Case Study: Medicaid Planning for Married People, Part 2

George, age 76, and Martha, who is 74, have been married for 52 years.  George suffered a series of strokes over the last two years and now has dementia.  After the last stroke, he was discharged to the nursing home for therapy.  After 6 days at the nursing home, the staff called Martha and told her George was no longer participating in therapy, so his Medicare coverage will end in three days. 

Later that day, someone from the billing office at the nursing home calls Martha and tells her that since George's Medicare coverage is ending, they need her to bring a check for $13,000 to the nursing home tomorrow, $6,000 is for a security deposit and $7,000 for George's first month of care at the private pay rate.  Martha is overwhelmed by all of these events and calls her son, Jack, for assistance.  George and Martha own a home worth $175,000, a car, and have $225,000 in various savings accounts and certificates of deposit. 

Martha asks the social worker at the nursing home for a Medicaid application.  Later, she gives it to Jack and they fill it out together.  Jack takes the Medicaid application to the local Department of Human Services office in Madison Heights.  The staff tells Jack he has to take it to the Walled Lake office, since that office process the applications for the nursing home where George is a resident.  Jack gets back in his car and drives across town to the Walled Lake office and files the application.

Six weeks later, Martha receives a notice from Medicaid that she can keep $109,560 of their savings, the maximum protected spousal amount. George can keep $2,000, and the rest must be spent down before George qualifies for Medicaid.  Martha is shocked but starts spending down the other $113,400.  The nursing home costs $7,000 a month, so Medicaid starts paying after 16 months

This is an unfortunate result in that Michigan's Medicaid policy actually provides that, when you have a married couple, assets can be transferred to a trust “solely for the benefit of” a community spouse (SBT).  However, the state will not create this trust for you or even tell you about it.  You have to create the trust yourself and learn about it on your own.

The ability to transfer assets to a trust solely for the benefit of the community spouse provides an excellent planning option for couples, a strategy that can provide nearly immediate eligibility with minimal difficulty. The SBT, if properly drafted and structured, is recognized as an exception to the divestment rules. If an applicant transfers assets to a properly drafted and structured SBT, the transfer of these funds will not be a divestment. Pursuant to this rule, an applicant may transfer an unlimited amount of resources into a trust, excluding them from being considered as resources for Medicaid eligibility purposes while retaining the ability to have the resources transferred back to the community spouse, in the future, for his or her needs.  Each SBT is unique, in that the provisions in it are drafted based on each couple's specific financial, personal, and family situation.

In George and Martha's example, they have $225,000 in countable assets.  The protected spousal amount is $109,560.  If the SBT had been established and funded with the additional $113,400 or more, eligibility for Medicaid would have been achieved immediately.  The funds in the trust would have been available for Martha's needs.  This case illustrates the importance of getting expert help (see number 9 in the Top Nine Mistakes People Make with Medicaid Qualification in Michigan).

Upon the death of the community spouse, any assets remaining in a SBT are distributed to the beneficiaries chosen by the community spouse.  The community spouse retains the power to change the trustee and final beneficiaries.  If the community spouse needs more of the assets, the trustee can have discretion to distribute more of the assets to the community spouse.  Nearly any type of asset can be conveyed into the trust without the need to liquidate or negative tax ramifications.

Of course, proper Medicaid planning differs according to the relevant facts and circumstances of each situation. For example, some children never gain independence, they remain dependent upon their parents.  What can be done in that case?  Continue on to the Case Study:  a Trust for a Disabled Child.