Medicaid Eligibility: The Problem with Spousal Wills

 

PROTECT YOUR CLIENTS ASSETS: What you must know about outright distributions and the effects of these distributions on Medicaid beneficiaries.

 

With advances in medicine and medical technology Americans are living longer than ever. The average overall life expectancy is approximately 78 years. There are over 39 million Americans over the age of 65 and more than 40 million enrolled in Medicaid.

Medicaid is a federal assistance program administered by the states—each state setting its own guidelines for eligibility and services. Medicaid is intended to make healthcare available to qualified individuals. However, this does not necessarily mean individuals with limited or no assets. Notwithstanding the fact that Medicaid is means based program (in 2011 the income limit for individual applicants is $2,022.00 per month and the resource limit is $2,000.00), in a spousal situation where one spouse is in need of Medicaid benefits, Medicaid rules allow for certain spousal exemptions when determining eligibility for the at-need spouse. I will reserve explanations of eligibility requirements for a different blog post—the point is clear, while an applicant must have minimal income and claim minimal assets to qualify for Medicaid benefits, the community spouse estate may have considerable assets.

The question is how do the eligibility requirements affect your estate and subsequently your heirs? The answer lies in an inherent problem that is often overlooked by many families. If the at-home,  community spouse predeceases the spouse receiving Medicaid benefits (:Beneficiary”) and has either 1) only planned using a spousal will (i.e. “I leave to my Spouse if he/she survives me”); or 2) has not planned at all, the Medicaid recipient (surviving spouse) may be disqualified from receiving Medicaid benefits due to distributions from the at-home spouse’s will or as the sole heir under the laws of intestate succession, and as a result be forced to spend down that part of the estate previously exempted by the now deceased at-home spouse. In this instance, Medicaid rules would require the Medicaid Beneficiary to spend down the assets received (via the will distribution or through intestate succession) before he/she would be eligible to continue receipt of Medicaid benefits. Furthermore, Medicaid Estate Recovery allows Medicaid to assert a claim against the Medicaid Beneficiary’s estate at the time of death which must be satisfied by the assets of the estate—often times this means that the heirs will need to sell the homestead in order to have enough liquid assets to settle the claim. The result is the assets are unintentionally and unnecessarily diminished or exhausted due to inadequate estate planning.

What can be done? Depending on the circumstances a Supplemental Needs Trust should be considered. Unlike typical spousal wills which leave assets outright to the surviving spouse thereby subjecting the assets to spend down requirements and Medicaid claims, a Supplemental Needs Trust (“SNT”), established through the community spouse’s will can be designed so that distributions can be made to the Medicaid Beneficiary in a manner that “supplements” the Medicaid Beneficiary’s additional needs, without rendering the Medicaid recipient ineligible for continued Medicaid benefits. The purpose of the SNT is to avoid the imposition of a period of ineligibility for Medicaid and the treatment of the assets held in trust as a resource for Medicaid eligibility. 

Furthermore, the SNT aids the Medicaid beneficiary with needs beyond basic medical care, food, shelter and clothing. Through the use of the SNT, the Medicaid beneficiary can enjoy a higher quality life using the limited distributions from the SNT for items such as recreation, transportation, dental care, telephone and cable services, and supplemental nursing care, while preserving assets for future generations.

As with any estate planning tool, the circumstances and conditions surrounding each client will dictate their estate planning needs. SNT’s, require careful planning and drafting in order to protect the assets and avoid inclusion as countable resources. Always consult   an experienced estate planning attorney prior to making any estate planning decisions.

The information provided in this blog is intended as an overview of the subject matter presented and is not intended to be legal advice for the reader or any third parties. Always consult individual counsel from a qualified attorney prior to making any estate planning decisions.

David M. Hays

Attorney & Counselor at Law

The Hays Law Firm, P.C.

(817)717-4533

dmhays@hayslawfirm.com

Beneficiary Designations: Good Estate Planning?

