This blog is for those whose spouse is entering a nursing home, and needs to apply for Medicaid to help pay for the spouse’s care. It is important to have your estate plan updated during or immediately after you complete the Medicaid application process.
It’s easy to become preoccupied by your spouse’s needs. It’s also daunting viewing the requirements for information that must be gathered to accompany the Medicaid application. Enlist the help of dependable family members and friends as you deal with these demands. But also remember to update your own estate plan.
Important background facts you need to understand
To be eligible for Medicaid, an applicant must have less than $2,000 of countable assets in his or her name when the Medicaid application is submitted. Usually, this means ownership of real estate, bank accounts, and other countable assets must be taken out of the nursing home spouse’s name. Then, they must be placed in the name of the “community spouse” who still lives at home. However, this shouldn’t occur until the nursing home spouse has been in a hospital or nursing home for 30 or more continuous days.
Also, be aware transfer of assets to children or non-spouse individuals is called divestment. This will result in an ineligibility period for the Medicaid assistance. This is regardless of how badly it might be needed. Medicaid does impose dollar limits on the total value of assets and income that a community spouse may retain. But those limits can be increased by obtaining a Probate Court order showing the need.
Yearly Medicaid verification
Once the nursing home spouse is approved for Medicaid, he or she must remain under the $2,000 asset limit to stay eligible for it. This is verified by a “redetermination” that Medicaid conducts each year. During the year before the first redetermination, the community spouse has time to transfer assets into his or her name from the nursing home spouse. But a potential for disaster exists if the community spouse were to unexpectedly die before the nursing home spouse!
Many married persons leave most or all of their estate to their spouse if they die first. Michigan law also states a surviving spouse will receive a major portion (sometimes, all) of the estate of a married person who dies without signing a Will or Trust. So, what if a community spouse does not update her Will and beneficiaries on her life insurance, bank accounts, and retirement accounts? There’s a strong chance the couple’s assets will return to the nursing home spouse if the spouse at home dies first. This would cause the nursing home spouse to again be over-asset. This means loss of Medicaid eligibility and it negates the effort and expense that was needed to obtain the Medicaid assistance.
Changing the estate plan
To prevent this, the community spouse will usually want to change his or her estate plan. He or she should leave assets directly to the couple’s children or desired beneficiaries. This is done by naming the children as beneficiaries, and by establishing and funding a revocable living trust for them. The trust avoids the so-called elective share the nursing home spouse can (and Medicaid says, must) assert against the estate of a predeceased community spouse.
By leaving trust assets to the children, it avoids accidentally destroying the nursing home spouse’s eligibility for the needed Medicaid assistance. What if the community spouse wishes, nevertheless, to provide something for personal needs of the spouse in the nursing home? The living trust can include a provision which puts money back into a discretionary “testamentary trust” for that spouse. This is found in the Will of the community spouse. An additional benefit is the revocable living trust. It avoids potential Medicaid estate recovery, which applies only to probate assets under current Michigan law.
What if spouse in nursing home outlives the other?
Is a community spouse likely to die before the nursing home spouse, whose health usually looks more fragile? It happens more often than you might think. The community spouse is often the main caregiver for the spouse with declining health who is entering the nursing home. The responsibilities can be demanding and stressful for a caregiver-spouse. This is because he or she is often close in age and might also have health problems.
By updating her or his own estate plan, the community spouse can leave an inheritance for the couple’s children. It can also avoid accidentally undoing work to get the nursing home spouse eligible (or remain eligible) for Medicaid assistance.