Second Place Winner 2005

Medicaid Estate Planning: A Review of the Ethical Considerations of Practicing Medicaid Estate Planning in the Area of Elder Law
Allyson Belt
Arizona State University
Many elderly Americans are in fear of being impoverished as a result of having to pay for long-term health care after becoming too frail or sick to care for themselves. Many middle income Americans, who do not qualify for public welfare assistance, are worried that their personal and family finances will be depleted by having to move into a nursing care facility. Wealthy Americans are not faced with this problem; the middle-income Americans are the segment of the population who are becoming inundated with the costs of long term care.[1] Financing the cost of long-term care poses the problem for middle class individuals who have incomes and resources too high to qualify for Medicaid, yet not high enough to cover the cost of their long term care needs.[2] These factors come together to raise questions regarding how these individuals can plan for long term care; some options are to deplete their assets completely on long-term health care until they can qualify for Medicaid, and this is known as “spend down;” to finance long-term care insurance in some way, or to transfer just enough of their assets in ways which are legal and acceptable thereby qualifying for Medicaid and retaining their assets for themselves and their families.
There are a few different ways in which individuals can finance long-term care. Medicare, which is a federal assistance program for the elderly and disabled, will fund long-term care in certain limited circumstances. Normally, individuals have to provide for long-term care expenses out of their personal savings and other assets. If there are no personal savings or assets to draw from, the costs of long-term care may be paid by Medicaid - a health-care program that covers acute medical and long-term care costs for those with limited financial resources. “Medicaid, however, provides for only about half of those individuals below the poverty level.”[3] Many elderly people are "house rich but cash poor."[4] Assuming these people do not need institutionalized nursing home care, a number of home-equity conversion tactics may be used in order to generate income to cover the costs of long-term care.[5] Long-term care can also be an insurable event. Insurance can make personal savings last longer, thereby delaying, or even preventing, the need for financial-planning strategies.[6]
Adding to the increasing worry about long-term care for the elderly are developments in medical science, technologies, and treatments which have allowed individuals to live longer and that means individuals have longer periods of time for which they may have to plan for long-term care. The fastest growing segment of the population is people who are sixty-five years old and older. This is due to the resulting increase in life expectancy, and this creates the problem that the elderly will need greater amounts of financial assistance in caring for and supporting themselves.[7] Faced with limited options for financing the increasing costs of healthcare, our elderly population is relying heavily on the Medicaid program.[8] “The Medicaid system faces a serious financial crisis, and the need for a clear policy on long-term care financing is urgent. There is concern at both the federal and state levels over where public responsibility for long-term care ends and private responsibility begins.”[9]
The Medicaid program was enacted in 1965 as a combined federal-state effort designed to make health care available for needy individuals, whether they fall into the “medically needy” or the “categorically needy” categories. Medically needy individuals are not necessarily low income individuals with little or no assets, but they cannot afford the cost of long-term health care. Categorically needy are those individuals who are low income and have little or no assets to use towards their health-care needs, long term or not. The Medicaid program provides federal financial help to states that choose to reimburse certain costs of medical treatment for needy persons.[10]
The practice of structuring an estate so an individual can become eligible for public benefit programs such as Medicaid is known as Medicaid estate planning. This is where assets are transferred and sheltered so as to qualify the individual for Medicaid without depleting her life savings. Medicaid estate planning is not the same as Medicaid “spend down.” Spend down is the practice where a Medicaid applicant spends down his or her income and assets on medical expenses so he or she can become eligible for Medicaid. Medicaid estate planning is the practice of divesting one’s resources on things other than health care costs, such as giving money to family members or buying new cars, for the purpose of appearing to be impoverished in order to become eligible for Medicaid.[11]
After the Medicaid program was enacted, the legal practice of “Medicaid Estate Planning” arose. This is a legal practice that involves the utilization of the complex rules of Medicaid eligibility to help one become eligible for Medicaid benefits. Some people have compared Medicaid estate planning to the way one uses the Internal Revenue Code to her advantage when preparing taxes. Individuals attempt to shelter or divest their assets, with the guidance of an attorney who practices in this area, to qualify for Medicaid without first depleting their life savings and other assets. “Serious concern arose over the widespread divestiture of assets by mostly wealthy individuals so that those persons could become eligible for Medicaid benefits.”[12] Is it an abuse of the system to have wealthy individuals, those who can afford to finance long-term healthcare without depleting all of their assets, divesting their assets in such a way that enables them to qualify for Medicaid benefits? In other words, should wealthy individuals have the right to give away their wealth to those of their choosing in order to draw from a welfare program for their long term healthcare thereby placing the burden of the cost of their long-term care on society?
