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Tacy is correct.

Was he a government worker? If so he may not have paid into SS so the Annuity takes place of SS.

My disabled nephew has an Annuity with the government from his deceased Mom. I am payee and and the money has to be deposited in its own account. Money has to be spent on my nephew. Right now his rent and utilities are taken out so cut and dry. In the 10 yrs he has had this Annuity all I have received is a paper saying the money is used for him.

If you become payee then you should just keep a record of whete the money goes and receipts. If this is a government annuity, I would ask them if you can charge rent or be paid as a caregiver.
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CM has given you some excellent advice. 

DO NOT comingle his money and your money. You can be added as a "Signee" so that you can sign checks and as "TOD-Transfer On Death" Beneficiary to his bank account(s) and as Beneficiary of his annuity. Have him appoint you as his Durable Power of Attorney for Finances and for Healthcare/Medical Care and have him complete a “Living Will”.  Keep track of ALL expenses related to his care so that if Medicare or Medicaid asks where his money went to, you can show that you spent his money ONLY on HIS care. Having a “Paper Trail” is a MUST!!

Maybe have him sign a "Caregiver Agreement" since you are now his Caregiver so that you can be paid for some services that you provide for him. According to your profile, he is receiving VA home care and respite in your home.  Pay for the home care and respite care and any supplies that he needs from HIS annuity and not from your own money. Do you think that he will need to go to a nursing home or do you plan to have him stay in your home?

In regards to taxes, his taxes will need to be handled separately from yours as you each have your own income source.
This website has some articles regarding taxes.  Copy and paste URL to your browser:
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Afore ye leap to the taxes...

It is good that you are thinking through the finances. Avoid co-mingling funds and accounts. Discuss in advance how your father's living expenses will be met (probably easiest if he pays you a nominal "rent" to cover them); and discuss also how his future health and care needs might be met - for example, if you're expecting to "keep it in the family" that's all very well; but what if he develops dementia? Have you looked ahead to what impact it might have?

And assuming he is still fine mentally, he will want to create powers of attorney so that should he need help in the future it will all be set up ready.

There is, in short, a heck of a lot of planning to do! But I don't want to put you off - you've done the really important thing which is to start thinking about it in advance.
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