Florida Medicaid Personal Services Agreement Tax Implicatons/Planning/Administration

[B1955]

My wife and I may need to set up the above-mentioned topic to provide long-term care for her sister's needs beyond what Medicaid will provide.  We're pretty aware of the tax-implications -- e.g., the lump sum deposited in an account for her sister's needs/services provided by us -- will be taxable income.  What we need some guidance on are the mechanics of doing it properly...i.e., do we issue 1099s and/or W-2s to ourselves (if so, how/where do we obtain these tax documents?);  can we set aside some of the lump sum to pay the anticipated taxes (similar to withholding that we would have done with any other form of income?); is there a certain kind of account that works better than others for administering these types of agreements (e.g., bank account, other type of account?)  We are working with an elder care law firm in Florida, but, of course, they have declined to provide tax guidance, saying they are not authorized. Any help/guidance here from a subject matter expert or someone who has "been there/done that" with a loved one in Florida would be greatly appreciated. 

[xmasbaby0]

It is truly not clear here what you are trying to do or why you think taxable income is involved.  First---Florida has no state income tax, so there is nothing for you to do tax-wise with Florida.   And.....it sounds like you are giving money as a gift to your SIL--gifts are not deductible for you nor are they taxable to the person receiving the gift.   Why do you think you would be issuing 1099's or W-2's---and to yourselves?  

If the amount you are giving to your relative exceeds the yearly limitation for the two of you--each giving an amount to your family member, then you may need to file a federal gift form 709, but you will not pay tax on it.

Gifts given to family members, friends or other individuals are not deductible.   Gifts received are not taxable to the person who received the gift, and are not entered on a tax return.

If your gift exceeds the yearly limit ($17,000 per individual)  imposed by the gift tax rules, then you will need to complete a Form 709 gift tax form and send it to the IRS, although it is very unlikely that you will owe any tax. 

TurboTax does not support Form 709.  It is not an income tax form and would not be included as part of an income tax return.

Here is a link to the form:

https://www.irs.gov/pub/irs-pdf/f709.pdf

https://turbotax.intuit.com/tax-tips/estates/the-gift-tax-made-simple/L5tGWVC8N

Am I missing something?   Thoughts?    @Critter-3  ?   @Opus 17    ?

[DoninGA]

There are several websites which cover a Medicaid Personal Services contract.  You should also speak with a tax attorney who also specializing in elder law, before entering into this type of contract

For example, read the information provided in this website - https://www.elderneedslaw.com/blog/what-is-a-personal-services-contract

[xmasbaby0]

@DoninGA Thanks, Don!   So it is kind of the opposite of my interpretation----the original poster will be receiving funds for providing care to the relative---presumably some of the relative's own money--as part of a Medicaid "spend down" of assets.   This is a new one for me!   I agree---consult a knowledgeable attorney for setting this up.

[B1955]

All:  Thanks for the responses.  This is indeed an allowed transfer of funds (not a gift) from a Florida resident to another (usually a relative) who will be providing care and related services to the person who transfers the funds -- in return for payment/disbursements from those funds that are used exclusively for the care recipient.  I've been down this road now with two members of the family who have reached the point of needing this option to be considered.  In the first case a few years ago, the loved one passed away before we could research all of the nuances -- including the federal tax implications -- and implement the agreement.  Now, we are looking at this again with another relative.  In both cases, I've been told to find a tax attorney or tax professional in Florida to work through these details with me.  In the earlier case with the first relative, my outreach didn't produce any clear guidance that gave me comfort that the "pro" knew much more than I did.  I think I just will have to go back to the elder care law firm I'm working with in Florida and insist they give me a reputable source for this information. 

[B1955]

This is a very good link -- I've read it many times.  The problem is, it does not get into the details sufficiently on the tax issues and steps to correctly follow to address them.  Again, everything seems to be pointing to having to find a qualified pro in Florida who can answer those questions based on my specific circumstances. Thanks again to the help!

[Opus 17]

I am also going to have to refer the taxpayer to a local specialist in elder care tax and estate planning.  Generally, you have to be "poor" (assets below a certain amount) to qualify for medicaid.  There are several ways a person can use their assets for their or their family's benefit while still qualifying for medicaid assistance, but it's complicated and if it is done wrong, the person's benefit can be affected.  Now is the time to pay an expert to get it right, because getting it wrong could be more expensive than the fee for the expert.