There are several commonly used techniques in financial planning which estate planners use in Medicaid estate planning. Individuals can invest money is assets which are considered exempt under the Medicaid rules, transfer assets directly to children or others tax free, or set up Medicaid trusts in order to shelter assets and still be eligible for Medicaid benefits. Finally, couples can change their wills and title their property to prevent the Medicaid recipient from being disqualified from Medicaid through inheritance. These estate planning techniques can help to assure that an individual is eligible for Medicaid benefits in her future.[13]
In this way, Medicaid estate planning involves structuring the client’s estate so that eligibility for Medicaid may be established and maintained for that person’s future.[14] In 1988, Congress passed 42 U.S.C. § 1396(p)(c), (“§1396”) which requires a period of ineligibility for Medicaid benefits if the applicant transferred assets for the purpose of obtaining benefits.[15] Basically, the formula is the total amount of assets that were transferred during the “look-back period” of 36 months, divided by the average monthly cost of services as determined by the state of residency. The term “look-back period” refers to the length of time from the date of the Medicaid application so as to scrutinize all asset transfers made by the applicant in order to determine the applicant’s Medicaid eligibility date.
Margaret Peebler, an 87 year old widow with no living children or siblings, who was in need of 24 hour care for the rest of her life, had assets totaling the amount of $14, 824.22.[16] She had no insurance to cover long term care and, under her current amount of assets, she could not qualify for Medicaid. Her attorney advised her to transfer some of her assets away so that she could meet the requirements for Medicaid, which in turn resulted in a 3 month period of ineligibility for her. The statute, 42 U.S.C. § 1320a-7b(a)(6), states that, “Whoever for a fee knowingly and willfully counsels or assists an individual to dispose of assets (including by any transfer in trust) in order for the individual to become eligible for medical assistance . . . if disposing of the assets results in the imposition of a period of ineligibility for such assistance . . . shall . . . be guilty of a felony and upon conviction thereof fined not more than $25,000 or imprisoned for not more than five years or both . . ..”[17] This is precisely what Peebler’s attorney did, and it is clearly against the law because it is in direct opposition to the rule. Peebler brought an action for relief seeking a judicial declaration that 42 U.S.C. § 1320a-7b(a)(6) is unconstitutional.[18] However, this case was dismissed for lack of standing because plaintiffs (Peebler and her attorney) had not been indicted, arrested, threatened with arrest, or even granted an “advisory opinion” concerning the application of this rule; therefore there was no genuine case or controversy.[19]
“Attorneys and Congressmen have engaged in debate over whether Medicaid estate planning is ethical, economical, and legal.” An attorney has a fiduciary duty to her clients to do what is best for them, and, in many situations which arise in the area of Elder Law, that includes advising them of Medicaid estate planning. The question of whether Medicaid estate planning is illegal under the current Medicaid laws must be debated by the Legislature.[20] The Legislature is better able to assess the whole fiscal situation regarding Medicaid demands and benefits usages; better able to poll the population to see what the people want to have happen; and better equipped to investigate the actual impact of Medicaid estate planning on society thereby focusing their inquiry on public policy.
Medicaid does not allow a person to gift or transfer away all of her income or assets in order to be eligible for Medicaid. These transfers are considered to be Medicaid fraud and can result in criminal penalties and an applicant’s disqualification from Medicaid eligibility altogether. In the past twenty years, Congress has tightened the loopholes in order to prevent elders from spending down their assets to allow them to qualify for Medicaid.[21] However, some loopholes are still in place; therefore, Congress must not have desired a complete shut down of Medicaid estate planning or it would have been explicitly stated otherwise.
Starting with the Omnibus Budget Reconciliation Act of 1980 (“1980 Act”), Congress enacted laws to prevent transfers of assets and income for Medicaid qualification reasons; if the only purpose to the asset transfers was to enable the individual to qualify for Medicaid, this Act limited his ability to do that. The law gave the states the ability to deny Medicaid coverage to applicants who transferred assets below their fair market value within a look-back period of twenty-four months before applying for Medicaid. Also, if Medicaid fraud was found, the 1980 Act also allowed states to impose a penalty of ineligibility for 24 months for the applicant.[22] In a situation like this, if the applicant had transferred away all of his assets and was in need of immediate long-term care, he would find himself in serious financial difficulty since he was disqualified for Medicaid benefits for the first 24 months. Beyond that, the problem of actually finding a bed for him would be at issue as well.
