Can Dad Pay His Daughter for Caregiving Without a Medicaid Penalty?

Louis and Nicole's Situation

Louis is 87 and lives in Edgewater. (Louis and his daughter Nicole are a composite example, not actual Truestead clients, but their situation reflects one of the questions I hear most often in my practice.) Nicole left her job about a year ago to move in and care for her father full time: meals, bathing, medication reminders, doctor visits, the whole daily list. Louis wants to start paying her $2,500 a month from his savings. He is also thinking ahead to nursing home costs and Medicaid down the road, and he has heard that Medicaid can penalize you for giving money away in the five years before you apply.

Louis's instinct is generous and completely understandable. The problem is that Florida Medicaid does not know the difference between a loving gift and a paid job unless the paperwork tells that story clearly, in advance. That is where a personal services contract comes in.

Why Just Handing Nicole a Check Is a Problem

If Louis simply pays Nicole $2,500 a month with no written agreement, Florida's Department of Children and Families (DCF), which administers Medicaid eligibility, has no way to see that money as anything other than a transfer of assets to a family member. Under Florida Medicaid rules, transfers made for less than fair value during the five-year look-back period can create a penalty period, a stretch of time during which Medicaid will not pay for nursing home care, calculated based on how much was transferred.

The fact that Nicole is genuinely providing valuable, full-time care does not protect the payments on its own. Without a contract in place before the money changes hands, DCF has no documentation showing the payments were compensation for services rather than an uncompensated gift to a family member. This is the single most common and most avoidable mistake I see families make.

The Three Tests DCF Applies

When Florida Medicaid reviews a payment to a family caregiver, it is generally looking at three things:

• Was there a written agreement in place before the care and payments began? Medicaid wants to see that the arrangement was set up prospectively, not created after the fact to explain money that already changed hands.
• Is the pay rate a fair market rate for the actual services provided? DCF compares the hourly or monthly rate to what licensed home health agencies or private caregivers in the area charge for comparable, non-medical personal care.
• Is there documentation showing the services were actually performed? This means time logs, task records, or similar evidence tied to the payments, not just a lump sum with no accounting behind it.

A 1998 case out of Florida's Fourth District Court of Appeal, Thomas v. Department of Children and Families, upheld the use of a family caregiver agreement along these lines, and the underlying reasoning still guides how these contracts are evaluated today: a properly documented, fairly priced, forward-looking contract is compensation, not a gift.

What a Sample Agreement Should Include

For Louis and Nicole, a personal services contract prepared before any payments begin would typically spell out:

• Parties. Louis as the care recipient, Nicole as the caregiver, both identified by full legal name.
• Duties. A specific list of the services Nicole provides: meal preparation, bathing and hygiene assistance, medication management, transportation to appointments, housekeeping tied to his care, and supervision.
• Hours and schedule. The number of hours per week Nicole is expected to work, reflecting her actual, full-time role.
• Rate of pay. An hourly or monthly rate that lines up with what home care agencies in the Edgewater or Volusia County area charge for similar non-medical care, not an arbitrary number.
• Term. Whether the contract runs month to month or covers Louis's remaining life expectancy, which matters if a lump-sum structure is being considered.
• Payment terms. How and when Nicole is paid, going forward only.
• Recordkeeping. A requirement that Nicole log her hours and tasks contemporaneously, not reconstructed later from memory.

Under Florida Statute 400.462, fair market value in this context means what a well-informed buyer and seller, neither one under pressure to deal with the other, would agree to for the same services. That statutory anchor is exactly why the rate matters as much as the paperwork.

Logs, 1099s, and Ongoing Payments

Once the contract is signed, the work is not over. Nicole should keep a running log of her hours and the specific tasks performed, ideally updated weekly rather than all at once before an application is filed. Payments should go out on a regular schedule tied to the contract terms, not in irregular bursts. Because Nicole is being paid for services rather than receiving a gift, she is generally treated as receiving income, which typically means she reports it and may receive a 1099 for tax purposes rather than the money being tax-free to her. This is a genuine tradeoff families should understand going in, and it is worth a conversation with a tax preparer alongside the legal planning.

The Lump-Sum Option and Its Risks

Some families structure a personal services contract as a single lump-sum payment upfront, calculated by multiplying an hourly rate by expected hours per week, by 52 weeks, and by the parent's life expectancy, intended to prepay for care over the remainder of the parent's life. This can work under Florida Medicaid rules, but it carries real risk. If the care recipient passes away sooner than the life expectancy used in the calculation, or moves to a nursing home and no longer needs the same care, DCF may treat the unearned portion of that lump sum as an improper transfer after the fact. Lump-sum contracts also draw closer scrutiny generally and should be drafted carefully, with the life expectancy figure and rate calculation clearly documented.

For Louis, a simpler month-to-month arrangement, paid as care is provided and logged along the way, avoids the lump-sum risks while still compensating Nicole fairly for the work she is already doing.

Sources

• Florida Senate, Florida Statutes Chapter 400 Section 462, Fair Market Value Definition (2024)
• Thomas v. Department of Children and Families, 707 So. 2d 954 (Fla. 4th DCA 1998)

This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida estate, elder, probate, and real estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.