In a recent case in New Jersey a man died survived by his wife, who was then living in a nursing home. Under NJ law (as in most states) one spouse cannot disinherit the other spouse, no matter what the will of the first spouse to die says. If, for example, the first spouse to die has a will leaving everything to the children of a first marriage, the surviving spouse has the legal right to "elect against the will." That means she would file a piece of paper in the court indicating that she rejects the will and wants to get her "statutory share." That share is usually between 1/3 and 1/2 of the deceased spouse's probate estate, again depending on what state the couple lived in.
But what happened in the NJ case is that the spouse in the nursing home did not elect against the deceased husband's will. The husband left all of his property into a trust for the wife's benefit, with distributions to go to the wife in the discretion of the trustee. That might be good, but maybe not as good as getting 1/3 of the property outright!
Under the Medicaid rules, if a person does not take advantage of a legal right to access funds, it's treated as if the person did access the funds and then made a gift of the funds. So in this case, the failure of the surviving wife to elect her 1/3 "statutory share" interest in her deceased husband's estate was treated as a gift by the wife to the children. Such a gift causes the wife to be ineligible for Medicaid coverage for some period of time. The length of time she's penalized for the deemed gift depends on the value of the estate she did not get.
Although the attorney for the wife argued that in fact the wife's lifetime interest in 100% of the husband's property was worth more than 1/3 of the same property outright, the court did not buy that. The court ruled that the test is whether the wife could have made the election, not whether such election was advisable.
So what should the couple have done to avoid this? One possible solution is to leave the minimum amount necessary to satisfy the wife’s elective share to her, outright, and then leave the balance either to the children or in a trust for the wife’s benefit. She would still be disqualified from Medicaid for a certain period of time after the husband's death because she’d have too much money to qualify.
However, once she got the money, she could implement some of the planning ideas discussed in this blog. For instance, typically she could protect at least half of that money, i.e., 1/6 of the husband’s estate. That’s a lot better than being deemed to have a made a gift of the entire 1/3 elective share, which would cause the wife to be disqualified from Medicaid benefits for twice as long.
Now if you're really clever, you may have thought, "They should have had a pre-nuptial agreement and that would have solved their problem!" Unfortunately, while such agreements are completely legal in most states, the Medicaid rules simply ignore both pre- and post-nuptial agreements. So once again it's important to get the advice of an attorney who understands the ins and outs of the complicated Medicaid rules, if Medicaid coverage of nursing home expenses may ever become necessary.
K. Gabriel Heiser is an attorney with over 25 years experience in elder law and estate planning. Heiser is the author of “How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets,” an annually updated practical guide for the layperson. For more information about this book, visit Medicaid Secrets.
We'd love to hear your questions, comments or opinions. Submit them here and other visitors can read them and comment on them. An e-mail address is not required.
Click below to see contributions from other visitors to this page...
Is Childrens Inheritance Considered Gift Resulting in Medicaid Penalty Period?
Husband dies and leaves everything to children and charity. Wife can live comfortably on social security and pension. In 2 years she needs to go to …
Can Father Give Entire Estate to Kids and Nothing to Mom? Not rated yet
Question: My mother is in assisted living, applying for medicaid. My mother and father split their assets. Mother is below $4000 now. Father passed …
Medicaid Planning: Life Estate in House | Does the $13,000 Gift Tax Exemption apply to Medicaid? | Medicaid and Community Spouse Assets | Planning For Medicaid Coverage | Effect of Life Insurance Proceeds On Medicaid Eligibility | New Medicaid Annuity Rule Explained | How Can an Irrevocable Trust Be Used in Medicaid Planning? | Selling the House and Medicaid Qualification | How To Qualify For Medicaid If My House Is Worth More Than $500,000? | What is Elder Law? | Living Trust and Medicaid | What Is An Inheritor's Trust? | Should I Take Out a Loan Against My House to Pay For A Nursing Home? | Can I Give My House to My Child and Qualify for Medicaid? | Elder Care Lawyer Fees | Choosing A Nursing Home | Do I Need a Will? | Capacity To Sign a Will, Trust or Power of Attorney | Second Marriage Will Issues | Special Needs Trust Issues | What is a Common Law Marriage? | What is a Medicaid Annuity? | How does a Medicaid Annuity Work? | How To Protect My Home and Still Qualify for Medicaid? | Do It Yourself Medicaid Planning | Medicaid Rules and Reverse Mortgages | How Does Life Insurance Policy Ownership Affect Medicaid Eligibility? | Medicaid Estate Recovery Rules | Medicaid Estate Recovery Planning | Limitations on Medicaid Estate Recovery | Do Medicaid Plans Work? | Nursing Home Costs and Payment Options | Don't Be Too Cheap! | What Happens to My Home If I Go On Medicaid? | Can Spouse Receiving Medicaid Pay Income to Community Spouse? | Will Medicaid Exempt My Home If I Leave It? | Tips for Discussing Wills and Powers of Attorney With Your Parents | Elderly Marriage Issues | Durable Power of Attorney Medicaid Considerations |
From Medicaid and Spousal Will Election to Medicaid Questions | Estate Planning Blog | Basics of Estate Planning | Selecting a Financial Planner | Estate Planning and Taxes | Is This Good Time to Buy a House? | Incorporate My Business | Best Low Cost Investment | Fringe Benefit Plans | Estate Planning and Charitable Giving | Health Insurance Comparisons | Best Medicare Supplement Plan | Retirement and Estate Planning | What is a Power of Attorney? | Current Estate Planning News | Estate Planning Forum | Estate Planning Books | Choosing an Estate Planning Attorney | Find a Probate Attorney | Estate Planning Questions |
|--by Beth Heikkinen|
|I just want to thank you for this site. It answered my questions. I think many people that do research on the net take it for granted and when they find what they are looking for they forget "someone put time, money, etc into providing me with this information."|