Next, Congress tightened the rules further by enacting the Tax Equity and Fiscal Responsibility Act, (“1982 Act”). This Act allowed states to consider whether an applicant had transferred not only available assets but also exempt assets within 24 months prior to applying for Medicaid. It also authorized the first “estate recovery rule” which allowed states to recover Medicaid expenditures from people who had committed Medicaid fraud by allowing states to impose liens on the applicant’s home.[23]
One particular problem some courts had to grapple with regarding the 1982 Act was the question of what Congress meant by the word “estate” and which assets were to be considered part of the estate. An example of how the “estate recovery rule” has been implemented is found in Belsh v. Hope, Jr.,[24] where the California courts enforced recovery of Medicaid benefits as allowed under 42 U.S.C. § 1396p(b)(1)(B), in such a way as to permit recovery from heirs and joint tenants alike. However, when hardship is involved, California makes allowances across the board, regardless of whether an heir or joint tenant is involved. Under these circumstances, California’s statute does not apply at all when the recipient passes a residence to a surviving spouse or minor or disabled children. If enforcement of the statute would cause substantial hardship, the Department has authority to waive its claim in whole or in part.[25] “Allowing states to recover from the estates of persons who previously received assistance furthers the broad purpose of providing for the medical care of the needy; the greater amount recovered by the state allows the state to have more funds to provide future services. Furthermore, if a person has assets available to pay for the benefits, then the state should be allowed to recover from those assets because that person was not fully entitled to all benefits.”[26] These rules clearly further public policy. So, while California does exercise its right to recovery, it has policy in place which allows it to waive its claim in cases where recovery would cause undue hardship to the heirs or joint tenants of the estate.
The Medicare Catastrophic Act of 1988 (“1988 Act”) drastically changed the eligibility requirements for applicants with spouses and tightened the existing asset transfer rules. This Act required that all states adopt the previously optional asset transfer restrictions in the Omnibus Budget Reconciliation Act of 1980 and extended the look-back period for asset transfers from twenty-four months to thirty months prior to the application for Medicaid benefits. This meant that applicants could not transfer available assets within the thirty month period prior to applying for Medicaid. Amendments to this act also prevented an applicant from transferring assets to his spouse who transferred them to someone else at that point.[27]
Other Congressional attempts to prevent applicants from transferring their assets to qualify for Medicaid were included in the Omnibus Budget Reconciliation Act of 1993 (“1993 Act”) and the 1997 Balanced Budget Act (“1997 Act”). These Acts implemented steps to further tighten loopholes in the Medicaid eligibility rules by restricting the applicant’s ability to plan effectively to avoid the Medicaid eligibility rules and by imposing criminal penalties for such transfers. These rules were tightened because of claims of widespread abuse of the Medicaid program.[28]
The 1993 Act lowered the fair market value transfer rules, imposed a greater penalty ineligibility period, and put more restrictions on shelters in trusts, jointly held property, and bank accounts. The 1993 Act also expanded the existing rule that prevented the transfer of assets for less than the fair market value of that asset and expanded the definition of assets to include transfers of property and income. This keeps applicants and their spouses from transferring property to qualify for Medicaid and from transferring income by way of trusts or other outright transfers. The 1993 Act also extended the look-back period from 30 months to thirty-six months, and if an applicant tried to shelter assets through recoverable trusts, the look-back period was extended to sixty months.[29] So at this point, if an applicant wanted to engage in Medicaid estate planning, he would need to be able to see far enough into the future to be able to make a decision to divest himself of his assets more than three full years before he was going to require long-term care, and if he chose to shelter his assets through a recoverable trust, then he needed to know five full years in advance.
“The 1993 Act also expanded estate recovery rules so that states can recover amounts expended for nursing home care, home and community based services, and related hospital prescription drug services.”[30] The 1993 Act requires that states institute programs for recovery of the costs of Medicaid payments for nursing home care or long-term care from the estate of an individual receiving benefits after the age of fifty-five.[31] Apparently, these provisions were a result in the ineffectiveness of the previous estate recovery programs which had been optional.[32]
There are many different types of assets and property that can be recovered. These include property not only from the probate estate of the former Medicaid recipient, but also from the applicant’s real and personal property.[33] Additionally, the state recovery program can also obtain other assets which the former Medicaid recipient had an interest in at the time of death whether or not they are included in the probate estate.[34] Basically, the state can recover any assets that belonged to the former Medicaid recipient in order to reimburse the state for its expenditures, but these rules are subject to limits and exceptions.
