By James W. Mallonee
A client recently came in for a consultation about being able to maintain her lifestyle given that her husband had recently died.
The surviving spouse admitted that she was beginning to slip mentally and physically. She also expressed that her children were not able to assist in any way. The couple’s funds were previously placed into separate trusts (the married couple had their own trusts as opposed to a joint trust) and pour over Wills. Although the old adage of having your assets placed into a trust sounds good, it is not always the best solution because it may cause the surviving spouse to become ineligible for Medicaid assistance and the failure to preserve a family’s wealth.
You should know that the disposition of funds from a trust to that of a surviving spouse’s trust may not work to preserve Medicaid eligibility should the surviving spouse need the support of a Medicaid government program. The reason for this is Medicaid’s statutes specifically state that a trust constitutes a countable asset for purposes of being eligible for such program. The program specially states “if assets of the individual were used to form all or part of the corpus of a trust and if any of the following individuals established such trust other than by Will; a) the individual; or, 2) the individual’s spouse…” As you can see the law specifically uses the term “other than by Will” which suggests that a trust immediately knocks out Medicaid eligibility.
Does that mean funding a trust will cause the surviving spouse to lose Medicaid eligibility? The answer is most likely. A means of avoiding this problem is to create a Will which can reference a trust (called a testamentary trust) which can provide the surviving spouse with support without causing his or her loss of Medicaid benefits (including other public benefits).
What are the possible traps? The first one is Florida’s elective share which states that the surviving spouse is entitled to 30% of the deceased spouse’s estate (remember – the spouses in this situation had separate trusts). If that is the case it is entirely possible that the surviving spouse will lose her eligibility for Medicaid assistance. The reason for this is that a person who is considered eligible for Medicaid will have to count any ownership interest he or she is entitled to by means of inheritance including the elective share. So why can’t the surviving spouse elect to disclaim the elective share? Medicaid will view the refusal to accept the elective share as a trigger causing the invocation of a penalty and loss of such benefits. The possible outcome is the loss of benefits until such time as the total value of countable assets have been spent down below the asset eligibility threshold of $2,000.00.
What could the couple, in this situation, have done to avoid this situation? In the deceased spouses Will they could establish a qualified special needs trust funding it with 30% of the deceased spouse’s assets which would satisfy Florida’s law and Medicaid’s requirements (NOTE: the amount used for funding the special needs trust can be more than 30%). Surprisingly, these funds will not be considered a countable asset. You would need to have a third person (son, daughter, or other person) act as the trustee of such trust to maintain eligibility.
Suppose (like the person who visited the office) you also have a trust and you want to preserve your assets to pass on to your children or charity of choice. An option is to have the trust amended to allow the assets of the trust to pass through the probate estate and then back out to the trust. This could be done via the decedent’s pour over Will should the trust be irrevocable.
In short, the simpler alternative is to have a special needs trust for the benefit of the surviving spouse. But the downside is trying to look into the future and know with certainty who is going to pass first.
If you are concerned about preserving your assets as you grow older and more vulnerable to medical needs, contact the attorney of your choice, and have a discussion about preservation of your assets including Medicaid eligibility. Even if you already have testamentary documents prepared, it may be wise to have a “What if” discussion.
LAW OFFICES OF JAMES W. MALLONEE, P.A.
www.jameswmallonee.com
This article is intended for informational use only and is not for purposes of providing legal advice or association of a lawyer – client relationship