CONTINUING MEDICAID ELIGIBILITY AFTER THE DEATH OF A SPOUSE

Many of my clients who are seeking to qualify for Medicaid are married. One spouse is in a nursing home and the other spouse remains at home. The spouse who continues to reside at home is called the “community spouse,” under the laws governing the Medicaid program.

I’ve mentioned in a previous column that the community spouse is entitled to retain a certain amount of the couple’s assets, without affecting the other spouse’s Medicaid eligibility. The maximum value of assets that the community spouse can retain will be $90,660 in 2003.

The community spouse can also retain certain non-countable assets, such as the house, all of the couple’s personal belongings and household goods, and a car. Conceivably, the community spouse could retain assets with significant value, without affecting the other spouse’s eligibility for Medicaid.

The house – which is often the most valuable asset that a person owns – might be worth $300,000. Assuming that the community spouse were entitled to retain the maximum value of countable assets – $90,660 – she might own assets worth slightly more than $400,000.

Now that’s a good thing for the community spouse, who is not living in a nursing home and for whom Medicaid is not paying her bills. She must continue to pay her own bills and supply a roof over her head.

An issue arises, however, if the community spouse predeceases the spouse in the nursing home. The spouse residing in the nursing home is receiving benefits under Medicaid, a welfare program. That spouse cannot own valuable assets. If he did own valuable assets, those assets would have to be used to pay for his care, since he would be disqualified from the Medicaid program.

In other words, if the spouse in the nursing home didn’t own any assets, he would qualify for Medicaid, and Medicaid would pay for his care. If he owns valuable assets, then he must pay for his own care and his assets may very well be depleted paying for the cost of his care, which can be as high as $90,000 a year.

If the community spouse predeceases the spouse in the nursing home and if the community spouse has a simple Will that leaves her entire estate to her husband, then the spouse in the nursing home will be disqualified from Medicaid. If the community spouse disinherits the spouse in the nursing home, then he will also be disqualified from Medicaid – because as the surviving spouse, he is entitled to a portion of his deceased spouse’s estate and cannot be disinherited. As a result, Medicaid will assess a penalty – or period of ineligibility – against the spouse in the nursing home if he waives his right to receive a portion of his spouse’s estate.

So, what is the best way for the community spouse to leave her estate, or a portion of her estate, to her spouse without disqualifying her spouse from Medicaid? I give my clients two options.

One option is to leave the surviving spouse only as much of the deceased spouse’s estate as must be left to that spouse. This option does not involve a trust. Since the surviving spouse is entitled to approximately one-third of the deceased spouse’s estate, the Will of the deceased spouse leaves this amount of her estate to her surviving spouse. The surviving spouse will be disqualified from Medicaid, so some of the estate’s money will be used to pay for his care – but not all of it.

The second option is to create a trust in the Will of the community spouse for her spouse’s benefit. The type of trust that must be used is called a “supplemental benefits trust.” This type of trust supplements but does not replace government benefits; accordingly, a person can be the beneficiary of a supplemental benefits trust and continue to receive Medicaid benefits.

If the wife’s Will contained this type of trust, then a portion of her estate – the amount her surviving spouse must receive by law – would be distributed into the trust for his benefit. He would continue to receive Medicaid benefits, and after his death, the money could pass out of the trust to the couple’s children.

There are always planning options available. The key is to consult an attorney experienced in elder care law issues.