One way the state recovery programs are limited is by an ineligibility period for certain assets transferred for less than fair market value.[35] Another way is that the regulations provide a grace period during which asset transfers for less than fair market value can not be recovered by the State.[36] Finally, these estate recovery rules can be suspended for several reasons: The recovery of Medicaid costs for a former recipient who has a surviving spouse is suspended until after the death of the individual’s surviving spouse.[37] Further, recovery can also be suspended if the Medicaid recipient is a child under the age of twenty-one, blind, or disabled.[38] Finally, the recovery can be permanently suspended in cases where recovery would cause undue hardship.[39]
Through the 1997 Act, because of the rising Medicaid budget and the problems with Medicaid estate planning, Congress imposed criminal penalties on those who counseled an applicant to divest assets resulting in the applicant’s ineligibility for Medicaid, and this is where the attorney who practices in Elder Law and engages in Medicaid estate planning comes in. In 1996, congress passed a provision which made it a crime to “knowingly and willfully dispose of assets in order . . . to become eligible for Medicaid, if disposing of such assets results in the imposition for period of ineligibility for such assistance.”[40] So, if an attorney or an accountant assessed the client’s situation, advised that client to divest enough assets so as to leave the client with just enough money to pay for the period of ineligibility, the giving of this particular advice would be against the law.
A provision which became known as the “Granny Goes to Jail Clause” made it criminal for one to divest her own assets for the purpose of qualifying for Medicaid eligibility within the look-back period if diverting those assets resulted in the applicant becoming ineligible for Medicaid assistance.[41] The law was debated and amended rather quickly to prevent an applicant from incurring criminal penalties for transferring assets.[42] As a result of this Act, however, if an attorney knowingly counseled an individual to get rid of her assets within the look-back period and as a result, the individual became ineligible for Medicaid, then the attorney could be criminally penalized; this criminal provision has been hotly debated, and the meaning of the statute has not been fully defined.[43]
While the rules were tightened, the 1993 Act did contain recognized exceptions of certain asset and income transfers, and it is these exceptions to which an attorney can guide her client in preparing her to qualify for Medicaid. These exceptions include the right to prove affirmatively that transfers were not made for the purpose of qualifying to Medicaid; the option of correcting fraudulent transfers, and the option of retrieving wrongly transferred assets. There are also certain assets transfers which are exempt such as: the transfer of an applicant’s home to her spouse, dependant child, or a sibling with an equity interest in the house; spousal transfers that are made for the sole purpose to benefit the spouse; outright inter vivos transfers or transfers to a trust for the benefit of a disabled dependent; or transfers that will cause undue hardship.[44]
All of these Acts resulted in a set of new Medicaid disqualification rules; applicants must be very careful in estate planning if the goal is to prepare for Medicaid eligibility. There are risks involved, and it is important to be aware of the strict rules that can result in ineligibility or criminal penalties if a mistake is made.[45]
An example of how the trust situation was handled is found in Ahern v. Thomas, Commissioner of Social Services,[46] where the court found that the principle of the trust that Mildred F. Ahern created could not be considered as an available resource in the calculation of her eligibility for Medicaid benefits, even though the amount held in principle exceeded $600,000. “The amount of principal and income of a Medicaid qualifying trust considered "available" to an applicant "is the maximum amount of payments that may be permitted under the terms of the trust to be distributed to the grantor, assuming the full exercise of discretion by the trustee or trustees for the distribution of the maximum amount to the grantor. . . ."[47] The court stated, “[T]he provisions of the trust instrument that address the obligations of the plaintiff's estate do not provide the trustees with either authority or discretion to make payments "to the grantor" . . . [c]onsequently such provisions do not provide a basis for including trust principal in the calculation of the plaintiff's eligibility for medicaid (sic). Because the trust instrument does not provide the trustees with authority or discretion to distribute trust principal "to the grantor" . . . the principal of the trust is not a resource "available" to the plaintiff and it therefore cannot be included in the calculation of her eligibility for Medicaid (sic) benefits.”[48] The dissent stated, “The majority of the court allows a wealthy plaintiff – with assets in excess of $600,000 – to take advantage of a program established to care for the medical needs of the poor.”[49]
This is precisely the argument that opponents of Medicaid estate planning make, and with good cause. In this case, Ahern wanted to leave her money to her children, but they were not dependent children and were, presumably, perfectly capable of supporting themselves. So, she was legally able to impinge on a government welfare benefit system to pay for her care, a cost which is directly transferred to society, so that she could leave her considerable assets to her children. This is clearly a question of public policy: should we burden society for the benefit of a few? Worth taking note of is the fact that the court did not label her “categorically needy” but did label her “medically needy:” “Under the medicaid (sic) act, states have an additional option of providing medical assistance to the " medically needy" -- persons who, like the plaintiff, lack the ability to pay for their medical expenses but do not qualify as "categorically needy" solely because their income exceeds the income eligibility requirements of the applicable categorical assistance program.”[50] Individuals who are categorized as “medically needy” become eligible for Medicaid if the state decides to cover them by incurring expenses in an amount sufficient to reduce their incomes below the income eligibility level set by the state in its Medicaid plan.[51] It is not hard to understand why some believe that the Medicaid system is being taken advantage of. On the other hand, Ahern’s desire to leave her assets to her children is a desire that many Americans who have saved their money share.
