Protect Your Home and Assets with Tennessee Family Care Agreements

What Is a Family Care Agreement?

A family care agreement is a written contract between an older adult or person with disabilities and a family caregiver (such as a child or other relative). It describes the care to be provided, compensation, and the terms of the arrangement. In Tennessee, these agreements can support orderly caregiving, reduce family conflict, and document legitimate caregiver payments that may be relevant for TennCare eligibility and estate planning.

Why Use a Written Agreement?

• Clarity: Defines tasks (e.g., transportation, meal prep, medication reminders), schedule, and compensation.
• Proof of legitimate payments: A signed, dated contract with contemporaneous records can help show that payments to a family caregiver were for fair-value services rather than gifts.
• Asset protection planning: Properly structured agreements can support long-term care planning and may help avoid unintended transfer penalties under Medicaid rules when payments reflect fair market value and are documented. See 42 U.S.C. § 1396p(c).
• Care continuity: Sets expectations for backup care, respite, and communication among family members.
• Tax and wage compliance: Helps address payroll, reporting, and classification issues; see IRS Pub. 926 and 29 CFR Part 552.

Key Elements to Include

• Parties: Identify the care recipient and caregiver, with addresses and relationship.
• Scope of services: List specific tasks and limits (personal care, household tasks, transportation, coordination with providers).
• Schedule and location: Days, hours, on-call terms, and where services will be provided.
• Compensation: Hourly rate or flat fee, payment timing, reimbursement of mileage or out-of-pocket costs, and how fair market value was determined.
• Recordkeeping: Timesheets, invoices, and care logs; how records will be stored.
• Term and termination: Start date, review intervals, and how the parties can end or modify the agreement.
• Substitute caregivers: Process for temporary coverage and approval.
• Confidentiality and privacy: Include HIPAA authorizations if the caregiver needs to speak with providers (see HHS guidance).
• House rules and housing: If the caregiver lives with the recipient, address room or board, utilities, and boundaries.
• Liability and insurance: Auto coverage for driving, homeowners or renters insurance considerations, and professional liability if applicable.
• Compliance: Statements that services comply with Tennessee and federal laws, including tax withholding and reporting if required.

Medicaid (TennCare) Considerations

For TennCare long-term services and supports (LTSS), transfers of assets for less than fair market value during the look-back period (generally 60 months) can affect eligibility and timing of benefits. See 42 U.S.C. § 1396p(c). Paying a family member for caregiving under a well-drafted, pre-existing agreement at rates in line with local market prices – supported by thorough records of services provided and payments made – can help establish that payments were compensation rather than gifts. TennCare or its designee may review whether services were actually delivered, whether compensation was reasonable, and whether the agreement was executed before services were provided. Because TennCare program rules and interpretations can change, consult an elder law attorney before making or changing payments. For program context, see the state’s TennCare LTSS page and Tennessee’s estate recovery statute at Tenn. Code Ann. § 71-5-116.

Taxes, Employment, and Payroll

• Classification: Many in-home caregivers paid by the care recipient are treated as household employees for federal tax purposes (not independent contractors), which can trigger payroll tax and reporting obligations. See IRS Publication 926 and IRS: Household Employees. The Fair Labor Standards Act also covers many domestic service workers; see 29 CFR Part 552 and DOL Fact Sheet #79A.
• Reporting: Household employer rules may require withholding and reporting for Social Security and Medicare and unemployment taxes; state unemployment and other requirements may apply depending on the arrangement. See Tennessee employer resources at TN Dept. of Labor & Workforce Development.
• State income tax: Tennessee does not impose a state income tax on wages; however, federal income and employment taxes still apply. See Tennessee Department of Revenue.
• Deductions and reimbursements: Keep separate records for reimbursed expenses such as mileage and supplies.
• Income to caregiver: Wages are generally taxable to the caregiver; consult a tax professional about W-2 reporting and any applicable exceptions.

Because tax treatment depends on specific facts, obtain advice before making payments.

