Q. My husband is in a nursing home and has qualified for a Medi-Cal subsidy to help with care expenses. To qualify, I was obliged to take his name off of most of our bank accounts, so that most everything is in my name now. However, I have my own health problems and I wonder what would happen if I pass away before him, as each of our wills leaves everything to the other. Would he lose his Medi-Cal benefits? I want to make sure he is protected.
A. Great question. For your husband to maintain his eligibility for Medi-Cal, he can never have more than $2,000 in his own name, while you may retain up to $113,640 in yours. Since your present plan leaves everything to him, your prior death would pass your savings to him, putting him over his $2,000 resource ceiling and causing him to lose his Medi-Cal subsidy. He would then need to use these assets to pay for his own ongoing care. This scenario could deplete your marital estate without providing the reserve for his needs that you desire.
However, with proper planning, his Medi-Cal subsidy can be retained even while preserving funds for his supplemental needs. To accomplish this, you should revise your will or trust so as avoid leaving your estate to your husband directly, and instead permit him to receive the benefit “indirectly.”
(1) The “Skip” Plan: One option is to revise your own will to “skip over” your husband and leave everything to your children, but with the understanding that they will use those funds to pay for such items that your husband might need and which Medi-Cal does not cover. This approach assumes that your children will fully honor your request, have no creditor problems, are not at risk of divorce and have understanding spouses who will support this use of “their” inheritance.
(2) The SNT Plan: A better option is to leave your estate to the trustee of a Special Needs Trust (“SNT”) created by your will. The SNT is a very special trust approved by both federal and state law to hold assets for individuals, such as your husband, who are receiving public benefits. The trustee could be one of your children. If set up and managed properly, the assets in the SNT would not interfere with your husband’s ongoing Medi-Cal subsidy and would, instead, be used to pay for items that Medi-Cal does not cover. Upon your husband’s passing, any remaining assets would go to your heirs, presumably your children.
Under either strategy, if your husband’s health later improves so that he can return home or move into a less restrictive environment, the funds thus preserved would be available to pay for his care in the new setting. Alternatively, even if he remains in the nursing home, you will have preserved a separate fund to supplement his needs and enhance his quality of life. In either case, changing your will is an act of love.
To avoid “payback” to Medi-Cal after both of you have passed on, additional steps may be necessary to convert community property into your own separate property.
Healthy Couples: For those healthy couples who wish to plan ahead, these same strategies can be incorporated into their own estate plans, to be “triggered” in the event one spouse someday requires nursing home placement and qualifies for a Medi-Cal subsidy.
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This arrticle was published in the Senior Sections of the Castro Valley Forum and the San Leandro Times on September 21 and September 22, 2011.