Change in Medicaid criminalizes asset transfers.

Grandma could end up in jail instead of the nursing home under a new law that criminalizes transferring assets to other people to qualify for Medicaid benefits. Estate planning attorneys advising Grandma may also face jail time.

The provision, tucked into the federal Health Insurance Portability and Accountability Act of 1996, takes effect January 1. Some elder law attorneys quip that the only clear language in the measure is the date it becomes effective.

"There's a buzz out there in the elder community that now Medicaid planning is illegal, and that is mostly incorrect" said Daniel Fish, a New York City elder law attorney and former president of the National Academy of Elder Law Attorneys (NAELA). "A particular segment of [asset transfers] may have criminal sanctions, but most are excluded, like transfers between spouses and transfers to disabled children."

But Fish and other lawyers said confusion over the law is nevertheless understandable. Currently, people who have little savings and are blind, disabled, or over 65 can receive Medicaid for custodial care -- care that does not require a doctor or nurse.

Estate planners in the past have advised clients who have some saving -- but not enough for long-term care -- to give money to their children or another person so they can meet Medicaid eligibility requirements. Those taking this route had to wait out a period of ineligibility after transferring assets before Medicaid would pay for custodial care. The waiting period varies by state.

Under the new law, applying for Medicaid during the waiting period can start the wheels rolling toward a criminal penalty.

"The simple transferring of assets alone is not sufficient to create criminal liability," Fish said. The statute requires that there must also be the imposition of a period of ineligibility [by Medicaid]."

The law states that a $10.000 fine and a year in jail may result if a person "knowingly and willfully disposes of assets ... in order for an individual to become eligible for [Medicaid], if disposing of the assets results in the imposition of a period of ineligibility for such assistance."

For example, an 80-year-old Florida woman needs nursing home care. Medicare will cover her doctor's bills, but what about the nursing homer She has saved $68,000 but fears that's not enough.

She gives her son $33,000 and applies for Medicaid the next day. She knows she has to wait 10 months before she can receive any benefits, and she has the remainder of her savings to pay for her care during the waiting period. Medicaid asks her for her financial records from the past three years and finds that she has given her son money so she can qualify for Medicaid. The administration denies her benefits, as she knew it would, and it imposes a 10-month period of ineligibility.

Under the old law, the woman's actions were legal. She would simply have to wait 10 months for her Medicaid benefits to begin. Under the new law, she clearly applied for benefits during a period of ineligibility and, therefore, faces criminal prosecution.

What if she had waited until the end of the 10-month waiting period to apply? The new law says that disposing of assets to qualify for Medicaid "will result in the imposition of a period of ineligibility." When Medicaid finds that she made the gift to her son, it will impose that ineligibility period, but it is unclear when the period begins. She may be entitled to Medicaid but also guilty of the crime.

"That's the million dollar question," said NAELA President Ira Wiesner of Sarasota, Florida. "If she already waited [the 10-month period] out, is she still guilty?"

Since advisers may also be held criminally liable, Wiesner said the best advice for attorneys handling estate planning is to be very comprehensive in fad gathering, to look for any imposed periods of ineligibility since that's the trigger."

Fish said, Reasonable people can disagree whether middle-class elderly people should be allowed to use this [Medicaid] program, but I don't believe that criminal penalties are the solution. I reject that notion completely."