Florida Medicaid Planning for CPAs: Where Tax and Long-Term Care Rules Meet

Tax rules and Florida Medicaid rules often use the same words, like gift, trust and income, to mean different things. A strategy that is efficient on a Form 1040 or Form 709 can trigger a Medicaid penalty. A structure that works for Medicaid can still preserve a basis step-up if it is drafted with the tax result in mind. Your client's return also shows signs that long-term care is coming before anyone says so: medical deductions, IRA withdrawals and checks to a nursing home. Below is where the two systems meet, using 2026 figures.

A Lady Bird deed (enhanced life estate deed) lets a Florida homeowner keep full control of the home for life, including the right to sell or mortgage it without the remainder beneficiaries' consent. At death, the home passes to the named people outside probate.

For Medicaid, Florida DCF says no transfer has occurred when an owner keeps a life estate with powers like this, so the deed does not start a look-back penalty (ESS Policy Manual, 1640.0613.01). For income tax, the owner's retained interest generally keeps the home in the gross estate (IRC 2036). As a result, the beneficiaries generally take a basis equal to fair market value at death (IRC 1014(a), (b)(9)).

Compare an outright deed to the children during life. That gift is a transfer during the Medicaid look-back. The children also take the parent's carryover basis (IRC 1015), and when they sell they may not have the parent's IRC 121 exclusion.

An income-only trust is an irrevocable trust. The grantor can receive the income, but the trustee can never return the principal to the grantor. For Florida Medicaid, principal that can't be paid to the grantor under any circumstances is not counted as an available asset. Funding the trust, however, is a transfer subject to the 60-month look-back (ESS Policy Manual, 1640.0576.07; 42 U.S.C. 1396p(d)(3)(B)). Income the grantor can receive still counts as the grantor's income.

On the tax side, these trusts are commonly drafted as grantor trusts under IRC 671–679. Retained income alone points to IRC 677(a). Drafters often add a power, such as a nonfiduciary power of substitution under 675(4)(C), so that capital gains are also taxed to the grantor. Grantor status can keep the IRC 121 exclusion available for a residence the trust holds (Treas. Reg. 1.121-1(c)(3)). Retained income or a limited testamentary power of appointment can cause estate inclusion, which preserves the IRC 1014 step-up. Read the document. Don't rely on the trust's name.

Florida requires a Qualified Income Trust, often called a Miller trust, when an applicant's gross monthly income is over $2,982 in 2026 (DCF Appendix A-9). Income is deposited into a separate trust account each month, then paid out toward the person's share of the cost of care and allowed deductions. At death, the state is the remainder beneficiary up to what Medicaid paid (DCF QIT information sheet).

For income tax, a QIT is generally a grantor trust because its income is held and used for the grantor (IRC 677(a)). The deposited Social Security and pension income stays on the beneficiary's own Form 1040. Moving the deposits doesn't create a taxable event. Whether the account uses the grantor's Social Security number or a trust EIN, and whether a grantor-trust information return is needed, follows the reporting methods in Treas. Reg. 1.671-4 and the bank's account setup. A related point is often missed. When a person is in a nursing home mainly for medical care, the amount the person pays toward that care from their own income may be a deductible medical expense (Treas. Reg. 1.213-1(e)(1)(v)). Amounts Medicaid pays are not.

The answer turns on whether the account is paying out. If the applicant is eligible to receive regular payments from a retirement fund, Florida treats the payments as unearned income, and the fund is not a countable asset to the applicant (ESS Policy Manual, 1640.0505.04).

The spouse at home has a separate rule for ICP and home and community-based programs. If the community spouse receives payments, that account is not counted toward the couple's assets. If the community spouse takes no payments but could withdraw a lump sum, the full value counts. Early-withdrawal penalties are subtracted, but income taxes are not (ESS Policy Manual, 1640.0505.05).

Taking regular distributions can therefore help with assets and hurt with income. The distributions count toward the $2,982 monthly cap and the patient's share of cost. Timing an RMD, choosing a payout schedule, or deciding whether to cash out an account is a joint tax and Medicaid decision.

