Protecting Asset for the Healthy Spouse

By May 23, 2019 August 5th, 2019 Estate Planning

How Can I Pre-Plan Now to Protect Assets For the Healthy Spouse?

Under the Medicaid rules, if either spouse moves to a nursing home, he or she will become eligible for Medicaid to pay for his or her care when the savings have been spent down to $4,000 for the institutionalized spouse and, after no more than $126,420 is deemed available for the community spouse (in 2019). If you took no other planning steps, the balance of your savings would have to be spent down to these levels. However, three approaches can permit you to keep most or all of your savings: (1) purchase an immediate annuity, (2) create and fund an irrevocable income only trust; or (3) spend the excess assets on permissible goods that preserve their value.

Purchase an Annuity

The spouse at home has the option of transforming his or her excess assets into an income stream by purchasing an annuity. The terms of the annuity must be carefully observed, which will be important with respect to the annuity’s passing muster with the Medicaid regulations.

Create and Fund and Income Only Trust

You can make transfers to your children or into trust for their benefit, reserving the ability to live in any real estate transferred and to receive income from the assets in the trust. Doing so would cause up to five years of ineligibility for Medicaid. So you would need to be comfortable with the amount of funds you would keep for yourselves. This option is very popular with many clients as it offers a great deal of protection with a manageable amount of loss of control and access to transferred assets. Understanding the rules of the trust are important before using this trust.

Spend Down Excess Resources

You may also pay off any debts you may have or pay for goods and services you may need or desire. This includes repairs to your house, clothing, personal items, prepaying your funeral, and anything else you may like. Medicaid penalizes transfers or gifts, but not spending if the spending is for the benefit of the Medicaid applicant or his or her spouse.

In addition to taking one or more of the steps described above, if one of you moves to a nursing home, you should transfer all of your assets into the other’s name. He or she should also have a will that disinherits the nursing home spouse. Otherwise, if the healthy spouse passes away first, all of his or her assets will go to the nursing home spouse and have to be spent down to $4,000.

As you can see, there are a number of options available. You cannot choose the best one ahead of time because the proper course of action depends on your situation when one of you moves to a nursing home, which hopefully will be many years away, if it happens at all. At that time, it is critical to meet with an attorney to discuss these options and decide on a course of action that best fits for you while maintaining Medicaid eligibility.

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About Matt Leonard

Matthew J. Leonard, Esq. has devoted his practice to handling the legal needs of individuals and their business interests through all stages of life. As an attorney with the law firm of Salter McGowan Sylvia & Leonard, Inc., he has been engaged to handle matters from basic to sophisticated involving Estate Planning, Elder Law, Medicaid Planning, Probate, Trust and Estate Administration, Real Estate, Business Transactions, Business Creation and related litigation.