Attorneys who practice elder law may find themselves unsure about their ethical and professional obligations when advising their clients about Medicaid estate planning issues.[52] “Elder law attorneys are very sensitive to ethical and professional duties because they work with elderly clients when they are the most vulnerable and are easily influenced by others.[53] Attorneys have a fiduciary duty to do what is best for their clients within the parameters of the law. This makes it a legislative function to resolve the issues at hand on a policy level.[54] The Model Rules of Professional Conduct (“Model Rules”) require lawyers to discuss the goals of representation, communicate with the client, and represent the needs of the client in a competent and diligent manner.[55] The Model Rules are not binding on the states, but most states have adopted substantial portions of the Model Rules or equivalent rules.[56] In light of these rules and their application to the area of Medicaid estate planning, the attorney owes the duty to her client to inform her of her option to use Medicaid as a way to finance long term care, to communicate to her Medicaid estate planning techniques, and to diligently represent the estate planning needs of the client. The lawyer must then select the best means available to accomplish the goals of the client her estate plan.[57] Additionally, the lawyer has a duty under the Model Rules to inform the client as to the status of her case and to provide the client with any and all pertinent information.[58]
Regarding the duty to represent the client’s goals, in the context of Medicaid estate planning, the lawyer has the duty to directly communicate with the client about his goals and options with regard to planning for long term care. This basically breaks down to the duty to inform the client of her option to use Medicaid to finance long term care and inform the client of the means that can be utilized in order to organize her estate with that goal in mind. Once this information has been imparted to the client, the lawyer must work in a diligent manner to achieve the client’s goals if the client chooses to prepare her estate in order to make her eligible for Medicaid.[59] This is particularly important when looking at middle-income clients who have just enough money to render them ineligible for Medicaid, but whose health is deteriorating in such a way that they will need to be cared for in a nursing home type of facility, and whose assets will, in no way, carry them through. This scenario is further complicated when one spouse is ailing but the other is still able to live on his/her own and will need to depend upon the assets for his/her support, hence the reason for the spousal exception. Add dependent children into the mix, and Medicaid estate planning can be crucial for these people even though they do not technically qualify as “categorically needy” or low income.
The client has the authority to make the decisions regarding the goals of the representation, but the lawyer has a duty to consult and communicate with the client about the means used to achieve these goals.[60] The lawyer also has a duty to inform the client of the risks involved in Medicaid estate planning, particularly regarding the risk of asset divestment and financial autonomy. These risks might include divesting the assets and then never actually needing a nursing home; the difficulty in finding a Medicaid funded facility with an available bed and the differences in the quality of care provided to Medicaid residents in comparison to paying residents, and the moral, social, criminal, and political consequences of Medicaid estate planning.[61]
Model Rule 1.1 requires that the attorney competently represent the client. The rule states, “Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”[62] In terms of Medicaid estate planning, competency means that the attorney must be competent in estate planning tools in order to accurately represent the client’s needs. It also requires that the attorney be able to use and employ the Medicaid estate techniques in the most reasonable manner to achieve the client’s goals.
Medicaid divestment is a very technical area of practice. The rules governing eligibility for benefits change frequently, and there are several ways to qualify for Medicaid if that is the client's goal. A lawyer who is not entirely familiar with all aspects of this practice should not agree to represent a client in this type of case unless the lawyer is prepared to associate with another lawyer who is qualified in this area.[63] “The attorney who provides services in this area must have a high degree of competence and command specialized skills and knowledge. He must know the tax laws, rules for Medicaid eligibility, how to sift through the maze of issues presented by the Social Security Administration or the state department of social services, and the ins and outs of estate and trust work. Medicaid is a social safety net that is provided to individuals after they spend-down their available assets. In this as well as in many other asset transfers, one must be concerned about fraudulent transfers which compromise the rights of creditors or other third parties. Trusts can be arranged in a manner to take care of the person when he is no longer capable of self-determination. In addition, trusts aid in the disposition of one's assets at the end of life. All this must be done within the parameters of appropriate estate planning and the rules of the tax code.”[64]
Model Rule 1.3 requires lawyers to act with diligence. Acting with diligence is, “Pursuing a matter on behalf of a client despite opposition, obstruction or personal inconvenience to the lawyer, and may take whatever lawful and ethical measure are required to vindicate a client’s cause or endeavor.”[65] This rule may also mean that an attorney has to sacrifice some of her own ethical and moral considerations in order to diligently represent her client.[66]
Medicaid estate planning has been viewed as ethically controversial. The primary issue is whether people of some means, generally middle-income or high-income Americans, should be allowed to rid themselves of enough of their assets to qualify for what is, essentially, a medical welfare benefits program. To help find some resolution, one might compare Medicaid estate planning to tax planning. “Tax planning and Medicaid estate planning are essentially analogous and should be considered equally legitimate tactics that a lawyer can employ in representing the needs of the client.”[67] In each of these areas, the rules are used in such a way that the client can pay less money to the government and keep more for himself and/or his family. Nobody really questions the idea of tax planning.
