Do you think it’s immoral to try to shield assets from Medicaid?

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At least once a week, someone will post a question on this board that basically amounts to asking how to “protect” some parental asset or amount of money and still apply for/qualify for Medicaid. Inevitably, such a poster gets jumped on by numerous people replying that trying to protect assets is “cheating” and grossly unfair to other taxpayers.

I’m not so sure. I'm not advocating trying to circumvent the system -- but I would like to start a discussion about whether it's immoral. I’d like to explain why I’m not so sure, and then I’d like to know what other people think.

Imagine two identical families. We’ll call them Family A and Family B. In both families, Mom and Dad work. Both Parents A and Parents B have identical jobs and identical incomes, and both families have three kids.

That is where the similarities end.

In Family A, even before the kids are born, Dad and Mom scrimp and sacrifice to save money. This an old-fashioned phrase for an old-fashioned concept, but Dad and Mom are 100% dedicated to it, and their commitment does not change as the kids grow.

The family goes on vacation every third year instead of every year. These vacations are usually “road trips” and involve camping in tents and peeing in terrifying, spider-infested outhouses to save money on hotels. Getting to eat out once a month is a huge treat, and usually occurs only at low-end chain restaurants with a mid-week “kids eat free” night. For their entire public-school education, the kids dress primarily in clothes that their mother sews by hand instead of wearing clothes bought from the store ... and sure, maybe they get teased and made fun of at school, because they’re wearing polyester pants instead of blue jeans, but Mom and Dad decide it’s a worthwhile sacrifice because the money that is being put away will make a difference in the kids’ lives later, when it really “matters.”

The family drives a beat-up old car that Dad manages to keep running year after year because hey, maybe the upholstery is all split open and the windshield is cracked, but at least it’s paid for. Cable TV is out of the question, so if a show doesn’t come in over rabbit ears to the family’s one small TV in the living room, no one watches it.

The house, which is uncomfortably small for the family and not in the best neighborhood – and which certainly does not feature hardwood floors or a kitchen with granite counters or stainless steel appliances! – is one that can be managed on a mortgage that still leaves a fair amount of each month’s paycheck available to go into savings instead. The family COULD qualify financially for a “nicer” place, but Dad and Mom believe that it’s better to put the money away so that it will be there to make a difference for their kids down the line – maybe by buying a college education or by helping them to buy their own homes when the time comes. Everyone sacrifices, sacrifices, sacrifices. Eventually, even the modest mortgage is paid off. Gradually, the little nest egg grows.

In Family B, by contrast, just about every dime that ever comes in is spent immediately. The family motto is “Instantaneous Gratification Isn’t Soon Enough!” The family denies itself nothing, ever.

The whole family goes on vacation to Disney World every year, always staying at an official Disney resort (where the kids get their own room). At home, all the kids have their own TVs (which get every premium channel imaginable), laptops and iPads and get new iPhones every time Apple releases an “upgrade.” Eventually, the kids get driver’s licenses, and guess how the family celebrates this rite of passage? You got it! Mom and Dad buy them their own cars. The family eats out at nice restaurants three or four times a week. The family car is replaced at least every two years, and loaded with every option the family’s creaking credit score can support.

The kids get designer clothes and shoes and the latest video games and pretty much whatever else they want at every gift-giving holiday. The family lives in a huge house in a nice neighborhood, with a pool and a hot tub, and yes, they’re carrying a lot of debt on their credit cards, and yes, they’re quite a bit overextended on the mortgage and the car notes, but what the heck – isn’t that the American way? Sure, there’s no nest egg ... but what does that matter? Living life in the moment is what it’s all about.

Fast-forward. Dad is now 75. Tragically, Mom died 6 years ago from cancer, and Dad has now been diagnosed with a progressive dementia, and will likely soon need very expensive long-term memory care in a facility.

In Family B, there are next to no savings. After retiring, Mom and Dad B traveled a bit, and spent every dime that came in in pension and Social Security income. After Mom B died, the overextended mortgage on the house turned completely upside down, and Dad B abandoned the equity in the house and walked away ....