Paying Fair Market Value

Compensation should reflect local rates for similar non-medical home care services and the caregiver’s experience. Document how you determined the rate (e.g., quotes from agencies, published wage data), and keep timesheets and receipts. Avoid large lump-sum prepayments for future care unless carefully structured and supported by documentation of expected services and actuarial assumptions – such payments are often scrutinized under Medicaid transfer-of-asset rules. See 42 U.S.C. § 1396p(c).

Housing, Co-Residency, and the Home

If a caregiver moves into the recipient’s home, address room-and-board in the agreement. Consider whether rent will be charged, how utilities and groceries will be handled, and what happens if the recipient transitions to a facility. If property transfers or shared ownership are contemplated, get legal advice before signing deeds or adding names to titles, as these actions can have TennCare, tax, creditor, and probate implications. Note that estate recovery may apply to certain assets after death; see Tenn. Code Ann. § 71-5-116.

Recordkeeping Best Practices

• Signed, dated agreement before services begin.
• Detailed timesheets and care logs kept contemporaneously.
• Receipts for reimbursements, mileage logs, and invoices if applicable.
• Proof of payment (e.g., checks, electronic transfers) with memo notes linking to services.
• Periodic reviews to adjust scope and rate to current needs and market conditions.

Common Pitfalls to Avoid

• Paying without a written agreement or adequate records.
• Setting rates far above local market without justification.
• Backdating agreements to cover prior unpaid care.
• Large upfront caregiver payments without clear schedules of services.
• Ignoring payroll tax and employment law obligations.
• Changing property titles without understanding TennCare look-back and estate recovery implications.

How an Attorney Can Help

An elder law or estate planning attorney can draft a Tennessee-compliant agreement, align it with your overall plan (powers of attorney, wills, trusts), advise on TennCare implications, coordinate with tax professionals, and help set up practical systems for payroll and recordkeeping. Tailored legal advice can help avoid missteps that jeopardize eligibility or create family disputes.

FAQ

Do payments to a family caregiver count as gifts for TennCare?

They can be treated as compensation if there is a pre-existing written agreement, the rate is at fair market value, and you keep contemporaneous records of services and payments. Without documentation, payments may be scrutinized as gifts.

Can we pay a lump sum for future care?

Lump-sum prepayments are often scrutinized. Periodic payments tied to documented services are safer unless a carefully structured plan is supported by reasonable projections and records.

Is a family caregiver an employee or an independent contractor?

Often a household employee when hired directly by the care recipient, which can trigger payroll and reporting obligations. Get tax guidance for your situation.

Does Tennessee tax caregiver wages?

Tennessee does not tax wage income, but federal income and employment taxes still apply.

When should we start the agreement?

Before services begin. Avoid backdating.

Getting Started

• Discuss needs and expectations with the family.
• Gather information on local home care rates to benchmark compensation.
• List specific tasks, schedules, and boundaries.
• Consult an attorney to draft the agreement and coordinate TennCare planning.
• Set up payroll and recordkeeping before payments begin.
• Review the agreement periodically as needs change.

Need guidance?

We help Tennessee families plan and document care arrangements the right way. Contact our Tennessee elder law team to get started.

Sources

• TennCare Long-Term Services & Supports
• 42 U.S.C. § 1396p – Medicaid estate recovery and transfers of assets
• Tenn. Code Ann. § 71-5-116 – Estate recovery
• IRS Publication 926, Household Employer’s Tax Guide
• IRS: Household Employees
• 29 CFR Part 552 – Domestic Service Employment Regulations
• DOL Fact Sheet #79A: Companionship Services Under the FLSA
• TN Dept. of Labor & Workforce Development – Employers
• Tennessee Department of Revenue: Individual Income Tax (no tax on wages)
• HHS HIPAA Authorization Guidance

Disclaimer (Tennessee): This post provides general information based on Tennessee and federal law and program guidance as of the date above. It is not legal, tax, or financial advice and does not create an attorney-client relationship. TennCare or Medicaid and tax rules change and outcomes depend on specific facts. Consult a Tennessee-licensed attorney or qualified tax professional about your situation.