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Patricia M. Annino
Patricia M. Annino
But mom and dad promised me their entire estate…or at least their home

Eight steps caregiver clients can take to avoid becoming mired in a quantum meruit claim.

January 24, 2013
By Patricia M. Annino, J.D.

The client in your office explains, “I gave up my job to take care of my parents, I moved in with them and did everything that was expected—and more—for three entire years. I took them to every doctor’s appointment, made sure that they had food, took their medicine on time, and ate three meals a day.

“My brothers, however, called them about four times a year. My parents promised me that I would be compensated at their death for what I did. They told me they did not want to spend their own money because they were terrified that they would run out of money. I know their will says that my siblings and I will receive equal shares, but I know that is not what they meant. I was promised the house for what I did.”

The legal theory behind whether this client should receive the house is called “quantum meruit,” meaning, “as much as he deserves.” It is based on the concept that someone who benefits from another’s labor should not be unjustly enriched by it—in the absence of an explicit contract, the doctrine of quantum meruit will infer a promise to pay a reasonable amount for the services.

You may encounter circumstances in which legal estate planning documents are not changed or updated, yet the caregiver child believes that without this payment his or her parents would have been unjustly enriched and that what the caregiver child receives from the decedent’s assets through the estate is unfair.

Siblings may take the position that they were unaware of any contract or promise the parents made to the caretaker child, that they were unable to care for the parents themselves because of their own family commitments, that it was admirable what the caretaker child did, but that mom and dad loved all their children equally, and if they had really wanted the caretaker child to receive more, they would have changed their estate plan.

The quantum meruit standard varies from state to state. Texas courts have ruled that, “[t]o recover under the doctrine of quantum meruit, a plaintiff must establish that (1) valuable services and/or materials were furnished; (2) to a party sought to be charged; (3) which were accepted by the party sought to be charged; and (4) under such circumstances as reasonably notified the recipient that the plaintiff, in performing, expected to be paid by the recipient” (Heidenfels Bros. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992)).

Quantum meruit cases have tax considerations, too. In 1994, Anthony Olivo, a New Jersey tax lawyer, left his law practice to care for his elderly parents in their home. His father died in 1995, and Olivo continued to care for his mother. Although Olivo provided extensive care services to his mother, in 1998, one of his sisters became upset with the care he was providing. She claimed that all he did during the day was watch TV, and he was not paying for room and board. He discussed this with his mother, and she offered to pay him $1,000 a week for caregiving. Since he was concerned about her finances, he agreed to be paid $400 a day with payment deferred until her death. This was an oral, not written, agreement.

Olivo’s mother died in 2003, and eventually, in 2004, he was named administrator of her estate. On the return for the estate tax, he claimed $44,200 for his services in that capacity, $50,000 for his services as lawyer for the estate, $5,000 for accounting fees, and $1,240,000 for debt owed to him for the care he provided his mother pursuant to the 1998 verbal agreement.

The IRS denied these deductions. At the 2011 trial in Tax Court, Olivo testified that he “could have and should have” memorialized the agreement in writing, but he was too distracted by his caregiving duties to think like a lawyer at the time. The court held that because there were no witnesses or corroborating evidence, the estate failed to establish the existence of a legal debt.

In the alternative, the estate contended that Olivo was entitled to some recovery under quantum meruit. The court rejected this claim, stating that under New Jersey law, services to a family member living in the same household are presumed to be gratuitous, unless shown otherwise by a preponderance of the evidence. The court noted “children do provide gratuitous care for their aging parents” (Estate of Olivo, T.C. Memo. 2011-163 at *15).

Eight steps to take to avoid quantum meruit claims

In cases like these, it is important to make the expectations clear as early as possible in the caregiving arrangement and consider the following:

  1. Put the caregiving agreement in writing.
  2. Tell other family members that this agreement exists.
  3. Keep a written record or log of the hours and tasks the caregiver is putting in.
  4. Establish an hourly or daily rate that is reasonable—it may be prudent to compare that compensation to what the marketplace bears.
  5. Execute a personal care agreement that sets forth the expectations of the engagement and the payment—even if this is within the family.
  6. Adjust the estate planning documents to take the caregiving into account or as a mechanism to ask the court to honor any such personal care agreement. Many families may prefer the personal care agreement to the estate planning adjustment, as it is unclear how long the services will last, and the agreement can set forth the method of payment and allow for termination of the services by either party.
  7. Coordinate the income tax consequences. If it is compensation, then to be deductible it should also be included as gross income to the caregiver.
  8. If a child or other family member is paying bills for the parent or taking care of expenses from his or her own assets, then both the state Medicaid laws and the courts will presume that these are gifts from the child to the parents. If that is not the intention, formal legal promissory notes should be entered into and kept current.

The lesson is that the issues around families and caregiving are tricky and complicated. It is important to understand and be aware of the family dynamics, legal aspects, and tax ramifications.

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Patricia M. Annino, J.D., LL.M., chairs the Estate Planning Practice Group at Prince Lobel Tye LLP in Boston. She is a Fellow of the American College of Trust and Estates Counsel (ACTEC).

* The AICPA PFP Section provides information, tools, advocacy, and guidance to CPAs who specialize in providing tax, retirement, estate, risk management, and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. CPAs who want to demonstrate their expertise in this subject matter can apply to become a PFS credential holder.