How is debt handled when applying for Medicaid?

Ga-concerned asked...

My mother owes back taxes and has credit card debt. How is that viewed/handled when she applies for Medicaid? As her POA, do I have any personal responsibility for either debt (the back taxes are resulting from failure to file a tax return after I assumed the POA).

Expert Answer

First, let's tackle the question of your personal responsibility as holder of the power of attorney. Your status as "attorney-in-fact" or "agent" (those are two terms that are usually applied to the person who is appointed in a power of attorney) does not mean that you become responsible for your mother's debts, including her credit cards. And you're not personally responsible for financial losses she might have unless you commit theft or other fraud, make a "reckless" decision that results in a substantial loss (legally, "reckless" means an intentional disregard of obvious high risk, not just poor judgment -- an example would be investing your mother's money in a high-risk, unsecured financial scheme), or if you completely neglect a duty that you have taken on. Failing to file a tax return might possibly make you liable to your mother for penalties and interest imposed on her by the IRS (though not for the back taxes themselves), but only if your mother were incompetent to file her tax returns herself, or you specifically took on the responsibility for filing the returns but then failed to do so. However, even if you were legally responsible for these penalties because of your power of attorney role, your legal responsibility would be only to your mother (or someone acting on her behalf), not to the IRS itself.

With regard to Medicaid eligibility, Medicaid will consider your mother's income and total assets. If the IRS puts a lien on either her income or her bank account, then those amounts would be subtracted from her income or assets when Medicaid determines her eligibility. Without a lien, however, Medicaid would not subtract her back-taxes debt and her credit card debt from her assets when deciding on eligibility. Otherwise, people could simply spend lots of money every month through their credit cards and then claim "poverty" to Medicaid.