In Helvering v. Gregory,[68] the defendant organized a shell corporation in order to purchase another corporation because the purchase offered his company reduced tax consequences. Without the use of a shell corporation, the purchase of the corporation outright would have caused him to incur large amounts of taxes. The court had to address the question of whether this practice was legitimate. The Second Circuit held that the practice of planning in such a way to reduce tax payments was legal.[69]
One could arguably draw the comparison between tax planning and Medicaid estate planning. While Medicaid planning is criticized as being unethical and contrary to the legislative intent to provide Medicaid benefits for the truly needy, others defend it arguing that the right to transfer assets is an integral part of “ America’s wealth transmission system.”[70] Since Congress made Medicaid estate planning possible, attorneys should employ the techniques available to represent their clients in a diligent and competent manner.[71]
In her article, Jan Ellen Rein supports Medicaid estate planning: “America's wealth transmission system accommodates a property owner's desire to transfer assets remaining at death to loved ones. However, a curious deviation from this time-honored tradition appears in policy discussions and legislation in the context of wealth retention and transmission by elders stricken with disabilities requiring long-term care. Research suggests that wishful thinking, misinformation and self-deception account for this deviation from accommodation to censure of attempts by the disabled elderly to preserve sufficient assets for lifetime security and modest transfer at death.”[72] This article was written during ongoing debates about the Republican balanced budget proposal, which was vetoed by President Clinton, which would have altered Medicaid dramatically, particularly Medicaid's provisions for long-term care. She has strong view points, and they are also valid view points. It has been a long standing tradition in our history for Americans to leave their accumulated wealth to whomever they choose. The question is, do we, as a society, take on the burden of caring for those who could otherwise provide for themselves by allowing them to draw Medicaid benefits?
In addition to an attorney’s ethical duties toward her client, she also has separate professional ethical obligations as a member of the bar. One of these obligations is to avoid professional misconduct. Model Rule 8.4 states that it is professional misconduct for an attorney to “commit a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects” or “engage in conduct involving dishonesty, fraud, deceit or misrepresentation.”[73] Under the 1997 Act, it constitutes fraud if an attorney counsels her client to divest her assets for the purpose of qualifying for Medicaid if such transfer results in the person becoming ineligible for Medicaid benefits, and this only happens if the applicant transfers her assets within the look-back period. As a result, an attorney can lawfully and ethically inform her client about Medicaid estate planning and not be committing fraud as long as the attorney does not counsel her client to transfer assets within the look-back period. Therefore, while an attorney has an ethical obligation not to counsel her client in any way which would result in her ineligibility for Medicaid, an attorney also has an obligation to inform her client on the lawful and non-criminal aspects of Medicaid estate planning.[74]
The ethical obligations of the attorney are not fully defined under the 1997 Act. Former Attorney General of the United States, Janet Reno, informed Congress that the Department of Justice will not enforce the criminal provisions imposed by the 1997 Act.[75] The validity of the 1997 Act’s criminal provision has been contested and found deficient on constitutional grounds in New York State Bar Assoc. v. Reno.[76] In an action for a preliminary injunction, the New York Bar Association challenged the statute arguing that it violated the First and Fifth Amendments.[77] The Bar argued that the Act was in violation of the First Amendment because it unconstitutionally restricted free speech and is overly broad and that it was in violation of the Fifth Amendment because it is vague. Based upon these arguments, the court found that the statute was deficient on constitutional grounds.[78] As a result, the validity and enforcement of the statute are not clearly understood.[79] “Despite the debate over the constitutionality of the criminal provision, a attorney must be aware that there are criminal penalties for counseling a client about Medicaid if it renders an applicant ineligible for such benefits. However, the Model Rules still obligate an attorney to inform her client about Medicaid estate planning within the parameters of the law.”[80]
“In light of the duties imposed on lawyers by the Model Rules and by the fiduciary duty that the lawyer owes to her client, the lawyer has an ethical duty to inform her clients of Medicaid estate planning within the parameters of the law. If the client chooses to employ such techniques in the scope of the representation, the lawyer has a duty to abide by the client's goals. While an attorney must be aware of the criminal penalties imposed by the 1997 Act, the attorney must use Medicaid estate planning techniques to represent the client and attain her goals. It is, therefore, not the professional responsibility of the lawyer to stop the use of Medicaid estate planning, but the responsibility of the legislature to choose to curtail the use of Medicaid estate planning for ethical policy reasons.”[81]
“In addressing ethical concerns related to Medicaid estate planning, ultimately, professional ethics and personal ethics must be distinguished.”[82] Attorneys should advise their clients about Medicaid estate planning and diligently pursue such estate planning tactics if that is what the client chooses in preparation of her estate for Medicaid eligibility, as long as it is done within the parameters of the law. Personal ethical considerations against the use of Medicaid estate planning should not to be addressed at the attorney client level because it is the attorney’s job to represent her client’s interest according to the law. Instead, personal ethics must be debated by the legislature as a policy tool to prevent the use of Medicaid estate planning because it is the legislature who must make these kinds of public policy laws.
