The booming business of elder law.

Attorney David Ferber draws potential clients to the elder law seminars he holds in the basement auditorium of a Manchester, N.H., public library with newspaper ads promising that attendees will "learn the startling truth about nursing homes and Medicaid." Ferber claims that, "Most people don't know that the law allows you to shelter your assets" from the cost of long term care.

The evening sessions attract between 10 and 60 participants, people in their 40s, 50s, and 60s wondering what will become of their life savings if their parents go to a nursing home. Afternoon sessions draw the older people themselves. They come to ask questions about minimizing estate taxes, avoiding probate, and Medicaid. Ferber runs through his practiced litany with them, laying out the basics of estate planning--trusts, durable powers of attorney, living wills--and then moving on to the sheltering of assets to qualify for Medicaid. When it comes to their possessions and Medicaid, he admonishes them, "Nothing is sacred." For Medicaid-planning purposes, he generally proposes an irrevocable trust to protect one's home from Medicaid's asset recovery process and an irrevocable family investment agreement, a sort of all-in-the-family annuity that shelters assets but still generates income.

The sessions end with the participants filling out a "feed-back sheet" asking for basic information and offering a free hour of consultation.

Ferber's a smart guy, a Phi Beta Kappa graduate of Columbia University, from which he also earned his law degree. He's the sort of lawyer who a generation ago would have made a name for himself in courtrooms and board rooms. But today he practices elder law, lending his talents to senior citizens and their families.

Burgeoning specialty

He's part of a booming business. The American Bar Association didn't even recognize elder law as a specialty until 1992, and the National Academy of Elder Law Attorneys, the specialty's professional association, began in 1987 with fewer than 15 members. Today, the organization has grown to 4,000 lawyers and according to Carolyn Smith, the group's communications coordinator, receives hundreds of inquiries a week. "Everyone from your next door neighbor to the postman is concerned with what's going to happen when they get older," she says.

Part of the growth in elder law has been occasioned by simple demographics: the tsunami of older Americans, particularly those in the 85-and-older age bracket. Part of it s a result of the growing number of law school grads looking for a niche. Finally, there's the avalanche of publicity about the problems people are having paying for long term care, including a spate of high-profile books such as the 1989 best-seller, Avoiding the Medicaid Trap: How to Beat the Catastrophic Cost of Nursing Home Care, by Armond Budish, a Cleveland attorney.

Also fueling the explosive growth in the asset-preservation facet of elder law are efforts by the federal government to make it harder to shelter assets to qualify for Medicaid. In a sort of thrust-and-parry encounter, each effort by the government to make asset preservation more difficult has been met with new legal end-runs: gifting, irrevocable asset preservations trusts, annuities, Miller Trusts, qualified domestic relations orders, life estates, and so on.

Watch your assets

For Medicaid's first two decades, asset preservation was relatively simple. Lawyers would counsel elderly couples to split their assets, so that if one entered a nursing home, the other's property would be beyond the reach of Medicaid.

But in 1986, the playing field began to change. That was the year COBRA legislation made trusts, the staple of Medicaid planning, a fully countable asset for purposes of eligibility, to the extent of the trustee's discretion to distribute the assets. In 1988 came the big change. The Medicare Catastrophic Coverage Act established the so-called spousal impoverishment rules. The MCCA redefined the amount of assets a married couple might keep and still qualify for nursing home care under Medicaid. The legislation required, however, that the couple's assets be merged into a common pool from which the at-home spouse could keep a certain portion between a minimum and maximum--in 1999, between $16,392 and $81,960. This meant that, even if a couple had divided its assets according to the traditional wisdom of Medicaid planning, the estate remained at risk up to the MCCA limits, even if one of the spouses entered a nursing home.

According to Patricia Nemore, a staff attorney with the National Senior Citizens Law Center in Washington, which follows issues affecting older Americans, the legislation was essentially a quid pro quo: By allowing an at-home spouse to retain more income and potentially more assets, it addressed the problem of that spouse becoming completely impoverished when his or her husband or wife enters a nursing home. But by requiring that the couple's assets be pooled for eligibility purposes, affluent couples now find more of their assets at risk. That expanded liability created a ready market for elder law attorneys. "The MCCA changed the rules dramatically," says Nemore. "That was the beginning of our organization.'

There was more to come. OBRA's enactment in 1993 established a period of ineligibility for Medicaid applicants who had given away assets or sold them for less than fair market value. The penalty was imposed upon those who made such transfers within 36 months prior to applying for Medicaid. The legislation also sent applicants in the penalty box for transferring assets into irrevocable trusts within 60 months prior to applying. The law also made eligibility changes regarding withdrawals from joint accounts, the establishment of annuities, and other planning devices.

