The new year has brought a significant change in Medicaid eligibility rules for Connecticut seniors who have been married. In the past, if one spouse had died and the surviving spouse became sick and needed Medicaid to pay for the nursing home, or for home care, the money that passed on to the children by using a joint survivorship bank account or beneficiary designation was protected. Or, if the deceased spouse had an IRA, the children could be named beneficiaries and roll over the IRA to their own IRA. This transfer was not considered a gift and would not disqualify the surviving spouse.
Recently the Connecticut Department of Social Services has claimed that such joint accounts, or beneficiary accounts, will be considered a disqualifying transfer of assets that penalizes the surviving sick spouse from getting Medicaid for a certain period of time.
Think about this for a moment. If you have an IRA naming your kids as beneficiaries, and you die, and within 5 years your spouse needs Medicaid, the Department of Social Services will say you made a gift to your children, and for roughly every $10,000 they received, Medicaid will not pay for your surviving spouse for one month. This is a drastic change because joint accounts, or beneficiary designations, were never before treated as disqualifying transfers.
There are solutions to this problem, but in many cases it leads to another problem. One solution for non IRA type assets is to make a will and leave the property to a trust inside the will, called a testamentary trust. Based on Connecticut law, this will work, although the surviving spouse must receive or claim the earnings, such as interest, from one third of the estate. With regular bank accounts, or stocks, or bonds, this is a good solution.
The problem this creates, however, is that if you have an IRA, it ordinarily does not go through the will. It goes directly to the beneficiary. Or, if it goes to your estate, the full income tax will be due. In order to have the money go through the will into the testamentary trust, it is necessary to first cash in the IRA, and that means you have to pay income tax on the amount cashed in. If the IRA is small, it’s not too bad. But if it is large, it can be a huge tax.
The full ramifications of this drastic change are yet to be determined, but suffice it to say that anyone in the age range where long term health care costs are a possibility should consider seeking thorough and competent advice on how to hold title to assets, and how to use proper estate planning so that property that belongs to you, even if your spouse may need Medicaid in the future, can be passed on to your loved ones. Stay tuned. For more information, contact a knowledgeable Connecticut elder law attorney.