What is a reasonable compensation for an agent with power of attorney? This is a difficult issue and depends in large part on whose eyes are doing the beholding.
First, let’s be clear about terminology. There is a huge difference between “compensation” and “reimbursement.” Reimbursement is more akin to a short-term loan by the agent. There are no negative tax implications.
“Compensation” is payment for services, and it should be treated as taxable income.
Second, who will be questioning the amount? Is it siblings who might think you’re taking too much of their rightful inheritance, or the Medicaid agency, which might treat the payments as a transfer of funds rather than payment for services?
Transfers of money to children always raise the suspicions of the Medicaid agency. That’s why, ideally, you would have a personal services contract setting forth the mutually agreed upon and reasonable rate of compensation.
South Carolina law recognizes that payment to an agent for services performed is allowable. But there must be some reasonable basis to justify the rate of compensation.
In either case, when determining the rate of payment under a personal service contract, or compensation for an agent (and, sometimes, for payment as a trustee), one question is “What would it cost to hire someone else to perform the same services in your community?”
Unfortunately, this might be difficult to determine since there might be no service that does exactly what you describe, but you might be able to get some guidance at least for some of what you list.
Then you might want to discount it, since many, if not most, family members provide these services at no charge.
If you’re concerned about other family members, it’s best to talk with them first and come to an agreement on the proper compensation.
But the Medicaid agency might still object to the amount, arguing that there is no obligation on your mother’s part to make the payments in the absence of a service agreement.
As mentioned above, you should draw up a written agreement, but if you’re signing as both parties – on your mother’s behalf under the power of attorney and on your own as the service provider – it could appear a little self-serving.
That said, it might still be the best way to go.
We recommend consulting with an elder law attorney in your community to see what works with the local Medicaid agency.
Brian T. Treacy is an elder law and estate planning attorney with an office in Bluffton.
