The elderly parent no doubt is trying to spend down assets in order to qualify for Medicaid (or similar welfare program).  There is a basic discussion of this strategy here:

https://www.carolinafep.com/library/could-your-family-benefit-from-a-personal-services-contract-for-...

Which includes this advice:

Finally, remember that whenever a person is hired to perform services in exchange for compensation, that person is required to report the income. In other words, if you enter into a personal services contract with a child or family member, they are obligated to report the payments received from you as income on their annual income tax return. It is recommended that you consult with your accountant to ensure compliance with all tax rules including any applicable income tax withholding rules, social security rules, and employee compensation rules.