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
