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Medicaid Qualification in Estate Planning for Husband and Wife

Medicaid Qualification in Estate Planning for Husband and Wife

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Wednesday, 07 August 2019 12:50 PM Current | Bio | Archive

Husband contacted me recently. Wife was diagnosed with Alzheimer’s six years ago, and recently had been moved to a memory care facility.

The monthly benefit under the couple’s long-term care insurance policy currently covers most of the cost of Wife’s care in the facility, but will become increasingly inadequate over time.

Husband wanted to qualify Wife for Medicaid nursing home coverage, so that the couple’s assets will be available for his living expenses. That requires making her destitute. But the couple’s assets were in a revocable estate planning trust for the benefit of both of them.

People create a revocable trust, and transfer their assets to it, to avoid probate court proceedings at their death. When spouses create such a trust, for Medicaid nursing home coverage purposes each of them is deemed to own the assets held in the trust.

A spouse beneficiary of such a trust continues to be deemed the owner of trust assets for Medicaid nursing home coverage purposes for five years after the assets are transferred out of the trust, or the trust instrument is amended to eliminate that spouse as a beneficiary. So, if it appears that a spouse will need Medicaid nursing home coverage, it is important to transfer assets out of the trust, or amend the trust instrument to remove that spouse as a beneficiary, to start the five-year Medicaid coverage lookback period running as soon as possible. Toward that end, counsel should consider including the following provisions in a revocable trust instrument.

The trust instrument should empower a spouse to amend the revocable trust instrument, or transfer property out of the trust, as needed to qualify the other spouse for Medicaid nursing home coverage as soon as possible.

The trust instrument should provide that the spouses together shall serve as trustee, requiring their concurrence in any and all acts concerning the trust. The trust instrument should further provide that if one co-trustee dies, becomes incapacitated, or resigns as a co-trustee, the other co-trustee shall serve alone. The trust instrument should name one or more successor trustees in the event neither spouse is able and willing to serve as trustee.

The trust instrument should provide a means for a trustee to resign. My trust instruments provide that a trustee may resign effective 30 days after delivering written notice of the resignation to the successor trustee designated in the instrument.

The trust instrument should provide a means for determination of incapacity of an individual. My trust instruments do this by providing that an individual shall be incapacitated if two licensed, board-certified physicians have determined that, by reason of physical or cognitive impairment the individual is unable to function on his or her own. An individual also is incapacitated if a court of competent jurisdiction has determined that by reason of physical or cognitive impairment the individual is unable to function on his or her own. An individual who has not been so determined to be incapacitated is “capacitated” for all purposes of the trust.

The trust instrument should provide that settlors (the husband and wife who created the trust), or whomever of them is living and capacitated, may at any time and from time to time amend or the trust instrument. The trust instrument should provide that a trustee who is not a settlor may at any time and from time to time mend the trust instrument to correct an obvious typographical error, or to qualify a settlor for a government benefit, such as Medicaid nursing home coverage.

The trust instrument should provide that principal or income of the trust may be used for the benefit of settlors or either of them. The trust instrument should provide that assets may be transferred out of the trust for the benefit of a spouse, to qualify the other spouse for Medicaid nursing home coverage.

The foregoing provisions in a trust instrument would facilitate a spouse amending the trust instrument, or transferring assets out of the trust, to qualify the other spouse for Medicaid nursing home coverage as soon as possible.

Stephen J. Dunn is a tax attorney in Troy, Michigan. He is the author of the treatise Foreign Accounts Compliance (Thomson Reuters 2017) and Foreign Accounts Compliance Blog. He is also an adjunct professor at Michigan State University College of Law.

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StephenJDunn
People create a revocable trust, and transfer their assets to it, to avoid probate court proceedings at their death. When spouses create such a trust, for Medicaid nursing home coverage purposes each of them is deemed to own the assets held in the trust.
medicaid, qualification, estate, planning, husband, wife
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2019-50-07
Wednesday, 07 August 2019 12:50 PM
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