When is it Fraud?

Liz and Jennie are sisters who have
always been close. Liz suffers from severe manic depression, but with
medication she is able to live on her own, although she can't work.
Because of her condition, Liz receives Supplemental Security Income
(SSI), Medicaid, and she also lives in a government-subsidized

For the last few
years, Liz's aunt, as part of her estate planning, has written Liz a
check for $10,000. Since Jennie knows that receiving large sums of
money could jeopardize Liz's eligibility for her government benefits,
she encourages her sister to endorse the check over to her so that
Jennie can deposit it into her own bank account. That way, "the
government will never know, as Jennie puts it. Liz and Jennie agree
that the money belongs to Liz and that Jennie will give her cash when
she needs it so that, once again, "the government will never know."

you haven't already guessed, Liz and Jennie's agreement is not only
illegal, but it could result in the loss of the very benefits that they
are trying to preserve.

first problem arose when Liz's aunt wrote Liz the check for $10,000.
Since cash in the hands of an SSI beneficiary counts as income in the
month received and as a countable resource in the following month, Liz's
receipt of the $10,000 would have rendered her ineligible for SSI for
at least a month. If Liz did not spend the $10,000 by the end of the
month, then she would remain ineligible for SSI until her total
countable resources again dipped below $2,000. Depending on where Liz
lives, she could end up losing her Medicaid benefits for the same

The fact that Liz gave
the funds to her sister to hold for her does not prevent the funds from
counting as her resource for SSI purposes. Since the sisters agreed
that the money was still Liz's, and that Jennie would give her cash on
demand, the funds being held in this informal arrangement are still
Liz's, and should the government discover the fraud, she will have to
pay back all of the SSI benefits that she received during the time that
she had too much money. She could also face fines and penalties for
knowingly hiding the funds from the government. Jennie could also get
in trouble; "I'm just holding her money" would not be an excuse.

whole problem could have been avoided had Liz's aunt placed the gifts
into a special needs trust for Liz's benefit. Jennie could have served
as the trustee of the trust, and she could have used the funds held in
the trust for Liz's needs without ever compromising her benefits. Even
if Liz's aunt slipped up and gave Liz the money directly, Liz's parents,
grandparents or a court could establish a special needs trust to hold
the funds. Liz would still lose her benefits for the month that she
received the cash, and the trust would have to contain a payback
provision that would reimburse the government when Liz dies for the
Medicaid benefits that she received while she was alive, but she
wouldn't lose her benefits in the long run and she wouldn't be
defrauding the government.

will often do anything to help a sick family member. But informally
hiding assets in order to retain government benefits is never a solution
to even the most dire problem. If you are in Liz and Jennie's
situation (or that of Liz's aunt), call your special needs planner and
establish a plan that will preserve your benefits legally and
efficiently, far into the future.

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