The Tax Court has held that payments made to caregivers for providing physician-ordered assistance and supervision to a patient suffering from dementia qualified as long-term care services under Code Sec. 7702B(c) and were thus deductible amounts paid for medical care under Code Sec. 213(d)(1)(C) (Estate of Baral, 137 TC No. 1, 2011).
Lillian Baral had been diagnosed with dementia. When hospitalized in the year of her diagnosis, her medical records showed that she had not been taking her prescription medicines. She was later evaluated so as to determine whether it was safe for her to live alone. Lillian’s primary physician evaluated her and determined that her ability to communicate orally was impaired, she was confused, she required assistance with activities of daily living, she required supervision due to her memory deficit, she was at risk of falling and couldn’t be left alone, and she required baseline homecare services. Accordingly, the physician determined that she required assistance and supervision 24 hours a day for medical reasons and for her safety.
Lillian’s brother handled all of her personal and financial affairs under a power of attorney during the last years of her life and wrote checks from her bank account to pay her bills. Pursuant to the physician’s determination, he ultimately hired a primary caregiver to provide his sister with the necessary assistance. A second caregiver provided backup services during the primary caregiver’s time off. The two caregivers also paid for some of Lillian’s various expenses and submitted receipts to her brother for reimbursement. He paid them separately for their services and for reimbursements from Lillian’s bank account.
The Tax Court determined that the amounts paid to the caregivers were tax deductible as qualified long-term care services. Although the caregivers were not licensed healthcare providers, and the payments to them were not for the diagnosis, cure, mitigation, treatment, or prevention of decedent’s disease, the payments nonetheless satisfied the requirements to be considered qualified long-term care services as they were for the personal care services required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed physician.
What did we learn from this court case? Lillian had the foresight to give her brother a durable power of attorney to handle her financial affairs should she be unable to do so. Do you have an updated will, durable power of attorney, and HIPPA-compliant health directive? If not, call your estate planning attorney today.
