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Community Spouse's Will Needs Special Planning

Question: My husband is in a nursing home and qualified for Medicaid after we paid privately for two years. I have been diagnosed with pancreatic cancer and have less than six months. My husband and I want our house and the remaining $35,000 to go to our two children because, if it goes to my husband, he will be disqualified from Medicaid and the assets will be lost. I hired a lawyer who told me that under the law of our state, I must leave my husband at least one-third of my assets without exception. Is this correct?

Answer: Not necessarily. We believe you may have several available options. Since you live in a state with an elective share law, if you cut your husband out of your will, he has the right to elect to take against your will and assert a claim to one-third of your probate estate. If he does not make this election and you leave probate assets, he will be deemed to have received one-third of your probate estate which will disqualify him from Medicaid.

In some states, the elective share provision can be satisfied if your will directs that one-third of your probate estate be placed into a qualified terminable income property (QTIP) trust. Here, your trustee would be required to pay your husband all of the net income from the trust, but if this trust income puts him over the Medicaid income limit, he could be disqualified.

You may choose a will that leaves all of your probate assets to a special needs trust through which you can make sure your husband receives certain benefits during his lifetime without disqualifying him from Medicaid. You could name one of your children as trustee who will have the discretion to provide certain benefits for him that will not disqualify him from benefits. At your husbandís death, the trustee would distribute the remaining assets to your children in such shares as you determine. Through a special needs trust, (1) the trust distributions will be separate from your husbandís actual income and will not disqualify him from Medicaid; (2) trust assets will not be subject to payment of medical bills; (3) your husband will be able to receive things he needs but are not covered by Medicaid; and (4) administration costs are minimal. On the other hand, (1) the trust must file tax returns and have itís own federal identification number; (2) the trustee must be schooled about how to distribute the funds and for what; and (3) the paperwork is complex and an attorney must prepare the documents and advise the trustee thoroughly.

Your last option may be to gift a remainder interest in your home to your children and name your children as ďpay on deathĒ beneficiaries of your bank accounts. In this way, your assets will pass to the children automatically. By converting to non-probate assets, your husband will be entitled to nothing, and there will be no need to even open your estate. And these transactions will not affect your husbandís current Medicaid eligibility because your assets were no longer considered available to him after he qualified.

Taking the NextStep: We recommend that all persons with spouses on Medicaid consider these options as part of their planning process. Because of the complexities involved, these decisions should be made only after conferring with attorneys who are competent in this field of law.

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