She Gave Up Her Salary. Texas Law Could Have Paid Her Back.

The Last Day at the Office

Sarah Chen had built something real at the tech firm in Frisco — twelve years in HR, a corner office with a view of the tollway, a 401(k) that was finally starting to feel meaningful. In March of 2024, she walked into her manager's office and resigned. Her mother, a retired seamstress from Allen with vascular dementia that had progressed quietly for two years, had reached the point where she could no longer be left alone.

Sarah had done the math. Home health agencies quoted her $22 to $26 per hour for personal care services in the Collin County area. Eight hours a day, seven days a week, the bill would run roughly $5,500 to $6,200 per month. Her mother's Social Security covered $1,840 of it. The arithmetic was merciless. Sarah would provide the care herself.

For eighteen months, Sarah did what millions of adult children do every day in Texas. She managed her mother's medications and drove her to specialists — the cardiologist in Plano, the neurologist in Frisco, the memory clinic in McKinney. She prepared every meal, helped with bathing and dressing, handled the household finances, and slept with one ear open. She kept a log of her mother's behavioral changes on her phone. She learned which pharmacies delivered, which physicians returned calls, and which days her mother remembered her name. She did it out of love, out of duty, and out of necessity. She did not get paid.

When her mother suffered a fall in September 2025 and it became clear she needed skilled nursing facility care, Sarah called a Medicaid planning attorney. She had heard Medicaid could cover the nursing home — $7,000 to $9,000 per month in the Dallas suburbs. She came to the appointment with eighteen months of phone logs, a detailed care journal, and one question:

Could she be compensated for the eighteen months of care she had already provided?

The attorney's answer was measured and kind, and it cost Sarah considerably more than she expected.

The Problem with Retroactive Kindness

Under federal Medicaid law — specifically 42 U.S.C. § 1396p(c) — the government imposes a five-year look-back on any transfer of assets made by a Medicaid applicant for less than fair market value. The purpose of this rule is straightforward: prevent families from transferring wealth to family members just before applying for benefits. The rule casts a wide net. It catches gifts to grandchildren, transfers to irrevocable trusts, real estate deeded to children at the last moment. And it catches retroactive payments for family care.

Here is the core problem: if Sarah's mother had paid her $30,000 — representing eighteen months of caregiving services at a reasonable hourly rate — with no prior written contract, no documentation established before the work began, and no prospective agreement in place when the services started, that $30,000 would almost certainly be treated by Texas Medicaid (administered by the Health and Human Services Commission, or HHSC) as a disqualifying transfer. Not as compensation for services rendered. Not as a legitimate expense. As a gift — one made for less than fair market value, one that would trigger a penalty period and delay Medicaid coverage at precisely the moment the family needed it most.

Retroactive care payments fail the fair market value test not because the care was not real, but because the payment structure cannot be independently verified. HHSC case workers evaluating a Medicaid application scrutinize payments between family members using three questions: Was there a written agreement in place before the care began? Were the services documented contemporaneously as they were provided? Was the rate consistent with what an unrelated home care agency would have charged for the same services in the same market? Without a prospective written contract, the answer to the first question is no — and for HHSC, that is generally where the analysis ends.

Sarah's eighteen months of devoted, exhausting, economically valuable care — undeniable in every human sense — could not be retroactively converted into compensated services without triggering a penalty period that would delay her mother's nursing home coverage for months.

What Most Texas Families Miss About the Window

AARP's national caregiving research estimates that approximately 53 million Americans provide unpaid family care at any given time, with the typical family caregiver providing roughly 26 hours of care per week — the equivalent of a part-time job, delivered without pay, often alongside a full-time job and the responsibilities of raising one's own children. In Texas, the estimated economic value of unpaid family caregiving exceeds $31 billion per year. That is $31 billion in services rendered, sacrifices made, and careers interrupted — for which the vast majority of caregivers receive no compensation, and for which they receive no recognition when the Medicaid application is eventually filed.

The gap exists not because the law forbids compensation. It does not. The gap exists because most families don't know the planning tool exists until after the window to use it properly has already closed.