(Continued in Part B, first post)

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Top Answer
(continued from Part A, above)

... Dad B lives in a small apartment, and covers the rent with his small pension and Social Security income, but these are nowhere near sufficient to cover the monthly costs of the care he now needs, and may require for years. Since he and Mom B has never sacrificed to save anything, Dad B has very little to show in assets for his years of earning.

Family B applies for Medicaid and sets up a Miller Trust to satisfy Medicaid that whatever income Dad B DOES have will go to his care, and presto! The bulk of the cost of Dad B’s care is immediately and hereafter funded by taxpayers. Who do not, on the whole, call Family B “cheaters” for applying for public assistance to pay the outrageous cost of memory care, since, after all, Dad B is “needy,” and Family B didn’t try to “stick it to the taxpayers” by shielding any money that could have gone to Dad’s care (at least, not within the last 5 years ... and I guess we’ll all just agree to turn a blind eye to the previous 50).

In Family A, on the other hand, there ARE savings – not savings that have somehow magically rained down on the family as lottery winnings, or capital gains from a lucky investment, but that have been painfully built through literally DECADES of sweat, scrimping, self-denial, and significant sacrifice. To Family A -- which has postponed or entirely given up nearly every one of the everyday luxuries that Family B consumed with mindless joy for the past 50 YEARS – Medicaid now demands that the family spend every dime Mom and Dad ever saved before it will offer even the first penny in help.

What’s more, if anyone in Family A even dares to ask if there’s any way to hold onto a little of what Mom and Dad gave up so much to build, many people now say, “How dare you ask that! It is evil and immoral for you to try to ‘protect’ any of your parent’s nest egg before asking us for help! Our help is only for people who really need it! Like that nice man over there from Family B! Anything you try to do to shield even a tiny bit of what you’ve saved so that it goes to the family you saved it FOR is CHEATING, you evil, cheating CHEATER!”

This may sound like an exaggerated scenario, but I have seen it personally – and it is why I don’t find the question of whether shielding assets is “moral” or not to be as cut-and-dry as others seem to. I’ve painted an unpleasant picture of Family B here ... but did they really do anything wrong? Don’t we all have the right to spend and enjoy what we earn? But if so, given all that Family A gave up to hold onto that money, do we really have a moral right to demand that they sign over to a nursing home everything they sacrificed to save for their children before we will give them the same assistance we immediately give to Family B, which never sacrificed anything (and is not now being called upon to make up even a little of what they spent over the years before we agree to step in and carry the burden for them)?

Remember, both families are also taxpayers, and have poured an enormous amount of tax money into the system over their lives. Remember, too, that Medicaid does not provide for a particularly luxurious life style or high level of care or comfort ... if you can afford to pay for better care, it is nice to be able to do so.

Wonderful Aging.com poster JeanneGibbs (we miss you, Jeanne!) once posted on a similar thread that “fair” and “unfair” had little to do with health care issues. She was absolutely right. But I’m starting this thread because I’m curious to know how other people see this ... and if anyone else agrees that the question of whether it’s right or wrong for people to try to protect assets maybe isn’t as black and white as it might seem on first glance?

I think we have a tendency in this country to resent other people’s “wealth” (which I use here simply to mean whatever someone has that is more than we have). It’s human nature to tend to assume that someone who has more than we do must have just been luckier rather than to consider that they might have worked just as hard as we do, and then denied themselves in order to save the money for later ...

Anyway, thanks in advance for your responses. I'm interested to hear what other people think.
Here's the assumption that so many people seem to make – mom and dad scrimped and saved NOT so they could be secure and cared for in their non-working years, but so YOU could inherit their money.
Once you turn that on it's ear, the way you view whether or not shielding assets is immoral becomes moot. Which is as it should be, because the government (though some loudly disagree) does not belong in the business of telling people how they should live their lives. They are in the business of providing a safety net for the circumstances someone is in right now.

So, here's how it works... the high-living old man in scenario B is now poor. Whether he had money and squandered it on luxuries or had some but had it swindled away from him as he sunk into dementia, the circumstance of his poverty isn't changed, only your judgement of him. He is destitute and, if his family won't care for him, he needs the help of a social safety net or you and I will be stepping over his body on the street (like in a third world country).

