The Ethics of Medicaid Planning is on Par with Claiming Income Tax Deductions; Both are Responsible Strategies to Preserve Assets.
While mingling with Orion colleagues on the Atria 86 rooftop with other Elder Planning Professionals on July 20th, I was reminded of the important work we do for our clients who engage us to help them preserve their assets. There was a sense of relief among us that the Affordable Care Act, which includes Medicaid benefits, is safe for now. However, Medicaid is under attack lately by groups that mostly consist of business owners and corporations that deduct business expenses and losses from profits on their income tax returns to preserve their assets. But just as deductions are a legitimate income tax strategy, so is Medicaid planning to preserve assets.
Judge Learned Hand, a New York Court of Appeals Judge, held in Helvering v. Gregory, that "Any one may arrange his [or her] affairs so that his [or her] taxes shall be as low as possible; he [or she] is not bound to choose that pattern which best pays the treasury; there is not even a patriotic duty to increase one's taxes.” Helvering v. Gregory, 69 F.2d 809 at 810. (2d Cir. 1934). Additionally, Judge Hand's dissent in Commissioner v. Newman although not probative, is frequently referred to in support of not voluntarily paying taxes by admonishing that “Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” Commissioner of Internal Revenue v. Newman, 159 F.2d 848 at 851 (2d Cir. 1947).
Based on the principals set forth above it is clear that everyone has a responsibility to "arrang[e] one's affairs" so that his or her taxes are as low as possible whether they are "rich or poor". Helvering at 810, Newman at 851. Morals and ethics are not a consideration. Since this is true, Medicaid planning can be applied in this context and is on par with income tax planning.
The July 22, 2017 NYT article by Ron Lieber, “The Ethics of Adjusting your Assets to Qualify for Medicaid”, questions whether it is ethical to preserve ones assets by using strategies qualifying oneself for Medicaid. However, planning to become eligible for Medicaid is no less ethical than when businesses owners or corporations claim tax deductions such as losses and capital improvements on their income tax returns to preserve assets; both burden taxpayers. While planning to avoid paying income taxes and planning for Medicaid are not completely analogous, the outcomes have the same result. Both concepts ethically “arrang[e] one affairs” to his or her personal advantage to preserve assets, but cause funds to be diverted from the tax base, thus causing a further burden on taxpayers. Id. at 810.
Since the ethics of the above case law is applicable to Medicaid planning, perhaps Mr. Lieber’s next NYT article will pose the question regarding whether the U.S. has a moral and ethical responsibility to provide care for our seniors and disabled people who medically qualify for Medicaid. I have first hand experience as an Elder Planning attorney and as a frequently appointed Court Evaluator for Article 81, NY Mental Hygiene cases regarding care for these people, who are among the most vulnerable in our society. It is difficult when they have family to assist them with planning. It becomes a crisis when seniors and disabled people are “orphaned” and have no one to advocate for them. Often times these orphaned people are treated as throwaways. As an advanced society, do we have a moral and ethical duty to care for these people?
Mike and Marcia Perna at their home in Dedham, Mass. Ms. Perna’s mother, Rita Sherman, died last year at age 94 after a diagnosis of dementia and five and a half years in a nursing home.