02 Nov SUCCESS STORY OF THE MONTH – THERE IS NO TIME LIKE THE PRESENT
The following case is an example of how an entire estate was preserved for the benefit of an ill spouse and then for the children after her passing. The planning was done years ago, but the total savings were realized as of the date of the wife’s recent passing.
Wife (the “institutionalized spouse” or “IS”) has dementia and needs long-term care. Her husband (the “community spouse” or “CS”) is well, lives at home, and has been appointed as guardian to take care of IS personally and her assets. IS has no long-term care insurance resulting in the need to seek Medicaid to help pay for care costs as she has been admitted to a skilled nursing facility. The couple has a homestead (which does not count for Medicaid eligibility but is sometimes subject to recovery after her death) in addition to other real estate and other assets. The countable resources (exclusive of the homestead, car, pre-need funeral, etc. which do not count for Medicaid eligibility purposes) are around $350,000 (well over the maximum protected resource amount – see article below) in year 2010 when we were originally retained to handle this matter. Their combined gross Social Security monthly income was below the limit permitted by Medicaid (presently $3,090 per month) so that the couple could have more than the maximum protected resource amount (presently $123,600) as based upon a formula by state law. In addition to income, interest rates at client’s bank are generally used by the state in the formula to determine how much resources can be protected. In other words, more assets can be protected when interest rates are lower since one needs more assets to generate the spread between the monthly income permitted and the couple’s Social Security income in this case. However, prior to applying for Medicaid for the IS, the calculations showed the interest rate for one year CDs (a CD doesn’t’ need to be purchased, but the interest rate is part of the formula) at the client’s bank was too great to keep all $350,000 of countable resources. It is required under the rules to use an interest rate where the applicant has an account. As a result, we suggested opening an account at a bank with worse interest rates. Medicaid eligibility was then achieved even though husband and wife had $350,000 in addition to their home, etc. Furthermore, since the combined monthly income of IS and CS was below the permitted limit, CS was entitled to both his income in addition to his wife’s income resulting in the government paying for the entire cost of wife’s care plus her drug costs saving over $5,000 a month for the last eight years.
However, Medicaid also requires that the assets of the IS be transferred to the CS within one year. We acted immediately in getting the court to approve (since there was a guardianship) the transfer of all of wife’s property to the CS (there is no transfer penalty between spouses) even though the court has to do what is in the best interest of the ward (the IS in this case). We also did a new Will for husband whereby all the assets would go to his wife in a trust (a testamentary supplemental needs trust) which does not count for Medicaid eligibility purposes (unlike the Will that he had where everything went to her outright which would have resulted in a loss of Medicaid eligibility for his wife if he died first since she can only have $2,000 of countable resources) and covered items that Medicaid does not (i.e., supplemental caregivers, etc.).
A couple of months after the transfers had been completed and husband signed the new Will, he unfortunately passed. IS has retained Medicaid eligibility for the past 8 years (until her death this past month) saving the entire estate (to the extent it was not used for her benefit from the trust). The immediate transfer of assets to the CS and revision of his Will immediately after wife’s eligibility proved there was no time like the present when it comes to planning.