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My sister is caring for both my parents as my father is on Hospice and mother has Alzheimer's. As a family we agreed my dad's estate would pay a monthly "gift" amount so she could quit her career as an RN and give full attention to their care. She is not an employee of the estate nor does she receive "compensation" so that she does not have a heavy tax burden by the gift money. My brother is the POA and now says he is paying her as a medical professional and will be deducting the money he sends her as "medical expenses". I get that the deductions are beneficial to the estate but it would increase her taxes by 35% (according to her accountant) because she would have to set up an at-home care business because she could no longer claim that income as a gift from the estate. Does anyone have experience with this that can give some advice?

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She should get paid as an employee. Yes taxes will have to be paid on what she earns but credit will also go towards her Social Security quarters.
You really should consult with an Elder Care Attorney to determine what is the best way to protect your parents assets as well as your sister.
Yes the care your parents get would be included as Medical Expenses.
She would not necessarily have to set up a home business. A Caregiver Contract would probably all she would need.
I would also suggest that the contract be reviewed every 6 months so that her salary could increase if the needs of your parents increase to the point that it takes more of her time and as more help is required.
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Reply to Grandma1954
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Yes, you need to see an elder law attorney. Gifting is ok for tax purposes, but not when it comes to the elderly. Should they both need nursing home care at a cost of upwards of 30K a month how long would their money last before needing Medicaid?
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Reply to gladimhere
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Your brother needs to speak with a tax attorney. Your sister will have to pay taxes on earnings if your parents are going to write off the expense of "gifting" her.

Your sisters accountant is correct, gifting is okay, but it can not be used as a medical expense write off on their taxes.

Can't have it both ways. She should be getting paid with taxes withheld and matched by your parents. I highly recommend using a payroll service that can do everything to keep this legal and offer your sister the added benefits of contributing to her SS, unemployment insurance and worker's compensation insurance in the event she gets injured on the job. As far as her tax bracket goes, she can be paid less if she is really concerned with that.

The reality is that she is an employee and she should not be receiving the compensation as a gift, it is already starting problems with the family. Yes, it will cost your parents more and she will have to pay taxes, but it will also keep everything legal and separate from inheritance, which could be a problem with what your brother is doing now, he could very well say she got part of her portion early. Can you imagine the problems with this if it went to court?
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Reply to Isthisrealyreal
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Does sis live with them? If so IRS will not consider her a contractor. She is an employee. As such bro should set that up so that taxes, social security, etc are actually deducted from her check.

Gifting will cause problems with qualifying for Medicaid. This situation needs to be legal as it will cause everyone problems. Bro for breach of fiduciary duty, sis for not paying taxes, mom for not having sis as employee. This needs to be corrected.
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AnnuhG Aug 29, 2020
Yes they moved in with her last March. They would not qualify for Medicaid as far as I understand because they have too much money. My dad was a good saver and prepared for their aging years well. It was always understood my sister would care for them. She has talked to an accounting attorney and they say the gifting is fine. Would an Elder care attorney know differently?
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Just affirming that you should definitely speak to an estate planner/elder law attorney (and one who is familiar with Medicaid) in your parents' state. In some states the Medicaid application "lookback" period is 5 years (like where I live). Gifting can delay or disqualify your parents from much needed Medicaid at the worst possible time. Even if your parents managed to save a substantial amount one cannot comprehend the many circumstances that can drain those savings. Most of elders' savings are spent in the final 18 months of their lives.

Please also consider that at some point your RN sister may be overwhelmed by the intense care of 2 people and may need outside help, or your parents may be better off in a care facility. It is very expensive, even a private hire or agency person, depending on what level of medical attention they'll be providing. Can your parents afford $10K or more a month for EACH parent for an unknowable amount of time? Again, please get advice from a professional and do not crowdsource your answer...there are too many variables and not all people's input from this forum is accurate.
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Reply to Geaton777
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AnnuhG Aug 28, 2020
Thank you I appreciate your response. I didnt know what direction to look to help rectify the situation. This helps.
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If your parents are still alive, I don't think it is called an estate yet.

The POA is responsible for handling the money in a responsible manner. If one parent has Alzheimer's, Medicaid is a possibility unless they have a LOT of money and/or LTC insurance. Making a gift that would disqualify them from Medicaid would be irresponsible. Note that the POA would have had to file a gift tax return for gifts more than 15,000 per person. Being a POA is a hard enough job without having to worry about how to arrange payments as gifts.

If the sister actually received the money as an inheritance from the estate, after they pass, she could avoid taxes. If the siblings are listed as equal heirs, and it is too late to change their estate planning, one or more sibling(s) may even be willing to disclaim their inheritance(s), then the remaining sibling(s) would share. The problem with waiting for an inheritance is that there may be no money left after they pay their LTC expenses. It can get ugly if the siblings don't disclaim as agreed.

I'd suggest looking at how much sister is being paid. If it isn't enough to cover taxes, it may not be fair in itself. A 35% marginal rate sounds high to me, maybe she is in a high income tax state, or it is pushing her own otherwise non-taxable SS income into taxable?

Consult with an elder law specialist and have your questions ready ahead of time.
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Reply to Frebrowser
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You need the advice of an elder law attorney. Without adequate information you will get yourselves in an awful mess here. "Gifting" will create a situation where, were Mom to need any kind of financial help in future through medicaid, the "5 year lookback" would preclude her from qualifying. Gifting versus paying for medical expenses are entirely different and have repercussions on the taxes of both the giver/payer and the recipient/payee, and these are serious governmental issues. Your brother as POA also must keep records that are meticulous, and there will be tax repercussion when he files your Mother's taxes. It is simply not worth your time to ask a "forum" for information on stuff like this. You will get our varying opinions and advice, and it will differ; choosing which advice to follow could have awful consequences in the future. Pay for an hour of Elder Law Attorney's time, and take the questions there, and am wishing you the very best of luck.
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Reply to AlvaDeer
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