“In determining whether or not to close the loopholes in the Medicaid rules, the legislature must weigh personal and policy considerations. [T]he legislature must consider all relevant interests in deciding to close all existing loopholes in addition to ethical concerns. For example, the legislature should consider the government's interests in providing long term care treatment to poor Americans. It should weigh the interests of every American having the right to pursue Medicaid eligibility. Furthermore, the legislature needs to consider whether more restrictive laws should be enacted to contain the costs of Medicaid by restricting Medicaid eligibility for long term care. In the past, most of the changes in the current Medicaid laws were driven by budgetary policy concerns instead of ethical and equitable issues. The past revisions of the Medicaid rules were driven by policy efforts to develop stricter rules and enforcement mechanisms for policing fraudulent transfers.”[83]
A possible result of federal and state efforts to set forth legislation preventing Medicaid estate planning might be that it forces the elderly to give greater consideration to purchasing long-term care insurance.[84] Tax credits for long-term insurance are available at the state and federal level; however, they do not appear to be incentive enough for many people to purchase a policy.[85] There is the possibility of relief in the form of public-private partnerships, a solution which includes the private insurance companies and the government where the state provides incentives to buy a long-term care insurance policy in exchange for asset protection in the event that the individual’s long-term care costs exceed her benefits.[86]
“Resolving ethical dilemmas in an elder law practice involves a reconception of zealous advocacy, because the interests of the client may be difficult to discern and the goals of representation do not always involve an easily quantified, win-lose outcome.”[87] In looking at the ethical concerns related to Medicaid estate planning, it seems clear that attorneys, regardless of their personal feelings on the matter, should inform and advise their clients about the avenues available to them through Medicaid estate planning. Further, the attorney has an obligation to diligently pursue these estate planning tactics should the client choose to prepare her estate in contemplation of Medicaid eligibility so long as the attorney stays within the parameters of the law. It is the job of the legislature to form the policies regarding Medicaid estate planning; this is the avenue through which the people may speak. Until then, the attorney’s primary duty is to represent the client in a competent and diligent matter in reaching the client’s goals: it would seem like malpractice to do anything other than that until and if the legislature speaks.
[1] Laura Herpers Zeman, Estate Planning: Ethical Considerations of Using Medicaid to Plan for Long-term medical Care for the Elderly, 13 Quinn. Prob. Law Jour. 187.
[2] Eleanor M. Crosby and Ira M. Leff, Response to the conference: Ethical Considerations in Medicaid Estate Planning: An Analysis of the ABA Model Rules of Professional Conduct. 62 Fordham L. Rev. 1503 (1994).
[3] Erick J. Bohlman, Financing Strategies: Long-Term Care for the Elderly, 2 Elder L.J. 167, 168 (1994).
[4] Pocket Guide to Money, Consumer Rep., Oct. 1992, at 637, 637
[5] Id.
[6] Bohlman, 2 Elder L.J. at 168 citing Susan E. Polniaszek, Insurance to Pay for Long-Term Care, in Financing Long-Term Care for the Elderly 143, 143 (Peter J. Strauss ed., 1993).
[7] Zeman, 13 Quinn. Prob. Law Jour. at 188.
[8] Kristen A. Reich, Note: Long-term Care Financing Crisis – Recent Federal and State Efforts to Deter Asset Transfers as A Means to Gain Medicaid Eligibility, 74 N. Dak. L. Rev. 383 (1998).
[9] Id.
[10] Thompson v. Dept. of Children and Families, 835 So. 2d 357, 359 ( Fla. 4th Dist. App. 2003).
[11] Zeman, 13 Quinn. Prob. Law Jour. at 205
[12] Id.
[13] Id. at 205.
[14] Id. at 190.
[15] Peebler v. Janet Reno, Attorney General of the U.S., 965 F. Supp. 28, 29 (D. Or. 1997)
[16] Id.