Gift tax and Medicaid ask different questions. For gift tax, a donor generally files Form 709 only when gifts to any one person in a year exceed the annual exclusion of $19,000 in 2026, or when making gifts of a future interest or electing gift-splitting (IRS Instructions for Form 709). Even then, tax is rarely owed until lifetime gifts exceed the basic exclusion amount.

Florida Medicaid has no annual exclusion. Any transfer for less than fair value in the 60 months before an application is reviewed, whatever its size and whether or not a Form 709 was required (42 U.S.C. 1396p(c)). The penalty is the value transferred divided by $10,645, the average monthly private-pay nursing home cost Florida uses (DCF Appendix A-9). That gives a number of months Medicaid won't pay for care, and the penalty generally starts only once the person has applied and would otherwise qualify. Some transfers are exempt, such as transfers to a spouse or to a disabled child. Those are Medicaid exceptions, not gift tax concepts.

Here is a hypothetical. A widowed client, 82, follows a long-standing plan and gives $19,000 to each of her three children in January, $57,000 in all. No Form 709 is due and no gift tax applies. Two years later she has a stroke and needs nursing home care. The $57,000 falls inside the look-back. Divided by $10,645, it could mean roughly five months without Medicaid coverage, at a time when the money is gone. Giving the money back can reduce the penalty. Children don't always have it.

None of this means a client must stop gifting. It means that for a client with health changes, a spouse who may need care, or limited assets outside the home, an annual gift should be a deliberate choice made with the Medicaid rules in view. It shouldn't be a habit carried forward from the estate tax era.

Any one of these can be routine. Two or more together often mean a long-term care conversation is coming. Tick the ones you see. Nothing is saved.

• Schedule A medical expenses rising sharply, especially assisted living, memory care, home health or nursing home charges
• A Form 1099-LTC showing long-term care insurance benefits, or premiums that suddenly stop
• An unusually large IRA or 401(k) distribution on a Form 1099-R, outside the normal RMD pattern
• Gross Social Security plus pension income near or above $2,982 a month ($35,784 a year) for one spouse
• A Form 1099-S for the sale of a home, or a new mailing address at an assisted living facility
• Form 709 filed, or gifts or loans to children described in your notes
• A child newly added to accounts, or interest income that has moved to a child's Social Security number
• Schedule H household employment taxes for a private caregiver, or payments to a family member described as care
• An adult child signing the engagement letter or return under a power of attorney, or asking to be the contact
• Schedule E rental real estate or other property beyond the homestead for a client in declining health
• A client who has been claimed as a dependent by an adult child

The federal figures are indexed for inflation each year. DCF updates the Medicaid figures in January and July. Check the current versions before relying on any number.

Usually not as a separate taxpayer. A Florida Qualified Income Trust is generally a grantor trust because its income is held and used for the person who created it (IRC 677(a)). The income deposited into it stays on that person's Form 1040. Whether the account uses the grantor's Social Security number or a trust EIN, and whether a grantor-trust information return is needed, depends on the reporting method chosen under Treas. Reg. 1.671-4 and how the bank set up the account. Review the trust document and the account records to confirm.

Yes. Form 709 and the Medicaid look-back are separate rules. A gift under the $19,000 annual exclusion in 2026 usually needs no gift tax return. Florida Medicaid has no annual exclusion, though. Any transfer for less than fair value in the 60 months before an application can cause a penalty period (42 U.S.C. 1396p(c)). The penalty is the amount transferred divided by $10,645 (DCF Appendix A-9), so even modest yearly gifts can add up to months without coverage.

Generally, no. Because the owner keeps a life estate with full powers, the home is generally included in the owner's gross estate (IRC 2036). The beneficiaries then generally take a basis equal to fair market value at death (IRC 1014). Florida DCF also treats signing the deed as no transfer for Medicaid (ESS Policy Manual, 1640.0613.01). An outright deed to children during life is different: it is a look-back transfer, and the children usually receive the parent's carryover basis.

If a client or patient is facing one of these questions, Brandon Arkin at Solkoff Legal, P.A. can be reached at (561) 733-4242.