Andy Masterton, who is in the final stages of motor neurone disease, was told by East Ayrshire Council that he applied too early for the benefit.
The local authority said the benefit was only for people who were four weeks from death at the point at which they were referred.
It has now said it will waive the charges.
Currently, only over-65s are entitled to free help with washing and dressing.
Guidance from the Council of Scottish Local Authorities recommends that people under 65 should be given free personal care if they have a terminal illness.
Councillor Douglas Reid, leader of East Ayrshire Council, said: "Eddie Fraser, our director of health and social care, has confirmed that, for Mr Masterton, this will mean an end to charges being applied for his care."