[17] 42 U.S.C.A. § 1320a-7b(a)(6) (West 2003)
[18] Id.
[19] Peebler, 965 F. Supp. at 30.
[20] Zeman, 13 Quinn. Prob. Law Jour. at 190.
[21] Id. at 197
[22] Id. at 198
[23] Id.
[24] Belsh v. Hope Jr., 33 Cal. App. 4th 161 (Cal. App. 4th dist. 1995),
[25] Id. at 172
[26] Id.
[27] Zeman, 13 Quinn. Prob. Law Jour. at 199.
[28] Id.
[29] Id.
[30] Id. at 202 citing 42 U.S.C.A. 1320a-7b(a)(West 1992 & Supp. 1997)
[31] Id. citing 42 U.S.C.A. 1396p(b)(1)(B)(West 1992 & Supp. 1997)
[32] Id. at 203
[33] Id. citing 42 U.S.C.A. 1396p(b)(4)(A)(West 1992 & Supp. 1997)
[34] Id. citing 42 U.S.C.A. 1396p(b)(4)(B)(West 1992 & Supp. 1997)
[35] Id. citing 42 U.S.C.A. 1396p(c)(1)(A)(West 1992 & Supp. 1997)
[36] Id.
[37] Id. at 204 citing 42 U.S.C.A. 1396p(b)(2)(West 1992 & Supp. 1997)
[38] Id.
[39] Id. citing 42 U.S.C.A. 1396p(b)(3)(West 1992 & Supp. 1997)
[40] 42 U.S.C.A. 1320a-7(a)(6).
[41] Zeman, 13 Quinn. Prob. Law Jour. at 201.
[42] Id.
[43] Id.
[44] Id. at 200
[45] Id. at 202
[46] Ahern v. Thomas, Commissioner of Social Services, 248 Conn. 708 (1999).
[47] 42 U.S.C. § 1396a(k)(1)(1988)
[48] Ahern 248 Conn. at 742
[49] Id. at 752
[50] Id. at 714
[51] Id.
[52] Zeman, 13 Quinn. Prob. Law Jour. at 215
[53] Bohlman, 2 Elder L.J. at 168
[54] Zeman, 13 Quinn. Prob. Law Jour. at 216
[55] Model Rules of Professional Misconduct Rule 1.3 (1996) [hereinafter “Model Rules”]
[56] Zeman, 13 Quinn. Prob. Law Jour. at 217
[57] Id. at 217
[58] Model Rule 1.4
[59] Id.
[60] Model Rule 1.2
[61] Zeman, 13 Quinn. Prob. Law Jour. at 217
[62] Model Rule 1.1
[63] See Model Rules, supra note 55, at rule 1.1 cmt.
[64] Steven H. Hobbs & Fay Wilson Hobbs, The Ethical Management of Assets for Elder Clients: A Context, Role, and Laaw Approach, in Ethical Issues in Representing Older Clients, 62 Fordham L. Rev. 1411 (1994).
[65] See Model Rules, supra note 55, at rule 1.3 cmt.
[66] Zeman, 13 Quinn. Prob. Law Jour. at 219
[67] Id. at 219
[68] Helvering v. Gregory, 69 F.2d 809, 810 (2d. Cir. 1834).
[69] Id.
[70] Jan Ellen Rein, Misinformation and Self-Decepton in Recent Long-Term Care Policy Trends, 12 J.L. & Pol. 195, 207 (1996).
[71] Zeman, 13 Quinn. Prob. Law Jour. at 220
[72] Rein, 12 J.L. & Pol. at 196.
[73] See Model Rules, supra note 55, at Rule 8.4
[74] Zeman, 13 Quinn. Prob. Law Jour. at 221.
[75] New York State Bar Assoc. v. Reno, 999 F. Supp. 710, 713 (N.D. N.Y. 1998).
[76] Id.
[77] Id.
[78] Id.
[79] Zeman, 13 Quinn. Prob. Law Jour. at 222.
[80] Id.
[81] Id.
[82] Id. at 223
[83] Id.
[84] Brian E. Barriera, Using a CRAT (Charitable Remainder Annuity Trust) to Pay for Long-Term Care Insurance, 24 Est. Plan. 99, (1997).
[85] Id.
[86] Janice Cooper Pasaba & Alison Barnes, Public-Private Partnerships and Long-Term Care: Time for a Re-Examination?, 26 Stetson L. Rev. 529, 537 (1996).
[87] Joseph A. Rosenberg, Adapting Unitary Principles of Professional responsibility to Unique Practice Contexts: A Reflective Model for Resolving Ethical Dilemmas in Elder Law, 31 Loy. Chi. L.J. 403 (2000).