Page 40 - Bancroft Legal Planning Guide

MARRIED COUPLE PLANNING IN PRE-CRISIS
“Pre-Crisis” refers to a situation where an individual is more likely than not at some time in the future to require long-term care in a nursing home. Becoming very old does not in itself mean someone is in “pre-crisis.” But for those who are diagnosed with early-stage Alzheimer’s Disease or other form of dementia, or Parkinson’s, or have a stroke history, or suffer from severe osteoporosis, or from other similar threatening conditions, special planning measures beyond implementing comprehensive financial and health care powers of attorney and a Living Will are appropriate. In many such cases a Medicaid Asset Protection Trust can and should be implemented. But for others, because of the nature and amount of their assets, or the close proximity to the time nursing home care will likely be needed, or perhaps for other reasons, a trust is not appropriate. Regardless of whether or not a Medicaid Asset Protection Trust is used in these situations, married couples require special planning measures, including:
• Community Spouse (CS) changes Will to disinherit institutionalized spouse (IS)
• All of couple’s assets, including the home, are transferred to CS name only
• CS removes IS from beneficiary designations for CS’s life insurance, IRA, etc.
Passing an inheritance to a surviving spouse who will thereafter need long-term care in a nursing home is the same as naming the nursing home as beneficiary in place of the children or other desired beneficiaries. The above steps, however, must ensure that a surviving spouse at risk for nursing home care in the future, but not immediately, will benefit from the estate of the predeceased CS. Consequently, the CS’s will must provide that after mandatory distribution to the IS of his one-third statutory “spousal elective share,” the balance is held in trust for the benefit of the IS unless and until such time as the IS requires long-term nursing home care. Until that happens the trust fund is used to pay for home care or assisted living facility care and other living needs of the IS. If and when the trustee determines that the IS has reached the point of needing long-term nursing home care, the trustee, in accordance with the terms of the trust, declares it terminated and distributes the estate to the children or other desired beneficiaries free of a Medicaid gift penalty.
The trust described above is included as part of the CS’s Will (a “testamentary trust”) and does not come into effect unless the CS dies before the IS. If the IS already entered nursing home care prior to the passing away of the CS or prior to the time for distributing the CS’s estate, then the trust will not go into effect and the CS’s estate, except for the one-third mandatory distribution to the IS, will pass directly to the children or other desired beneficiaries.
40 BANCROFT LAW