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Estate Planning Should be an Integral Part of Medicaid Planning (Part 2)

Last week, this column analyzed a strategy to maximize the funds which can be set aside under current law, when one spouse may need Medicaid in the future. A reader with initials T.R. stated that his wife’s worsening dementia caused her to need nursing home care. I suggested that he be in contact with Medicaid immediately, so that he could maximize the spousal protected resource allowance granted by law.

That strategy would legally allow him to keep more money for his own security. It would allow him to be sure his home was in good repair and that he had a reliable car. It would allow him to prepay for funerals for both himself and his wife. It would allow Medicaid benefits to begin at an earlier date.

But T.R. said in his letter that he and his wife have Wills in which they leave all assets to each other. If T.R. were to die in a car accident (or however) while his wife is still in the nursing home, his Will says she inherits all the assets. Since he would have died, she would have no more spousal protected resource allowance. She would own the house, car, personal effects and – from our example last week – the $100,000 bank deposits they still possess.

Because she would then own those assets, and have no spousal protected resource allowance, she would lose Medicaid. The rest of the money would be used to pay for the nursing home, and when it is gone she would have to reapply for Medicaid (and because she has dementia, someone else would have to oversee her funds, handle the application for Medicaid, and watch over her needs).

If she survived two more years, then upon her death Medicaid would make a claim against the house under MERP. Nothing would be left. It would all have gone to pay the nursing home or to MERP as reimbursement for Medicaid.

Instead, T.R. should utilize an intelligent strategy: First, he and his wife must agree that all of the assets belong solely to him as his separate property. This must be done in a written legal agreement that complies with the provisions of the Texas Family Code. If her dementia is too severe for her to understand and sign, there is one other option. She made T.R. agent in her durable power of attorney.

If her durable power of attorney was drafted by a qualified Elder Law Attorney, it should include a provision on transfer of assets. Under that clause she will have granted the agent authority to transfer funds that belong to her so that T.R. becomes the sole owner. (Also, she should have named several alternate agents who can act in case T.R. has become incapacitated.)

Second, T.R. as the sole owner of all the assets must make a new Will leaving the assets to someone other than his wife. That could be their children, or it could be a “special needs trust” that would last for the rest of her lifetime (and then pay to his devisees). When the Elder Law Attorney helps with the property agreement, T.R. should have a new Will prepared at the same time.

If he outlives his wife, she still has a Will leaving all assets to him. But she does not own any assets; they are already T.R.’s sole property. Thus, this strategy allows him to avoid probate of her Will.

On the other hand, if T.R. dies before his wife, she will not inherit anything. She continues to own nothing. The money, house, car and personal effects safely pass to his devisees. She remains qualified for Medicaid. Eventually when she dies, there are no assets against which a MERP claim can be made.

Being proactive and taking action has legally protected their home, has legally maximized the value of their protected funds, and has helped the economy (by spending about half of their life savings on home repairs, an auto, medical care, travel and legal planning). They have protected their children by providing an inheritance, and maintained uninterrupted care for the wife. If this strategy sounds beneficial under the circumstances you face, consult with a Certified Elder Law Attorney at your earliest convenience.

Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, August 26, 2011

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