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How Not to Lose Medicaid (Part 2)

In my post last week I explained that once a Medicaid application is approved, everything isn’t on autopilot.  What I mean is that you must be vigilant so as not to lose the benefits once you have them.

That can happen a number of ways such as a change in circumstance.  The death of the non-Medicaid spouse – known as the community spouse – can be one way.  Careful attention must be paid to the administration of the deceased spouse’s estate and how it will impact Medicaid eligibility for the surviving spouse.

There will always be some assets in the community spouse’s estate because some marital assets usually must be shifted over to that spouse since the Medicaid spouse must have no more than $2000 in assets.  Often there is a house which is an exempt asset as long as the community spouse has been living in it. 

Married couples typically have what we call “I love you” wills.  Their wills first leave everything to each other and then to children and other heirs in the case of the second spouse’s death.  When there is no will, under the intestacy laws most if not all of the assets first go to the spouse.

As I wrote last week, the Medicaid recipient must keep assets under $2000 each and every month to maintain eligibility for the next month.  When we have the opportunity to change the Medicaid spouse’s will, we have that spouse leave assets to a Medicaid qualifying trust or to children outright.  That doesn’t, however, entirely solve the problem because of the elective share, something I have written about in previous posts over the years.  Also, in some cases it is too late to change the will.  One must have legally capacity to execute a will and understandably many Medicaid applicants because of advance dementia, Alzheimer’s and other ailments no longer have that capacity by the time they get to us.

The spouse’s death also may cause a change in income.  Remember that Medicaid is a cost share.  The recipient’s income must be paid to the facility and the State pays the rest of the cost.  When the spouse dies, Social Security gives the surviving spouse the larger of the two payments.  The deceased spouse may also have chosen a survivor benefit option for a pension.  That means that the Medicaid spouse’s income could increase and consideration must be given to how that affects the use of a Qualified Income Trust (QIT).  In some cases, we have to set up a QIT even though one was not necessary at the time of the original application because now the income exceeds the monthly  Medicaid income cap ($2742 in 2023).

Next week I’ll address how the estate administration process needs to be handled to preserve continued Medicaid eligibility.