Medicaid and Special Wills

Not every estate plan is the same. It is important to consult with an elder law attorney to determine what best fits your wishes, and circumstances. But there is one document that anyone with a spouse on Medicaid (Title 19) must have. A Last Will! But probably not the one you already have.

There is something called a Testamentary Trust. It is called this because the language that creates the trust is placed inside of the Last Will and Testament. Since the Testamentary Trust is inside the Last Will and Testament, it is not active until the spouse who signed the Will has died and gone through probate. I realize most people want to avoid probate, and I have many thoughts on how probate can be very much simplified. But there is a benefit that can be gained by going through the process. Asset protection.

In the situation where we have one spouse that may need to go onto Medicaid in the near future, we create this document and move assets into the name of the spouse that will not need the care. That way if the healthy spouse dies before the application is completed, all assets in their name (and I do mean SOLELY in their name) can go through probate and into the trust. The trust will be for the benefit of the surviving spouse. But since those assets went into this kind of trust, and not directly to the spouse, they are no longer part of the Medicaid spenddown. You might say they became invisible! So they can be used for the surviving spouse, but do not have to be spent down, and therefore if the surviving spouse does not need everything for themselves there is something left for others to inherit.

Some people believe they can just leave assets straight to someone else, like the kids. That is not true. If you pass away and leave assets to the kids, and less than 5 years later your surviving spouse needs long term care, then the state will consider those assets as “gifted” and the state will refuse to pay for their care for some time. How long depends on how much was given away.

Now, in the situation where one spouse is already on Medicaid, and then the healthy spouse dies first, it is ok to leave most assets to other people if you do not think your spouse will need the money. With one very big exception- the house you live in. While one spouse is on Medicaid the other is not allowed to give away that house, or the proceeds from its sale. So you still need to set up your planning to pass the house through probate and into the Testamentary Trust in order to protect it without impacting the Medicaid spouses’ eligibility for their care funding.

It gets complicated, doesn’t it? Whether or not one spouse is already on Medicaid changes the game. What assets go to who also change the game. Estate planning is not a one time event. These documents need to adapt to your life and circumstances as they change over time. It never hurts to talk to someone who knows the laws, and can help protect what you worked so hard to earn.

Attorney Halley C. Allaire is principal in the law firm of Allaire Elder Law, a member of the National Academy of Elder Law Attorneys, Inc., with an office at 271 Farmington Avenue, Bristol, (860) 259-1500, or on the web at www.allaireelderlaw.com. If you have a question, send a note to Attorney Halley C. Allaire and your question may be discussed in a future column.