Some people question whether Medicaid planning might be unpatriotic. After all, Medicaid is a “welfare” benefit funded by our tax dollars. Is it “wrong” to put yourself in the position to have the taxpayers pay for your long-term care? Let us begin by considering what it means to be a taxpayer.
Everyone knows that it is immoral and illegal (and unpatriotic) 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 we knowingly take a tax deduction in an amount or of a kind that we are not entitled to take, the terminology changes to tax evasion. For tax avoidance, a person is praised, for tax evasion, a person goes to jail.
In the 1916 U.S. Supreme Court case of Bullen v. Wisconsin, 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 patriotic.
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. 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. Availing yourself of a benefit that the law allows and intends cannot be unpatriotic.
Scott A. Makuakane, Esq., CFP