Married Couples Do Have Options For Long-Term Nursing Home Care

Many people believe that to qualify for Medicaid nursing home benefits, it is necessary to exhaust all of their own assets. This is most often not true for married couples.

The federal government allows a husband and wife to leave assets to one another in a format that does not require everything to be spent down. How this is done will depend on the facts of the couple's situation.

Sole Benefit Trusts

For example, if one spouse needs nursing home care immediately and the other spouse is to remain at home, the spouse who remains at home is allowed a community spouse resource allowance (CSRA) which currently has a maximum of $104,400. In addition, all assets in excess of the CSRA may be transferred into a Sole Benefit Trust. This is a trust for the sole benefit of the community spouse. Upon transfer of the excess assets to a Sole Benefit Trust, the nursing home spouse immediately qualifies for Medicaid.

The assets in the Sole Benefit Trust must be paid out to the community spouse on an "actuarially sound" basis. This means the assets must be distributed based on the life expectancy of the community spouse as determined by tables provided by the Department of Human Services. The trust is irrevocable and if the community spouse subsequently needs nursing home care, the trust assets will be considered an available resource. It is not necessary to establish the trust until nursing home care is actually needed.

Testamentary Discretionary Trusts

A second scenario requires advance planning. Every couple with concerns about depletion of their assets due to long-term care needs should consider incorporating the following planning into their estate planning documents. The scenario for which this type of planning is helpful is when one spouse dies and the surviving spouse subsequently needs nursing home care.

In this situation, without advance planning, the surviving spouse will have to exhaust all of his or her assets before he or she qualifies for Medicaid. However, federal law allows the first spouse to die to leave assets for the benefit of the surviving spouse in a testamentary discretionary trust that does not have to be spent down in order for the surviving spouse to qualify for Medicaid.

A testamentary trust is a trust created in a will. A discretionary trust is a trust that leaves distributions for the beneficiary to the sole discretion of the trustee. The beneficiary cannot demand distributions based upon a support standard. However, the trustee has discretion to make distributions for the comfort and welfare of the surviving spouse provided such distributions do not disqualify the surviving spouse from other benefits.

Because the surviving spouse may not serve as the trustee without the entire trust being considered an available resource, the trust must have a third party trustee. Upon the death of the surviving spouse, the remaining assets may pass to the descendants or other beneficiaries of the first spouse to die.

The Probate Process

In order for a testamentary trust to be created, the will of the first spouse to die must be admitted to probate. However, if there are no probate assets, the will can be admitted to probate and the trustees of the testamentary trust can be appointed in a single hearing process that avoids the remainder of the probate process. For this reason, it is often wise for each spouse to establish a revocable trust to hold approximately half of the married couple's assets. Assets held by a revocable trust do not need to go through probate.

The revocable trust will then provide for the creation of a trust for the surviving spouse that spills over into the testamentary trust created under the will of the first to die in the event that the surviving spouse requires nursing home care. It is crucial that these documents be established while both spouses are living. If one spouse dies before this planning is implemented, it is no longer possible to protect assets in this manner.

Simultaneous Care

In the unfortunate circumstance where both spouses require nursing home care simultaneously, the planning becomes much more difficult. In this case it is usually best to transfer all of the assets to one spouse so that the other spouse may qualify immediately for Medicaid. The spouse with the assets will then have to go through a spend-down phase, though planning techniques remain available to speed this process.

The purchase of long-term care insurance, when available and affordable, can reduce or eliminate the need for the type of planning discussed above. It may also provide more options for in-home care and assisted living. Even when long-term care insurance is purchased, however, these planning techniques can often be implemented as a supplement to the insurance.