Is This Cheating the Gov’t, or Is It Justified?

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In a recent article about “The Seven Deadly Sins of Retirement,” I said soaring healthcare costs were a major topic that seniors need to think about. I also suggested you consider ways to shelter as much money as possible from nursing homes or government-run healthcare programs.

This is not the first time I’ve said as much, and it once prompted a reader named Pat to write in with the following response …

“Nilus, I have to tell you that I have real ethics trouble with some of your recent advice on retirement: Namely, advising people to give away assets so that they can avoid the Medicaid look-back provision for long-term care.

“Why should I or any other taxpayer have to pay for someone’s care just so they can give their assets to their family?

“Having a mother who is likely to need such care, I certainly don’t think others should have to pay for it just so my siblings and I can have some of her assets.”

I take feedback like this seriously … and I always reconsider my arguments when someone calls me out.

But in this case, I stand behind my initial suggestion 100%.

After all, it’s my job to help readers preserve (and grow) their wealth using every legal means available.

Before we get into the specific case of the Medicaid look-back provision, let’s talk about the general idea of protecting your assets.

Protecting Your Assets

I have never, and will never, advocate using illegal means to hide or protect your accumulated wealth.

Because even if you put morality aside, it simply isn’t worth the risk! 

But should I stop recommending perfectly-legal tax shelters like 401(k)s, IRAs, and other special retirement accounts?

Of course not.

Or to take this completely off of me, should an accountant stop helping his clients use every available credit and deduction to lower their overall tax liability?

No way!

We don’t make the rules. We simply help people understand what the rules are and how to use them for the best possible personal outcome.

This is why I laugh whenever I hear Warren Buffett say his tax rate should be higher than it is.

Yes, he should absolutely speak his mind on the topic, and do his best to convince elected officials to change the law as he envisions it.

At the same time, nothing prevents him from writing a bigger check to the Treasury any time he feels like it. I’m sure they would have no qualms cashing it! 

So you have to wonder whether he really means it. After all, Berkshire Hathaway makes darn sure that it exploits every single advantageous element of the tax code possible. The company has a responsibility to its shareholders to do so.

In a similar vein, if you don’t like using the current rules and laws to your family’s advantage, that’s completely your choice.

But I would much rather give as much of my wealth as possible to my daughter – especially if the alternative choices are nursing homes or the government.

And here’s why I feel very ethical by preserving my wealth in this way …

The Ethics for Preserving Your Wealth

For starters, as I’ve already pointed out, there’s nothing technically (or legally) wrong with signing away all your assets to an heir and then later qualifying for Medicaid.

As to the MORAL argument, how is doing so any different than someone who gave away a good portion of their wealth to big-screen televisions or a gambling habit? 

Why should someone who chose financial responsibility feel guilty for getting to pass along the results of their discipline and hard work?

And how are they bilking the state any more than the spendthrift?

What I’ve observed time and again – and it’s a trend that seems to be accelerating – is the idea that responsible, harder-working, more-disciplined people should always, unquestionably, be there to bail out less responsible parties.

And not by choice but by force.

I see this dynamic at work in the government’s response to the real estate bust … the Fed’s record-low interest rate policies … the various bailouts … the new healthcare exchanges that were established a couple years ago … and plenty of other places.

Bottom Line

In my opinion, these approaches start with good intentions but result in serious moral hazard – a situation that encourages the very behaviors trying to be eradicated.

So, by all means, we should aim to help others whenever it’s within our means to do so …

We should absolutely obey the laws that are in place at any given time …

And we should all feel responsible for voting our consciences in an effort to shape the future as we believe it should be.

But there is absolutely no reason anyone should feel compelled to go one step beyond the letter of the law as it currently stands simply because of guilt.

Quite to the contrary, I feel it’s my ethical duty to continue giving readers the best information I can so they have the widest range of choices possible.

To a richer life,

— Nilus Mattive
Editor, The Rich Life Roadmap

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