Granny never went to jail

The next chapter in this saga takes place in 1996, the year when the Kennedy-Kassenbaum Act was enacted. This law criminalized the transfer of assets for the purpose of qualifying for Medicaid. Although it was quickly dubbed by elder law attorneys as the "Granny goes to jail" law, no one was prosecuted under the act. There was, however, such an outcry from senior citizens groups that the law was amended by the Balanced Budget Act of 1997 to make it a crime to counsel "for a fee" the transfer of assets to qualify for Medicaid. In March 1998, Attorney General Janet Reno wrote to congressional leaders that the law as amended was, in the opinion of the Justice Department, unconstitutional, and that the agency would not prosecute under it. Six months later, a federal district court in New York permanently enjoined the law after the state bar association sued to overturn it.

Not surprisingly, elder law attorneys don't see their asset-preservation counseling as an effort to circumvent the rising tide of legislation. Instead, they portray themselves as seekers of justice and dispensers of common sense in a system that offers neither. With a uniformity that bespeaks of a concerted public relations effort, they decry the system's unfairness. Moorestown, NJ. attorney Tom Begley and Palo Alto, Calif., lawyer Michael Gilfix, both trot out the same hypothetical using almost the same words: If an elderly person in America has a heart attack, he or she goes to the hospital and Medicare pays. If that same person develops Alzheimer's disease and goes to a nursing home, he or she faces financial devastation.

Another common refrain from elder law attorneys is that their services benefit people of modest means, not the millionaires that critics say are being added to the Medicaid rosters.

"The fact is that right now Medicaid planning gets a bad rap," says Budish, who recently updated his book. Budish says most clients of elder law attorneys have $200,000 or $300,000 in assets that they saved by leading responsible lives and would like to protect. Contrast that, he says, with the "guy down the street who's been irresponsible, who buys a new car every year? He goes into a nursing home and gets Medicaid right away."

The companion argument is that Medicaid planning is really no different from estate planning or tax planning--except that the latter arc generally used by the rich rather than people of moderate means and that ploys of tax planners may save a client millions rather than the few thousand dollars sheltered by Medicaid planning. "For years, Americans have been allowed to take advantage of tax protections and deductions to preserve their assets from taxes--with our politicians' blessings. What is the ethical difference between Americans using tax deductions to protect assets from Uncle Sam and the middle class using gifts or trusts to protect some assets from a nursing home?" asks Budish.

The government's position

Not surprisingly, those charged with carrying out public policy see the situation quite differently. When asked about asset preservation strategies, many Medicaid administrators go right to the statement of public policy contained in the Medicaid law, which states that the program is intended for "aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services."

Roger Auerbach, who administers the Medicaid long term care program in Oregon, has little sympathy for the arguments made by the asset preservers. "When an elder law attorney says he's so proud that he was able to get the taxpayers to pay, I don't consider that to be in the spirit of the law and the philosophy of the program we administer," he says, adding that, as he sees it, his mandate is "to serve the poor and the frail," not those who have made themselves poor by visiting a lawyer.

Paul Offner, who runs Medicaid in the District of Columbia, is even harsher, calling attorneys' asset preservation work "a relatively amoral activity" and characterizing their practices as "chicanery."

The issue is not black and white. Richard Dahlgren, an attorney for the Arkansas Department of Human Services who has tried several cases involving asset preservation, says courts have come down on both sides of the issue. Choosing two examples from his own backyard, Dahlgren says the Arkansas Supreme Court sided with the maker of a trust who had sheltered assets more than a dozen years before applying for Medicaid and at a time when she had no reason to believe she would require nursing home care. But in another case, the court ruled for the state when a trust contained specific language that all payments to the maker should be discontinued if she entered a nursing home.

Dahlgren thinks the elder law attorneys perform a disservice when they turn those who would otherwise pay for their care into Medicaid recipients. "If you follow the arguments of elder law attorneys to their logical conclusions, Sam Walton and Bill Gates should qualify for Medicaid," he says.

Despite the war of words, there hasn't been a great deal of litigation over asset preservation. That's largely because of the cost, says Harry Margolis, who edits the Elderlaw Review. "The average client can't afford to go up against the stare agencies." Especially because the courts have tended to side with the state agencies on this issue, he adds. Medicaid recipients had some initial success in contesting the amount of resource allowances and mixed results in defending trust agreements, notes Margolis. But most of the litigation involves the specific wording of trusts. He cites a recent Massachusetts case in which the court sided with the state in a case involving a trust agreement that specifically directed the trustee to pay for the maker's care--except for nursing home care.

Common ground

But if there's any common ground between elder law attorneys and public policy administrators, it's that the present system is flawed

And virtually all the Medicaid folks and elder law attorneys agree that the issue of long term care financing has suffered from the benign neglect of politicians who are unwilling to tackle the problem and so turn a blind eye upon the eligibility abuses to which the current system is prone.

In effect, by refusing either to deal with the problems of Medicaid or to legislate a comprehensive program to pay for long term care, the politicians have allowed Medicaid to become the default system. Says Nemore, the National Senior Citizens law Center attorney: "It's fascinating to go to policy presentations on this and hear people rant and rave about Medicaid. They say we don't have a system to pay for long term care. And then others say, of course we do, its Medicaid."

David Irwin is a New Hampshire nursing home administrator and journalist.