'I'm Just Holding Her Money' Is Not an Excuse -- It's Fraud

Last Updated: 10/15/2012

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 apartment.

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."

If 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.

The 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 reason.

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.

This 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.

People 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.