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Planning When There are Family Caregivers

Last update on: Apr 21 2016

Younger family members often care for their parents or grandparents. There often is some agreement that the caregivers should be compensated in some way for their efforts. The compensation often is with an increased share of the estate.

Too often, these agreements are haphazard and create both tax and family problems. It’s easy to avoid the problems.

Caregiver agreements involving family members should be in writing. The agreement should spell out in detail the services to be performed by the caregiver and the amount payable. It also should state when the amount will be paid, either as earned or out of the estate. It’s a good idea to spell out why the compensation is reasonable. The estate executor should be made aware of the agreement and have a copy of it. Other family members also should be informed, to minimize disputes later. There might be payroll and withholding tax obligations, and these should be determined.

Many states assume that services performed by a family member are gratuitous. Without the writing, other family members and the IRS can challenge the arrangement.

RW April 2013

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