The person in scenario A has a hard-earned and sizable nest egg. If they decline slowly and need support with their daily living, they have choices (unlike the guy in scenario B). They can choose a swanky AL or a modest one. They can move in with one of their children. They can hire home helpers and stay in their home.

You'll notice I didn't say anything about inheritance. That's because this has nothing to do with whether or not their kids get any money when they die. If it's important to them or their children that the bulk of their assets are left behind when they die, they can assure that by having their children provide the care they need.

Why would the taxpayers support someone who has the assets to support themselves? That's just not logical. Food is expensive and I want to be able to leave money for my children. Should I be able to get food stamps even though I make a comfortable middle class income? I can afford to pay my mortgage but I want to leave money for my children, should I be eligible for subsidized housing? Of course not. Safety net programs are for poor people. Period. How they got poor isn't the business of the government. However, the government is in the business of ferreting out those who would illegally hide their money in an attempt to cheat the taxpayers.

The Medicaid rules (complicated as they are) provide for many legal ways to protect some assets. By all means, families should avail themselves of them.

People who have some kind of perverse jealousy of the 'riches' being bestowed on Americas poor really puzzle me. I can only think they aren't truly understanding what it means to be eligible for those programs; that if they look at the whole picture they wouldn't begrudge those people at all. Regardless of how one gets there, being poor is no place anyone wants to be.
Greetings: As an advocate for the elderly, and as a fiscally conservative citizen, I am very passionate about this issue.

Hiding assets, by pulling cash out of the bank, sticking the cash under the mattress and not disclosing the hidden cash when applying for Medicaid paid nursing home care is illegal and immoral. There are many lawful and legal ways to shelter or protect assets under the Medicaid program, such as by setting up a trust, transferring assets to a spouse, spending assets on non-countable assets, etc.

Hiding assets to qualify for Medicaid is just like earning income and being paid "under the table" instead of reporting the income to the IRS which is illegal and immoral. However, setting up a trust is not "hiding" anything. The use of Trusts for Medicaid planning was approved in the 1993 Omnibus Legislation.

Our system for Medicaid paid nursing home care has been designed with the middle class in mind. As proof of this, someone who owns a home valued at $536,000, a new automobile regardless of its value, and a household full of nice furnishings, may qualify for Medicaid paid nursing home care. Thus, the Medicaid long term care program for nursing home care was designed to include the middle class and was not designed just for those individuals at the poverty level as the Medicaid health insurance program has been designed.

Medicaid planning is all about using the favorable provisions in Medicaid law to help informed elderly citizens obtain the lowest possible nursing home bill by qualifying for Medicaid when allowed by law. In West Virginia, there is no difference in the level of care that you receive in a nursing home whether you are paying $9,000 per month or whether you are receiving Medicaid paid nursing home care. Thus as a consumer, where is the benefit in paying $9,000 per month out of pocket for the same care provided by Medicaid?

Medicaid planning for the elderly, is much like tax planning for the average citizen. If you are wealthly, then an estate planning attorney will likely suggest that you set up a trust or multiple trusts to shelter all or a portion of your wealth from paying Federal Estate taxes at your death. Is it immoral to set up a trust to reduce the amount of Federal Estate taxes that a wealthy person may pay at their death when the Federal Estate tax allows them to do so? If the wealthy person sets up a trust to avoid or reduce Federal Estate taxes, doesn't he shift the burdens of operating our U.S. Government to other tax payers?

How about the business woman who sets up a Limited Liability Company as a means to reduce Federal Income taxes on her income and on the income of her business even though it is lawful for her to do so? Hasn't she shifted the burden of operating the U.S. Government to other tax payers?

How about those of us who itemize our mortgage interest and other deductions on our Federal Income tax return. We pay less in Federal Income taxes as a result, don't we? It's legal to do so. Isn't it immoral to do so since by paying less in Federal Income taxes we have shifting the costs of operation the U.S. Government to other taxpayers?

We as informed citizens don't walk up to the IRS office with a blank check to pay our annual income tax bill. Instead, we rely on CPAs and tax professionals to help us pay the least amount of income taxes that the law allows. That is the American way.

