Medicaid Spend Down - Medicaid Approved Annuity and Medicaid "Gift"

[Wolfgang1960]

As part of the Medicaid spend down process, in order to fully qualify for Medicaid, the Medicaid recipient had to have some financial assets liquidated.   The proceeds of the liquidation went into two distinct fund categories:  (1) A Medicaid approved annuity and (2) a Medicaid "gift".   The Medicaid approved annuity went towards paying the costs of long-term care and were documented by the annuity issuer by a 1099-R.  The Medicaid "gift" had to distributed to somebody other than the Medicaid recipient in order to put the assets below the $2,000 individual asset threshold. 
The question is, does the Medicaid "gift" need to be accounted for?    The amount is roughly $42,000    

[Critter-3 · Accepted solution]

That is not reported on an INCOME tax return however a GIFT tax return may need to be filed. 

TurboTax does not support Form 709

Form 709 - https://www.irs.gov/pub/irs-pdf/f709.pdf

Form 709 instructions - https://www.irs.gov/pub/irs-pdf/i709.pdf