New Estate-Planning Law Could Put Parents in the Pokey

Article excerpt

Quietly, with no fanfare and no discussion, U.S. lawmakers passed a bill late last year that could criminalize a certain type of estate planning. The law, which went into effect Jan. 1, was part of a much larger health reform measure and was aimed at stemming bogus claims for Medicaid -- a government health insurance program for the poor.

But because of the way the law was drafted, it is possible that individuals could run afoul of the rules inadvertently at the worst possible time -- when they're sick and unable to care for themselves.

"Granny could go to jail,' was the dramatic assessment of the Institute of Certified Financial Planners. Attorneys counter that jail sentences are unlikely for practical reasons -- jails are crowded enough without throwing in the ailing and confused individuals who might break this law -- but they note that the law has had a "chilling effect" on a whole segment of the estate- planning industry. "At this point in time, there is no way to tell anything," says Ira S. Wiesner, a Sarasota, Fla.-based lawyer and president of the National Academy of Elder Law Attorneys. The practice of so-called "Medicaid planning" has come to a virtual standstill, he adds, because "you would never know whether what you are doing constitutes an illegal act." Already, there is an effort afoot to repeal the law. But in the meantime, attorneys and financial planners are scrambling to warn their clients that seemingly innocuous estate-planning procedures -- including giving tax-free gifts to your children and grandchildren - - could turn them into criminals. The brouhaha pivots around a few paragraphs in the Health Insurance Portability and Accountability Act, which passed in August 1996.These paragraphs alter federal Medicare laws by imposing criminal penalties for those who transfer assets and later apply for federal health insurance assistance for the poor, commonly known as Medicaid (MediCal in California). Theoretically, the law does not change what's permissible. However, it stipulates that those who violate Medicare rules can be criminally prosecuted, facing up to one year in jail and a $10,000 fine. Although the law went into effect Jan. 1, two events trigger the penalties: a transfer of assets and application for Medicaid benefits. Could you be subject to the criminal sanctions if you transferred assets in years past but applied for Medicaid in 1997 or later? Possibly. "That's the question," says Sally Hurme, attorney with the American Association of Retired Person's legal advocacy group. "Because the law is written so vaguely, it's hard to tell." Why is the law so vague? Partly because it appears to have been slipped into the health care bill at the last minute, without any disclosure or discussion, says Bob Coplan, national director of family law planning at Ernst & Young in Washington, D. …


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