	The exact question	What you leave with
1	Elder law attorney in the applicant’s state	Will this state treat payments under a written agreement as compensation or a transfer?	A plan, and whether past informal payments can be cured
2	State Medicaid agency	Where in your manual are personal services contracts covered, and what is the current penalty divisor?	The written rule and a dated divisor
3	Area Agency on Aging	Is there a self-directed HCBS program that can pay an adult child, and what is the wait?	Public funding instead of family funding
4	CPA	Household employee or contractor, and what forms apply this year?	Publication 926 obligations, W-2 and Schedule H
5	Life insurance carrier	Cash value, death benefit, owner, loans, riders, in-force illustration	Facts for the attorney, not a decision
6	State SHIP	Do we qualify for a Medicare Savings Program or Extra Help?	Household cash flow with no look-back exposure

Call 3 — The Area Agency on Aging, to See If Public Money Can Pay Instead

Call 4 — A CPA, Because the Caregiver Now Has Taxable Income

Every dollar that survives Medicaid scrutiny as compensation is, by definition, taxable compensation to the caregiver. Families who solve the Medicaid problem and ignore this create a second one.

Ask exactly this: “Is my mother a household employer here, or am I an independent contractor?” and “What thresholds and forms apply this year?”

The usual answer is household employment: a caregiver working in the care recipient’s home, on a schedule the family sets, using the family’s supplies, is generally a household employee rather than a contractor. IRS Publication 926, the Household Employer’s Tax Guide, is the controlling plain-language source. Social Security and Medicare taxes apply once cash wages to one household employee exceed the annual threshold, which was $2,800 for 2025 and is adjusted annually — confirm the 2026 figure in the current Publication 926. Federal unemployment tax applies once total household wages exceed $1,000 in any calendar quarter. The employer reports on Schedule H filed with Form 1040 and issues a Form W-2. There are also state unemployment and, in many states, workers’ compensation obligations; ask about both.

Payroll services that specialize in household employment exist and typically charge somewhere in the range of $50 to $100 a month as of 2026. For a family that will need clean records for a Medicaid application, that is cheap insurance. See the common caregiver tax questions for the recurring issues.

Call 5 — The Life Insurance Carrier, Only If a Policy Is in the Picture

Make this call to gather facts, not to make a decision. Ask the carrier’s policyholder service line for: the current cash surrender value as of today, the current death benefit, the owner and beneficiary of record, whether there are outstanding loans, and whether the policy has an accelerated death benefit or long-term care rider. Request an in-force illustration showing how long the policy stays in force if you stop paying and if you continue paying.

Then hold those facts still while the attorney tells you what to do with them, because for a Medicaid applicant the policy is not just money — it is a resource on the eligibility ledger. In most states the cash surrender value of a permanent policy is countable above a small face-amount exclusion that many states set at $1,500, while term policies with no cash value are generally not countable and genuine burial arrangements are handled under separate burial exclusions.

Selling is the wrong answer in several fact patterns that show up here constantly. When the face amount is under roughly $100,000, the secondary market usually will not bid. When the policy is a small burial policy already inside a state’s burial exclusion, a sale converts an exempt asset into countable cash and can delay eligibility rather than help it. When the insured is healthy for their age, projected life expectancy is long and offers are small. When a surviving spouse needs the death benefit, the policy is the plan and should not be touched. And critically here: a sale during the look-back that is later found to be for less than fair market value can itself be treated as a transfer, which is precisely the outcome the family is trying to avoid. That is a question for the attorney before anything is signed.

Call 6 — SHIP, and Then Build the File

The State Health Insurance Assistance Program is free in every state and screens for Medicare Savings Programs and Extra Help, both of which put money back into the household without touching the look-back at all.

Then assemble the file, because a Medicaid application is a documentation exercise. The caseworker will ask for five years of statements on every account. Have these ready:

The signed, dated personal care agreement, executed before services began.
Two written quotes from licensed home care agencies in the same county, establishing the market rate you matched or came in under.
A dated log of services: date, hours, tasks performed. Contemporaneous beats reconstructed every time.
Copies of every check or transfer, with a memo line naming the agreement.
Form W-2s and Schedule H filings for each year.
A physician’s statement, where the state expects one, documenting the need for the level of care provided.

Two final cautions. First, if the parent’s capacity is in question, a personal care agreement signed under a power of attorney where the agent is also the paid caregiver is a self-dealing problem — most powers of attorney do not authorize it, and it invites a challenge. Second, do not backdate anything, ever. A reconstructed document is a fraud problem, not a Medicaid problem, and the difference in consequence is enormous. Read how the look-back period actually works before you decide what is salvageable.

If an in-force policy is part of the picture and you want an objective read on it before the attorney call, a free policy review takes only the policy cover page and a current premium notice – (732) 978-9575. It commits you to nothing, and if the honest answer is that the policy should be kept or that no transaction should happen while a Medicaid application is pending, that is what you will be told.

Frequently Asked Questions

Can a personal care agreement be signed after care already started?

It can be signed for future services going forward, and that is worth doing today. Paying retroactively for services already performed under a newly signed document is what caseworkers scrutinize hardest, and some states reject it outright. Ask an elder law attorney in the applicant’s state before attempting to cover past months.

How is the transfer penalty actually calculated?

The total uncompensated value transferred during the look-back is divided by the state’s published average monthly private-pay nursing facility rate, producing a number of penalty months. The penalty period does not start at the gift; it starts when the applicant is otherwise eligible and receiving institutional care. Confirm the current divisor with the state Medicaid agency.

What rate can a family caregiver be paid?

No more than the local market rate for comparable services, which you document with written quotes from two licensed home care agencies in the same county. Paying at or slightly below the agency rate is defensible because agency quotes include overhead. Paying above the local rate is what gets the excess recharacterized as a gift.

Does a lump-sum prepayment for future care work?

It is the highest-risk version and several states reject it, because the value received is speculative and the contract can end early. Periodic payment for documented services already rendered is far more durable. If a lump sum is being proposed to you, treat that as a signal to get independent legal advice immediately.

Is a life insurance policy a problem for the Medicaid application?

It can be. In most states the cash surrender value of a permanent policy is a countable resource above a small face-amount exclusion, often $1,500, while term policies with no cash value generally are not. Selling a policy during the look-back can itself raise transfer questions. Get the numbers, then ask the attorney.

What documents will the caseworker actually ask for?

Five years of statements for every account, the signed agreement, proof of the market rate, a dated service log, copies of all payments, and the tax filings. Contemporaneous records win; reconstructed ones invite scrutiny. Build the file before you apply rather than assembling it under a deadline.

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