Even if you’ve taken the admirable step of setting up an complete estate plan in Florida or your home state, complete with a revocable living trust, pour over wills, durable powers of attorney, advance medical directives and a snazzy binder, you still must address the looming threat of medical cost drainage to your estate.
The Threat of Long Term Medical Costs to Your Estate
Long term medical care costs can drain your estate faster than a Florida sinkhole. If you’re over a certain age, this should factor into your estate planning equation and yet this aspect of planning is often ignored. Probably the most common “estate distribution” is “everything goes to my spouse”. However, in the world of long term medical care planning, this simplistic approach could lead to a disastrous result for the following reasons.
1. Spousal Planning and the Threat of Medical Cost Drainage to Your Estate
For couples, generally speaking, if one spouse needs long term medical care, the marital assets can be transferred to the “well spouse” and a few other steps can be taken to qualify the “ill spouse” for Medicaid. If the well spouse passes away, this entire process will be undone without proper planning.
Under the Florida Medicaid rules, it is currently acceptable for an ill spouse who is destined to need long term medical care to apply for medicaid after transferring his/her assets to the other spouse without any penalty or “look back” period. While the well spouse may not necessarily be able to keep all of the assets depending upon the jurisdiction, he or she can use the other spouse’s portion toward exempt marital assets such as the home and vehicles. When the Medicaid application is made, there is no additional need for disclosure of the assets in order to keep the ill spouse qualified, that is, unless the well spouse dies and leaves the estate to the ill spouse either “intentionally” or by “default”.
2. Issues with Disinheriting a Spouse and the Threat of Medical Cost Drainage to Your Estate
In most states, spouses cannot be “disinherited” so even if the well spouse attempts to disinherit the ill spouse in order to keep them qualified, this can be challenged.
Many states, such as Florida, give a surviving spouse an “elective share” option or some variation of it. This means that if one spouse tries to disinherit the other, the surviving spouse can disregard the will and elect to receive a portion of the deceased spouse’s estate. By this same logic, Medicaid may not allow the ill spouse to be deemed “disinherited” for qualification purposes and this could threaten to disqualify the ill spouse’s benefits.
3. Using Elective Share Trusts or Special Needs Trusts to Curtail the Threat of Medical Cost Drainage to Your Estate
Spousal planning through proper use of the “elective share” and a “special needs trust” can eliminate the uncertainty and provide an effective approach to all0w the ill spouse ongoing qualification for benefits.
A preferable planning approach, in my humble opinion, as opposed to the debacle described in #2 above, is to create an “elective share trust” (in Florida) either as part of a Living Trust or a last will in order to effectively limit the ill spouse’s share of the marital estate. Better yet, the “elective share” amount can be placed in a “Florida special needs trust” to act as a “supplemental fund” for the ill spouse and this approach has been deemed effective to allow the ill spouse to remain qualified and AVOID LOSING BENEFITS (i.e. Medicaid or SSI disability). A Florida Medicaid will can also be used to keep the spouse eligible in the event that the well spouse should happen to pass away.
The proactive approach described above is, of course, a general recommendation and is not an all inclusive solution. The key “take away” today is that a clear and intentional plan is necessary to address the need for long term medical assistance and this approach should be carefully considered as part of your overall estate planning. I recommend that you seek a review asap if you’ve never discussed this part of your estate plan.
Steve Gibbs, Esq.