Quietly, with no fanfare and no discussion, U.S. lawmakers passed
a bill late last year that could criminalize a certain type of
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
"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-
"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
"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. …