Why isn't Medicaid planning the American way? Discrimination. The issue here is that the elderly, who are still portrayed in Hollywood as worthless and foolish "old farts" are not valued in our society. In fact, one can argue that our country values the 11 million plus illegal immigrants who are being granted citizenship more than our country values our elderly who may need nursing home care because, a large majority of those immigrants will be able to qualify for, you guessed it, Medicaid. Thus, as Medicaid budgets continue to expand to serve all who qualify, I suspect that discrimination against our elderly will continue.

If buzz words like "immoral" continue to be attached to Medicaid planning to try to shame the elderly into not planning for nursing home care, it is likely, that this group of citizens, the ones who have defended our country selflessly, in WWII, Korea and Vietnam, the ones who have worked for wages for less each week, then many working poor receive for one hour's work today, will continue to avoid using the Medicaid law and benefits to their advantage, as the law was intended to do. The moral of the story here is, change the Medicaid laws. Take away all of the planning options that folks have under the law. Do not discriminate and degrade our best citizens into thinking they are doing something wrong when the law allows them to plan for Medicaid much like most of us plan for paying income taxes.

Once you have met someone, like my client, Jack, a WWII Veteran, who was bedridden and confined to his home, unwilling to enter a nursing home because he was afraid the state will take his home when he received Medicaid paid nursing home care, you will understand that Medicaid planning has nothing to do with "hiding" assets, but rather has everything to do with providing our elderly citizens with options and information so that they can receive Medicaid paid nursing home care while protecting or sheltering whatever assets that the law allows them to.

Brent
Elder law Attorney

To me there's a big difference between the rich, the poor, and the "getting by", which includes most of us. The rich have lots of ways to shield their income. It would be immoral for a multimillionaire to dispose of all his assets and go on welfare.

Notice I say multimillionaire. Lots of two-earner households in expensive real estate markets get to be millionaires based on a $600,000 house. But even spending that entire $600,000, it would cover 6 years total in a NH. That economic class can provide for their own living expenses, but feels a real pinch when dealing with a $200,000 college education or $100,000 a year NH bill.

The state one lives in determines how much value in the home can be shielded from Medicare. I believe there is a value to our republic when a citizen is able to hold onto economic independence. I believe that allowing someone who has worked hard to acquire assets to be able to pass them on is good for our national morale. The more people in the country who can live a middle class lifestyle, the better for the economy, the crime rate, and public health.

What people are doing is legal. I'm all for "class warfare", which means going after the income of the extremely rich, and leaving alone my neighbor, who happens to earn even 50% more than I do.
It's a delicate question, to be sure.

Equillot, you're absolutely right -- it seems as if buying LTC insurance is the only way to have any hope of leaving anything substantive to one's kids if one is unlucky enough to develop a progressive dementia ... even though statistically most people don't spend more than a couple of years in nursing care at the end of their lives. But I can't fault today's seniors for not having foreseen how catastrophically expensive long-term care would become. Those costs are so much higher now than they've ever been, and ESPECIALLY memory care ... plus, there's the escalating incidence of dementias as overall life spans lengthen.

And then there are those seniors who DID buy long-term care policies in the last 20 years from insurance companies that went under, or that fail to pay claims at all reliably. I've read some true horror stories on the Web. My husband and I are lucky enough at this point in our lives to be able to pay a substantial amount each month for LTC insurance, even though we're in our early 50s. I don't worry that we won't need the insurance -- if we don't, great! :-) -- but I do worry about the risk of having poured all this money into policies that simply don't turn out to be there, for some reason or other, when/if the time comes to use them. And I worry about losing our jobs to the point where we can't afford to keep paying the premiums. Then we're out both the insurance AND the money we could have used for care. But not to buy the insurance feels even more risky, given the escalating costs of such care and our family medical histories. :-(

OncehatedDIL, you're absolutely right that people should not pressure their parents to turn over assets. I think most of us who have had to take over any degree of financial responsibility for a parent or loved one with dementia struggle continuously with whether we're doing the "right thing" ... I have to watch out for my Dad's money, because if I don't, he forgets to pay his bills ... forgets to respond to the IRS ... pays cash multiple times to the same contractor ... misplaces checks to be deposited ... overdraws his account ... gives money to shady organizations (by which I mean organizations that rate little better than scams on charity-rating sites) and on, and on, and on. A year ago, he dreamed that he proposed to a caregiver he'd known for a week and a half, thought it was a memory, and was perfectly prepared to carry through, knowing nothing about her background or finances and very little about her personally (for instance, her last name, age, whether or not she had children, and so on). Thank goodness this particular caregiver was a very above-board person who would not and did not take advantage of a confused elderly man in a vulnerable spot ... but I think we've all read about situations that did not turn out so well.