That tool is called a Personal Services Contract — sometimes called a Caregiver Agreement or Personal Care Agreement. It is a written contract, executed before services begin, between the person needing care and the family member (or trusted friend) who will provide it. Done correctly, payments under that contract reduce the elder's countable assets for Medicaid purposes — legitimately, verifiably, and without triggering a disqualifying-transfer penalty. Done incorrectly — too vague, too late, or structured to pay for care that already happened — those same payments become the kind of transfer that delays Medicaid coverage by months.

The difference between those two outcomes is almost entirely a matter of timing, drafting, and documentation.

How a Valid Texas Personal Services Contract Works

A personal services contract that will survive HHSC scrutiny during a Medicaid application review must satisfy several requirements. None of them are legally complex. All of them must be in place before the compensated services begin.

It must be written. An oral understanding between a parent and an adult child — even one that both parties clearly intended and consistently honored — is not sufficient. HHSC case workers look for a written document. Its absence is, for practical purposes, the same as the absence of an agreement.

It must enumerate specific services. Vague descriptions ("general care and assistance") are an invitation for challenge. A defensible contract specifies what the caregiver will do: personal hygiene assistance, medication management and administration oversight, meal preparation and nutritional monitoring, transportation to medical appointments, household management, companionship and cognitive engagement, financial management, and coordination with medical providers. Each category of service should be described with enough particularity that a case worker can evaluate whether the rate charged is reasonable for that type of work.

The rate must reflect fair market value. As of 2025 and into 2026, home health aides in the Dallas-Fort Worth metroplex — McKinney, Frisco, Plano, Allen, Southlake — earn an average of approximately $15 to $18 per hour, consistent with national compensation data for the region. For personal care services, a rate in that range is generally defensible. A family member who also manages medications, coordinates with multiple specialists, and oversees complex financial affairs may justify a somewhat higher rate — but it must be documented by reference to local market comparables. A rate of $40 per hour for companionship and grocery runs is the kind of claim that generates HHSC scrutiny and potential denial.

It must be prospective only. The contract covers services to be provided going forward from the date it is signed. It cannot reach backward to compensate for care already rendered, no matter how real or documented that care was. This is the provision that proved most costly for Sarah's family: the eighteen months of work she had already completed were, as a Medicaid legal matter, a gift. No contract signed today can retroactively convert prior services into compensated work without triggering the look-back penalty.

It must be documented contemporaneously. The caregiver should maintain a running log — daily or weekly — recording the services provided, the hours worked, and the payments received. This documentation is not optional if the family expects the contract to hold up under HHSC review. A well-drafted contract supported by spotty logs is vulnerable. A well-drafted contract supported by detailed, consistent records is substantially more defensible.

Payments must be treated as employment income. When an elder pays a family member more than the IRS household employee threshold (approximately $2,700 per year as of 2026) under a personal care agreement, the IRS treats that family member as a household employee — not an independent contractor. Payroll taxes apply. A W-2 must be issued at year end. The administrative requirements are modest but real, and they are one of the reasons personal services contracts are best implemented with the guidance of an elder law attorney and, where appropriate, a CPA — not as a kitchen-table project.

Consider notarization. Texas does not legally require notarization of a personal services contract, but HHSC reviewers look more favorably on contracts that bear both parties' signatures and a notary's acknowledgment. The additional step costs almost nothing and meaningfully reduces the contract's vulnerability to challenge.

The Look-Back Math: Why Timing Is Everything

Timing determines whether a personal services contract is a valuable planning tool or a Medicaid penalty waiting to happen. The five-year look-back period means that HHSC reviews all financial transactions — including payments under a personal services contract — going back five years from the date of the Medicaid application. A contract established five years before the application is reviewed with minimal scrutiny. A contract established four years out will likely hold if properly documented. A contract established six months before the application will be examined carefully. A lump-sum retroactive payment made weeks before the application is almost certainly a disqualifying transfer.

Consider what that math means for a family in North Texas today. If a parent's care needs are becoming apparent now — if an adult child is already spending significant time providing assistance — the time to consult an elder law attorney and establish a personal services contract is this month, not when the crisis arrives. Every month the contract is in place and payments are being made and documented is a month that sits outside the look-back window when the Medicaid application is eventually filed. The planning that happens today directly reduces the exposure a family faces years from now.

What a Penalty Period Actually Costs

Texas families who make disqualifying transfers — including retroactive care payments without proper contracts — face a Medicaid penalty period calculated by dividing the transferred amount by the average monthly cost of nursing home care in Texas. HHSC uses a divisor that reflects regional nursing facility costs; in the Dallas-Fort Worth area, that figure typically runs between $7,000 and $9,000 per month.

