How Long Term Care Can Destroy an Estate Plan
Whenever we meet with new clients, especially married ones, I always want to review the estate planning documents that they currently have. Sometimes those documents are 10, 20 or 30 years old. Other times, the clients will say, âOh, we just had our wills updated in the last year so weâre good there. Yet, when I review the documents, I find that they are not suitable for their current needs. How can this be?
Very simply, no one considered how long term care costs can completely destroy an estate plan. As I have explained in previous posts, when one spouse needs nursing home care and the other does not a spend down must occur. The healthy spouse gets to keep one half of the coupleâs assets up to a maximum of $109,540 and a home, if he/she is living there. The ill spouse can then get Medicaid. But, what happens if the healthy spouse dies first?
Well, in most cases the will provides that everything is left to the surviving spouse and then to the children after the second spouse dies. Or, perhaps, the will establishes a bypass trust for the surviving spouse, to save on estate taxes. In either case the assets will now be accessible to the surviving spouse who is on Medicaid. One of two things will happen. Either the assets must be given to the State to pay back Medicaid benefits received and the surviving spouse can continue to receive benefits. The alternative is to terminate Medicaid and begin private paying for care until all the assets are spent and then reapply for Medicaid.
Neither scenario is very appealing and need not happen if we modify the will. Instead of leaving everything to the surviving spouse we leave the assets to a trust for that spouse, but, and here is the key, a trust that will not be counted for Medicaid eligibility purposes. Now, those assets are available to be used for other needs not covered by Medicaid. And when the surviving spouse passes away, there will likely be something left to pass on to the next generation, an important goal for many families.
Does this mean that everyone should set up their will in this manner and that leaving everything to your spouse is the wrong thing to do? Not necessarily. What I am saying is that you do need to sit down with an elder law attorney who is well versed in the long term care system. You may have a will that was suitable for your needs at the time it was created but things change and your plan may need to be changed too. You may be leaving yourself vulnerable. The State says you have to spend down most of your assets towards long term care. With a poorly drafted estate plan you may end up spending all of your assets towards care, something even the State doesnât require you to do.