Our law allows qualified individuals to seek governmental assistance in paying for long-term care, and it provides opportunities for individuals to plan ahead and take appropriate steps to meet those qualifications. Some people are understandably squeamish when it comes to planning for possible qualification for what is often regarded as a “welfare” benefit. In fact, there was a time when the Medicaid laws prohibited people from planning for Medicaid qualification (the so-called “Granny Goes to Jail” law). The Medicaid laws also prohibited people from advising others about how to qualify for Medicaid (the so-called “Granny’s Lawyer Goes to Jail” law). It turns out that nobody went to jail under these laws.
The U.S. Attorney General declined to prosecute forward-thinking Grannies, and the Federal courts moved quickly to determine that banning lawyers from advising their clients about Medicaid qualification violates the First Amendment to the U.S. Constitution, which guarantees freedom of speech. These decisions make a great deal of sense, especially in light of how we, as taxpayers and citizens, interact with our government in other contexts.
For example, everyone knows that it is immoral and illegal to cheat on your income taxes. But does that mean that any of us has an obligation to pay more taxes than the law requires? Of course not. The Internal Revenue Code allows us to take various kinds of deductions when we file our annual income tax returns. As long as we deduct no more than the law allows, we are engaging in the noble practice of tax avoidance. However, if someone knowingly takes a tax deduction in an amount or of a kind that the person is not entitled to take, the terminology changes to tax evasion. For tax avoidance, a person is praised, for tax evasion, a person can be imprisoned.
In the 1916 U.S. Supreme Court case of Bullen v. Wisconsin, reported at 240 U.S. 625, Justice Oliver Wendell Holmes wrote that “when the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits. When an act is condemned as an evasion, what is meant is that it is on the wrong side of the line.” Taking economic advantage of what our law allows—staying on the “safe” side of the line—is both legal and moral.
Justice Louis Brandeis, whose tenure on the U.S. Supreme Court overlapped that of Justice Holmes, famously stated this same principle another way:
I live in Alexandria, Virginia. Near the Supreme Court chambers is a toll bridge across the Potomac. When in a rush, I pay the dollar toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge. If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion. If, however, I drive the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical and suitable method of tax avoidance. For my tax evasion, I should be punished. For my tax avoidance, I should be commended. The tragedy of life today is that so few people know that the free bridge even exists.
Knowing the alternatives that are available to you is the essence of wise planning. You cannot make a choice that you do not know you have.
The rules that govern Medicaid qualification are fairly clear-cut, but they allow for planning opportunities that are not all that obvious. For some of us, learning about what those opportunities are can make the difference between leaving a modest inheritance to your children and leaving them with nothing. As long as you follow the Medicaid rules, you can ethically, morally, and legally make a significant difference in your children’s financial future by leaving them what the law allows. So if paying for long-term care is an issue for your family, learn all you can about Medicaid qualification so you can plan your and family’s financial future wisely.