Not long ago I met with a client whose father had recently passed. I asked if his father left a will, which in fact he had. I then asked whether the father had any assets to speak of. My client responded that his father did not have much in the way of assets because he had used the beneficiary designations on all of his cash accounts, designating that the children would receive the money in equal shares–very typical. My client went on to state that really the only asset left in the estate was dad’s house of which he hadn’t lived in for over a year, having been admitted to an assisted living facility.
I share this scenario with you because it is one often told to me by my clients. One will often read or be told something to the effect of “you need to make sure to use your beneficiary designations so that you assets do not have to go through probate.” Beneficiary designations (Pay on Death for bank accounts) can be very useful estate planning tools if managed correctly. However there are instances where use of the designations can create an issue for the heirs/beneficiaries.
Part 2 of the Story: 
The client I spoke of had 3 siblings. My client, as is often the case, was the sibling who took care of dad, paid the bills and managed the overall affairs of Dad’s assets and health in his final years and days. When dad died leaving only the house in the estate, my client had a decision to make: “Who will pay for the funeral expenses and who will pay for the costs to update the house, continue to pay the insurance and other bills to maintain the house until such time as it would be sold?” The logical answer is that my client and his siblings should pay their fair share, given that each of them just received a nice sum of money outright through the beneficiary designations.
Simple. Right? Of course not.
As is often the case in these situations, the other siblings may not feel an obligation to help out. They may flat out deny my client’s request that they all share in the responsibility of these costs; and while my client could front the money and recoup it off the top of the sale of the house, why should he be forced to do so but for the shun of responsibility by his siblings.
In this particular case it would have made sense for dad to leave some manner of cash assets in his estate (instead of transferring it all by beneficiary designations) so that the appointed executor (my client) could use the money to wind up the affairs of the estate (i.e. funeral expenses and maintenance, repairs and bills for the house). Once the house was sold, the net proceeds could then be distributed to the siblings as called for under the will.

Moral of the story: In planning for your estate, be sure to consider the collateral results that may occur based on your decisions and the estate planning tools you use. What saves you and your heirs in one area may be costly in another. Take your time. Speak with an estate planning attorney and consider all options and outcomes.

Series LLC: Are You Getting What You Paid For?

Texas recently passed legislation which allows for the formation of a “Series” Limited Liability Company (LLC),  making Texas one of 8 states to recognize such entitities. Proponets of the LLC claim that the Series LLC offers asset protection not offered by a traditional LLC. In short the Series LLC is supposed to allow for the formation of separate series or “file cabinents” (or whatever other term may be used to describe them) so that assets placed in one series are protected from potential liability created by any other series. The rub being, for instance, that a real estate investor who might traditionally set up an LLC for each property he/she owns can now set up an LLC with a series for each property. If an occurance takes place at one property that subjects that property to liability, the other properties are shielded from joined–or are they? An article written by the American Bar Association  (“ABA”) in 2007 raises questions  about the actual protections claimed by proponents of the Series LLC (http://www.articlesbase.com/corporate-articles/series-llcs-not-good-enough-for-the-aba-192612.html). The biggest question being whether the courts will recognize the separation between series when an LLC is sued. It is quite possible that the courts will look through the language of the organizational documents and treat the Series LLC as a Traditional LLC therefore looking to all the LLC assets for for the repayment of a judgement, for instance. As with any new area of law, it generally takes time for the law to develope and the dust to settle. To date I am unaware of any Texas case law setting forth the  final rule on Texas LLC’s.  To that end it may be worth considering  and continuing with maintaining separate LLCs until the law is further defined. You may be risking  more than you think.

Counter Offer?

A friend of my and very knowledgable Real Estate Agent, Andy Ingram, http://www.andyingram.com/ (Andy teaches “contracts”  to new agents at Keller Williams in Southlake, Texas), recently brought to my attention a misconception held by many new real estate agents. Regarding contracts for real property: First, the legal elements of any contract are: 1) An Offer 2) an Acceptance in STRICT compliance of the terms of the Offer 3) a Legal Purpose or Objective 4) Mutuality of Obligation “Metting of the Minds” 5) Consideration and 6) Competent Parties. Furthermore, the Statute of Frauds requires that a contract for real property be in writing and signed by the parties charged. HERE COMES THE IMPORTANT PART…Once both parties have agreed to the terms and signed, the contract is in place. AN AMENDEMENT TO THE CONTRACT sent by one party to the other thereafter IS NOT then a counter offer and does not open up the orignal contract up for debate or further negotiation. If a proposed amendement is rejected, the underlying contract is still valid and in place.  dmhays@haylawfirm.com David Hays, Atty & Counselor At Law http://www.hayslawfirm.com 0

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