Q. My wife suffers from dementia and has been in a nursing home for some time. Last year, when she still had capacity, we put everything in my name so she could qualify for a Medi-Cal subsidy to help pay for her care. We currently have only simple wills which leave everything to the survivor of us, and then to our two children. Is this the best plan?
A. Probably not, and here’s why: if for some reason you predeceased her, then all your assets would go to her. These assets would then put her over the $2,000 Medi-Cal resource ceiling for an unmarried individual, and she would be terminated from the program. She would then have to use these very assets to pay for her care, potentially depleting a lifetime of savings and leaving little or nothing as an inheritance for your children.
A better plan would be to change your own will or trust so that if you predeceased her, your assets would go into a Spousal Special Needs Trust (“S-SNT”) for her benefit. The S-SNT is a special trust which would hold these assets in the name of a “friendly” trustee, who would use them to pay for extra things for your wife not otherwise provided by Medi-Cal, such as a TV in her room, occasional outings, and perhaps companion visits. Because the assets would be owned by the trustee, they would not count as hers and would thus not undermine her eligibility for Medi-Cal. One of your children could serve as trustee.
Upon her later demise, the balance remaining would go to your children or other designated beneficiaries.
Your trust or will would be structured so that they contained a kind of “toggle switch” and worked together: If your wife predeceased you, then upon your later demise they would function as an ordinary trust and pass everything to your children. But, if you predeceased your wife, they would then “switch” to create the S-SNT for her.
This spousal S-SNT requires that your plan be structured in a very special way. Because of a quirk in the law, it must be created by Will, and not by trust. In this sense the S-SNT created for a spouse is very different from the Special Needs Trust sometimes created for a child or grandchild on public benefits.
Because the S-SNT for a spouse must be created by will, it requires some involvement by the probate court after your demise. This is to satisfy the legal requirement that it be “established by will”. The probate court order would satisfy this legal requirement. Fortunately, this requirement does not necessarily mean that your estate would go through a full probate. It only requires that a petition be filed in the probate court seeking an order formally establishing the S-SNT and authorizing its funding from your probate estate. Once the order is granted, your estate assets would be so transferred, and the probate could then be closed.
This plan does require that it be in place before your demise and its implementation does require special skill. I recommend that you seek out a knowledgeable Elder Law or Special Needs attorney to assist you in creating it.
Note: A variation of this plan would be suitable for a couple, presently in good health, who wish to plan for the possible future long term care needs of the survivor of them.
Reference: 42 USC 1396p (d)(2)(A) [“Treatment of Trusts”]. Note the phrase “established … other than by will”; such assets would be treated as a resource available to the Medi-Cal beneficiary and would likely preclude eligibility. Example: Assets in a SNT established by “Living Trust” would be considered available. However and by contrast, if the trust is established “by will”, then the trust assets would not be treated as a resource of the individual seeking Medi-Cal benefits, and these assets would not undermine his/her eligibility for a Medi-Cal subsidy.