ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, January 15, 1997 TAG: 9701150020
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
WILL you see Granny going to jail? If so, she might be serving her time there with her lawyer, her financial advisors and perhaps a few trusted relatives.
Their crime? Grandmother and her alleged co-conspirators could be charged under a new federal law pertaining to Medicaid fraud when, perhaps, all she meant to do was to give a gift to a child.
The Health Insurance Portability and Accountability Act, which went into effect Jan. 1, put a damper on Medicaid trust planning.
The law "has got everyone running scared right now," said Neil Birkhoff, a specialist in wills and estate planning with the Roanoke law firm of Woods, Rogers and Hazlegrove.
Birkhoff predicted that lawyers and their clients will wait for courts to interpret the law before engaging in any more Medicaid trust planning.
The new rules, according to the Institute of Certified Financial Planners, make it a crime under certain circumstances for a Medicaid applicant to transfer assets to family or friends and then seek financial assistance to pay for nursing home care.
The penalty can be up to one year in jail and a $10,000 fine.
Medicaid is a joint federal and state health-care program designed to provide assistance to those in financial need. Because of the high cost of nursing home care, the planners said, a majority of the patients depend on Medicaid to pay the bills.
But the person in a nursing home must basically be destitute to qualify for Medicaid. Generally, the person can have only $2,000 or less in assets, not counting the value of his or her home - assuming the spouse still lives in it. The spouse can keep up to $76,740 in savings, and there are also income caps.
So a lot of people over the years have engaged in what was called Medicaid planning. It involves shifting assets from the person anticipating Medicaid support to other relatives or friends. The planners said this is known as "spending down."
For example, an elderly woman might give $50,000 in stock to her granddaughter, then apply for Medicaid. At least one study found that over half of Medicaid nursing home applicants had shifted some assets shortly before applying.
So in 1993, Congress tightened several rules in this area in an attempt to stop such transfers.
One of the rules, the planners said, is that the state must look back to see if any assets were transferred in the prior 36 months (or 60 months if a trust was involved) when a person applies for Medicaid.
If transfers were made, the applicant may have to wait up to 36 months before becoming eligible for Medicaid. The ineligibility period depends on the amount of the gift and the amount of the transfer. For example, if the grandmother transfers $20,000 and the average monthly cost of a nursing home in her area is $2,000, then the grandmother must wait 10 months before Medicaid starts to provide assistance.
The financial planners said there are exceptions to the transfer rules.
Transfers can be made for purposes other than to obtain Medicaid. For example, one might give $10,000 annually to individuals in order to reduce future estate taxes.
Or transfers can be made for the sole benefit of a spouse or to assist a disabled child.
Granny can shift assets in other ways as well, such as buying an annuity, paying off old debts or prepaying funeral expenses.
Birkhoff said the act of transferring assets is not illegal under the new law. You can still plan ahead for Medicaid by transferring your savings three or more years prior to the need.
But, he said, the act of applying for Medicaid assistance during the applicable "look back" period - the 10 months in the above example - can result not merely in a delay of eligibility but also in a fine or even imprisonment.
Birkhoff said the law makes Medicaid planning a criminal activity. Anyone who transfers assets within the prior three years needed to qualify can be charged with criminal fraud.
Further, he said, anyone who assists with such a transfer is equally guilty. That might be a lawyer, an accountant or financial planner.
But he said the law is both vague and very broadly worded so that even a relative counseling in such a transfer might be subject to criminal penalties.
The law might also touch those who give away their assets for other purposes but then who wind up in a nursing home and in need of Medicaid assistance. That might apply, Birkhoff said, to a widow who gives her home or a summer home to her children.
Birkhoff is advising his clients who give assets to their heirs to clearly state in the transfer documents the reasons and purposes of the gifts.
The financial planners said one of the reasons for the law was to stem what Congress viewed as an abuse by middle and upper-class people to save their assets for their heirs and then go on the public dole. The planners said wealthy people are more likely to pay their own nursing home bills because they can afford it.
But another purpose, the group said, is to encourage people to purchase private long-term care insurance. Part of the same act included tax breaks for people buying long-term care insurance.
The organization said estate planners "are in an uproar" about the provisions, arguing that there was little public debate and that the look-back rules were sufficient without being against the law.
Transfers made prior to Jan. 1, 1997, are apparently safe, the planners said.
The group advised any person contemplating a shift in assets for any reason to contact a qualified estate planning attorney or a certified financial planner before giving any money away.
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