A $45,000 retroactive payment — eighteen months of caregiving at a $15 hourly rate for five hours per day — could produce a Medicaid penalty period of five to six months. At $7,000 to $9,000 per month for a skilled nursing facility, that penalty costs the family $35,000 to $54,000 in out-of-pocket expenses to bridge the gap before Medicaid coverage begins. The payment that was intended to compensate a devoted family caregiver instead triggers a coverage gap that strains the family further. This is the outcome a properly structured personal services contract, established in advance, is specifically designed to prevent.

Three Things Every Texas Family Should Know

The lesson elder law attorneys in Texas repeat constantly — because the families who most need it rarely hear it until after the crisis — comes down to three points:

• Compensating family caregivers is legal, legitimate, and sometimes the most financially sensible thing a Texas family can do. There is nothing improper about an adult child being paid to provide care that a home health agency would charge $5,000 to $7,000 per month to deliver. The law permits it. Medicaid accommodates it — provided the arrangement is prospective, documented, and priced at fair market value. The requirement is structure, not permission.
• The look-back period does not forgive late starts. A personal services contract established five years before a Medicaid application is essentially bulletproof on its face. One established six months out will face scrutiny. Retroactive payments made to avoid nursing home costs are among the most common — and most avoidable — sources of Medicaid penalties in Texas elder law practice. Earlier is always better. The best time to set up the contract is the moment a family member's care needs become substantial. The second-best time is today.
• The margin for error on these contracts is low, and the cost of error is high. A vague contract, an unsupported rate, missing documentation, or a retroactive payment structure can result in a penalty period measured in months — and at DFW nursing home rates, months translate quickly into tens of thousands of dollars. These are not DIY documents. The attorney fee to draft a defensible personal services contract is a fraction of a single month of nursing home costs. The return on that investment, measured in Medicaid planning terms, is significant.

Back to Allen

Sarah's mother entered the nursing home in October 2025. The Medicaid application was filed the following month. The eighteen months of care Sarah had provided — real, exhausting, worth tens of thousands of dollars at any defensible market rate — generated no Medicaid credit and no compensation. It was, as a legal matter, a gift. HHSC reviewed the finances, identified no disqualifying transfers (because no retroactive payment had been attempted), and approved coverage. But Sarah understood, with clarity that will stay with her, that the outcome could have been different if she had tried to do what seemed obvious and fair.

What Sarah did have, by the time the application was filed, was a properly drafted personal services contract covering the continued care she would provide — transportation, physician coordination, financial management, weekly visits — during her mother's nursing home stay. The contract was signed before those services began, documented weekly, and priced at the local market rate. HHSC reviewed it. HHSC accepted it. Sarah received the compensation she had earned.

It did not recover what the eighteen months had cost her. But it meant she would not lose more. And the attorney who drafted it told her what he tells every family who leaves his office with a personal services contract in hand: the clients who come to him before the crisis almost always have options. The ones who come after the crisis are almost always managing consequences. The door between those two outcomes is usually still open — but it is not open forever.

Taylor Willingham is the founding attorney at WG Law, serving clients throughout McKinney, Southlake, Allen, Frisco, Plano, and the greater DFW metroplex. He has guided more than 10,000 clients through estate planning and elder law matters, handled over 2,000 probate cases, and authored five books on estate planning and Medicaid planning for Texas families. If your family is navigating elder care decisions — whether a parent's needs are just beginning to grow or a nursing home transition is imminent — call 214-250-4407 or contact WG Law to request a consultation.

For related reading, see our articles on the Texas Medicaid five-year look-back period, Medicaid asset protection trusts for nursing home planning, protecting the spouse at home from Medicaid spend-down, and the Texas income trap and qualified income trusts. For an overview of WG Law's full elder law practice, visit our elder law practice area page.

This article is provided for general informational purposes only and does not constitute legal advice. Medicaid rules, HHSC policies, and federal regulations are subject to change and vary based on individual circumstances. The scenarios described are illustrative only. Nothing in this article should be relied upon as legal guidance for any specific Medicaid planning decision. Consult a licensed Texas elder law attorney for advice tailored to your family's situation.