When a spouse requires nursing home care, it is critical that the spouse residing in the community change his estate plan. Most couples have wills or revocable trusts, which leave everything for the benefit of the surviving spouse. This plan makes sense, unless your surviving spouse is incapacitated, is receiving Medicaid nursing home benefits or may need nursing home care in the future. If a spouse’s will leaves everything to the other spouse, when the first spouse dies, all of the assets will potentially be exposed to Medicaid. Fortunately, there exists a simple way to avoid this issue. Under the Medicaid rules, a trust created by a will (a so-called “testamentary trust”) is not considered in determining whether the surviving spouse is eligible for Medicaid benefits. In order for this estate plan to work, it is imperative that you redistribute your assets to take full advantage of the testamentary trust protection. Unlike a typical Medicaid protection trust, the funds held in a testamentary trust can be used to pay for anything the surviving spouse requires. However, if the surviving spouse applies for Medicaid, the testamentary trust assets cannot be attached by the Commonwealth. When the surviving spouse passes away, the assets remaining in the testamentary trust can pass to the couple’s children, without recourse by Medicaid.
Since a testamentary trust must be created and funded through a will, it is subject to the jurisdiction of the probate court. Some may consider this a drawback of creating a testamentary trust; however, filing for probate, and the costs associated therewith, are relatively small when compared to protecting an entire estate from Medicaid.