Beware Of Parents Bearing Gifts

Under present law, people who gift their property in order to qualify for Medicaid Benefits could be subject to a temporary disqualification if it were shown that the gifting was done for the purpose of securing Medicaid Benefits. Effective January 1, 1997 this gifting in anticipation of applying for Medicaid will be a federal crime, punishable by up to one year in jail and a $10,000 fine.

The purpose of the statute, which is part of the Kennedy-Kassenbaum Health Bill, is to provide a strong disincentive, such as the possibility of jail time, to help deter the elderly from gifting away property to become eligible for Medicaid Benefits. This new law appears to be the culmination of both legislative action and court decisions, which have made it more difficult to "spend down" or "gift down" to become Medicaid eligible.

The law also provides that, in addition to the donor, the donor's attorney or financial advisor could also be subject to the same criminal penalties for advising his or her client to make the gift. The present law provides that Medicaid applicants could be ruled ineligible for a period of months after they make a gift, depending upon the amount of the gift and how many months of nursing home care that gift could buy. The Commonwealth of Massachusetts will review an applicant's financial record for up to five years prior to application for evidence of these gifts. This is called the "look back" period and thousands of Medicaid applicants have been previously temporarily disqualified for making such gifts.

Starting next year, anyone who "knowingly and willfully disposes of assets in order to become eligible for Medicaid assistance, if disposing of the assets results in the imposition of a period of ineligibility for such assistance" could be treated as a criminal.

It is clear from the wording of the statute that intent is a necessary element of the crime; that is that the donor must make the gift for the express purpose of helping to qualify for Medicaid Benefits. Most experts agree that if a gift were made in the usual course by a healthy person, perhaps as part of a lifetime gifting program to children and grandchildren and that person suddenly became ill and had to apply for Medicaid, there would be most likely no finding of criminal conduct because the gifts were not intended to make that person eligible for Medicaid. However, intent is a tricky concept and the federal government, through the United States Attorneys Office, has brought forward many other types of criminal cases because they have inferred intent on the part of the individual. While the government must prove intent to convict an individual, finding that Medicaid eligibility was one of a number of factors considered by an individual may be enough to convict and certainly to indict.

It is now even more important to consult with an attorney regarding Medicaid issues. The major problem, however, is that no attorney no matter how learned, can properly advise you as to how this statute will be interpreted by the courts in the future. It is even possible that the law may be challenged in court and could be struck down as unconstitutional.

As reported in the September 23, 1996 issue of Lawyers Weekly USA, many legal experts in the Medicaid field advised their clients to make gifts prior to January 1, 1997, the effective date of the new law. After January 1, 1997 it appears the best advice to the client may be the most conservative advice, i.e. if Medicaid planning is even a small part of your gifting considerations do not make the gift, or at the very least, do not apply for Medicaid Benefits until at least five years after you make the gift.

The bottom line is that another legal minefield has been created which could subject thousands of elderly people and many attorneys and other financial advisors to possible criminal prosecution. Medicaid planning should not be undertaken lightly. The government has just raised the stakes.