I know it's in Dad's best interests that I look out for his money, to ensure that there's as much available for his care and comfort as possible. But at the same time, it also makes me uncomfortable to be so involved, because there's no denying I have a financial interest of my own in not seeing the money lost, stolen, or wasted ... first, because the more he has in savings, the less likely I will be to have to kick in to cover care ... and second, because anything that is left at the end of his life (which is unlikely to be much if anything) will help to pay for my and my siblings' eventual health care needs.

Sharynmarie, your parents and childhood sound very, very familiar to me. ;-) I'm glad things worked out well for your family in this situation ... I'm pretty sure that what your parents and the lawyer did for your Dad and Mom back before 2003 would not "work" to protect assets today. Timing is everything.

Perseverance, I'm not sure what it means to be "deceptive" in this instance. The law allows what it allows, and does not allow what it does not allow. In this discussion, when I refer to "shielding assets from Medicaid," I am specifically speaking of protecting assets in a way that is allowed by the letter of the law, but which I think the government clearly desires to prevent -- which amounts to giving away assets more than 5 years before applying for Medicaid, or transferring money via personal care contracts, or spending money on personal property that is unlikely to be subject to Medicaid estate recovery. These methods of asset shielding are legal. Are they deceptive? I don't believe so. Are they moral/ethical? That is the question.

I know this is an uncomfortable subject, and I really appreciate the posts and perspectives from people who have responded. I'm still torn myself ... not because I don't agree that the guy down the street who doesn't have a pot to piss in and therefore "needs" the free care should get it ... but because I'm not comfortable telling people they have to spend everything they have sacrificed to save before we'll give them the care we'll immediately give free to people who have saved nothing. And yes, I understand that some people just cannot save or blow through their savings, due to physical or mental illness, job loss, bad luck, etc. ... I, too, have a sister who found herself by herself with two small children to support at a very early age, and it has taken her most of her adult life and best earning years just to find her feet. But I've also seen plenty of scenarios where people COULD save if they were willing to sacrifice even a little ... e.g., skip the daily Starbucks, buy the smaller house, drive the old car for another few years, etc. ... and don't. It seems a bit unfair that they should get to have their cake and eat it, too, while the folks who carefully saved their cake to enjoy later get it taken away from them completely.

Okay, bad metaphor. Now I'm hungry for cake ...! ;-)
I have to agree with you and this why....My parents both worked full time, high school educations...they had 4 children. With both parents working, the most they made together was $35,000 a year. They owned their home, my mom worked for a bank so she stashed money away in T-bills and an IRA. Dad worked for a family owned hardware store. His boss was very smart...he had profit sharings for the employees and money was invested by Merrill Lynch. My dads retirement portfolio was much larger than mom's even though the bank invested money in their own stocks. I am 55 years old, while growing up, we did not have a color TV until I was 10 years old, central air was added to the house when I was a teen. Wall to wall carpeting was added when I was 13. I am the youngest of 4, and was the only child living at home when I was 12. My parents scrimped and saved, live frugally all those years. We had one vehicle until after I was married and out of the house. My dad bought a truck that was used. He knew many almond farmers in the area and made contact with them to cut up down trees for firewood in the fireplace. Our family vacations consisted of tent camping in the mountains for a week once a year and mom would make spaghetti sauce in advance to freeze to take with us plus my dad and brothers were avid trout fisher's so we ate lots of fresh trout during that week. You get the picture.

