You or your spouse is spending a lot of time taking care of the elderly parents, causing stress in your relationship and is one factor leading to the divorce. Consider having the parents sign a contract with you for your care services. This can help them and you get paid for your valuable help. Even though you would take care of them for free, this might be the best paying job for the economically disadvantaged spouse going through the divorce.
Elderly parents may need to hire outside people to help them with the housekeeping, cooking, driving, paying bills, personal care, provide a traveling companion, paying bills and many other services. Some parents are actually signing a contract with their children specifying what services are being performed and how the children can be paid. In most cases this is not being done specifically for the money, but it can be a great financial help to a divorcing spouse who is already handling these duties and provide income where it is needed. If any person gifts over $12,000/year to an individual, they must report the excess over $12,000 on an estate gift tax return. This is an estate planning tool that allows the parents to reduce their estate taxes AND not have to file a gift tax return. Many times the parents want to financially help their son or daughter going through the divorce. This would make the most sense for an older woman who doesn’t have strong employment skills to re-enter the job market in her late 50’s or 60’s.
You can write this contract in such a way that the money is paid in a lump sum at death and held in an escrow account until death, but I prefer seeing the money paid on a monthly basis with social security taxes being withheld and income taxes paid to the person providing the services on an ongoing basis. The contract can specify that you will be paid as an independent contractor, thus contributing to your own social security earnings history, gaining bona fide work experience, and helping your family.
I also think this arrangement can help eliminate tensions in a family where one sibling is taking on the primary care of the parents in their later years. Too many times the siblings are resentful when disproportionate shares of the final estate are paid out at death to recognize the special efforts of one sibling.
Recent changes in the Medicaid law have made it much more difficult for parents to qualify for Medicaid if they gift significant assets to their children. See your elder care estate planning attorney to help write the contract so your parents won’t be disqualified for Medicaid if it is ever needed in the future.
I have worked with clients who have used this estate planning strategy in their families and have created a post divorce career for themselves. First taking care of their own parents, and then transferring these services to other families. I believe this can be a win-win strategy for all concerned. It is like writing a pre-nuptial agreement in that you want to be very specific about the scope of the services being provided and the financial terms of the contract, who can terminate and under what conditions. This estate planning tool would be in addition to the parents Durable Power of Attorney and Living Will.