When dad developed Alzheimer's Disease, mom found out about an Elder Law Attorney the Alzheimer's Aids Society recommended. She went to see him. He set up a living trust for the house, and when dad was diagnosed as mentally incapacitated, he and mom went to court. Everything was put in mom's name so that medicare could not come after her for repayment when dad passed away. So basically it was hidden. The reason the attorney did this was so mom had money to live on and still have a life even though dad was now in a nursing home that medicare was paying for.Dad passed in 2003, from 2003 to 2012, mom had only spent $50,000 of the hidden money for her needs and living expenses because she was budgeting on getting by on her SS which amounted to $1,300 a month!! In answer to your question, I see nothing wrong with this because it allowed my mom to live as she was accustomed to living frugally. Medicare did try to come after her for about 3 years after dad passed, but my daughter sent an email to our Congressman about the situation and he stopped Medicare from harassing my mom on a yearly basis for records regarding dads care,etc. Without my mom's attorney doing things this way, my mom would have lost everything, and she would have had to rely even more on social services ( the tax payers) for her livelihood. I believe it is right and just. My mom is now 84 years old, is mentally incapacitated due to Alzheimer's Disease.and is living in a memory care unit. Mom had the foresight to take out a Long Term Health Care Policy because 3 of her siblings developed Alzheimer's. This policy is currently paying for her care and will continue to pay for 4 years. Because of drugs like Namenda and Aricept used together, mom will most likely live longer than dad did once he was placed in a NH, when the LTC policy runs out, she will have the money from my dad's employer that was invested with Merrill Lynch to continue to pay for her care. Is it fair, YES...she is footing the majority of the costs not social services but if the money was not hidden, social services would be footing all of it. Not all will agree with me but really, family B got more services from social services than my mom did or will in the end.
I agree that people should not expect an inheritance. If a parent needs long term care, the money that they have should go toward that care not somehow 'hidden' so the children can get it. My father wanted to give us (his children) some of his savings and we said no because it will be needed for his care. He is 93 and needs to use it for his care.  In addition, there are way too many people on medicaid.  I have a niece who is on it and can't figure out how in the world she got it.  She's "disabled"...I don't see it...she could really work.  I worked for 40 years and saved and bought long term care insurance..to take care of me...but seems like a lot of people are on the system that shouldn't be.
Unfortunately, judging if someone is qualified for Medicare has to be determine by the numbers. Do we really want the government judging the quality of our lives, such as Family A was frugal, worthy of assistance and keeping their assets vs Family B who squandered and is not worthy? You think the system is messed up now that would be a worse nightmare!

As for morality within the current system, I think assets should be protected for spouses and young children to be able to live. They should not be protected as inheritance for grown children. If parents are saving for a rainy day, then it is surely raining when we get old and need medical care. Maybe in the old days it was feasible to leave an inheritance, but then in the past, people on average didn't live into their 70s and WAY beyond.

My father was forced to retire at 58, with a plant shut down. He and my mother lived frugally off of a small pension, social security, and selling Avon, Tupperware, etc. Then they sold their modest house in their 80's, lived off the equity by living on a rotating schedule with us kids, but always paying their own way. Dad died at 93, after 2 months of government (actually state) financed care. Mom has nothing left and is living with a sister on her social security. They always wanted to leave us kids something and over the years tried to give us money, we all refused telling them to spend it on themselves. Mom still manages to save for her burial with Dad at the veterans' cemetery.
This question is a tough one. I have a good friend who worked in geriatric social services for many years. Her motto is spend it now, she has seen too many "A" families who saved their money and wound up spending it all for their semi-private room in a substandard nursing home. The "B" family member lay in the other bed in the semi-private room with the same standard of care at tax payer expense.

There are no absolutes in these situations. The only way to make things fair and equal would be for government enforced regulations on how much every individual must save over the course of a lifetime for their potential long term care.

I don't think we need more government intervention into how we spend our money. I don't think anyone wants to be told how much of their income they are required to save over the course of a lifetime.

On the other hand are we going to let Granny from Family "B" die without care because she spent all of her money taking her kids to the beach and amusement parks? Does Granny from Family "A" gets to live because she was frugal?

In my opinion no easy answers or absolutes for this one.........
Here is what I think is totally and completely immoral:

Healthcare for profit.

No other developed nation has such an immoral healthcare model. It is shameful that we do.

Correct the underlying immorality and many of the other questions go away.

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