Compliments of The Litherland Law Firm
Written By: The American Academy of Estate Planning Attorneys
Deciding you can no longer adequately care for a spouse in your home is heart-wrenching. However, once you have made the decision to move your spouse to a nursing home, you will need to make a number of practical, financial, and legal adjustments as a result of the move. One of those adjustments may be to get your spouse qualified for Medi-Cal to help cover the high cost of nursing home care. If you have managed to hold onto a sizeable nest egg, however, you may be wondering how you can continue to provide for your spouse but still leave your children an inheritance, given the strict Medi-Cal eligibility guidelines. The good news is that there is a way to achieve both goals without jeopardizing your spouse’s Medi-Cal eligibility.
Medi-Cal Eligibility and Your “Countable Resources”
For 2016, the average cost of nursing home care nationwide is about $80,000 a year. In Silicon Valley, that cost is even higher at over $135,000 a year. Unfortunately, neither Medicare nor your basic health insurance coverage will likely help with the cost of that care. Unless you can afford to pay out of pocket, that leaves Medi-Cal as your only option for help with your spouse’s nursing home bill. Fortunately, Medi-Cal does cover nursing home costs; however, your spouse must first qualify for benefits. For many seniors, the “countable resources” limit, which is often as low as $2,000, is the biggest obstacle to eligibility.
The basic rule is if your “countable resources” exceed the program limit, Medi-Cal will impose a waiting period during which time you will be expected to “spend-down” your resources until they fall below the program limit. The length of the waiting period is determined by dividing the value of your excess resources by the average monthly cost of long-term care in your state. For example, if you have $100,000 in non-exempt assets and the average monthly cost of care in your state is $8,500, you would divide $98,000 (the value of your assets over the $2,000 limit) by $8,500 for a waiting period of 11 months. During the waiting period you would be expected to rely on those assets to cover your nursing home costs.
Can You Save Your Nest Egg?
If you spent a lifetime working hard, saving prudently, and investing wisely, you certainly do not want to lose the nest egg you have accumulated to nursing home costs. Moreover, you have always hoped to have a sizeable enough estate left over to pass down something to your children when you are gone. With careful Medi-Cal planning and taking advantage of the Medi-Cal “Spousal Impoverishment” rules, you can save most, or even all, of your nest egg and still get your spouse approved for Medi-Cal. As long as you are still alive, you can use your nest egg to provide your spouse with the extra things he/she needs or wants that are not covered by Medi-Cal. What happens though, after you are gone?
You Don’t Have to Choose Between Your Spouse and Your Children – There Is a Way to Provide for Both in Your Estate Plan
Now that you have managed to get your spouse approved for Medi-Cal and saved your nest egg, you may start wondering, what happens when you die? While you are alive, you can supplement the care your spouse receives without affecting his/her Medi-Cal benefits because all your previously jointly-held assets are now in your name. As long as they remain in your name, your spouse’s Medi-Cal eligibility will not be in jeopardy. If you leave any of those assets directly to your spouse in your Trust or Last Will and Testament, however, they will likely put that eligibility at risk. You could leave everything to your children and hope they continue to provide extra support to your spouse; however, that may not be a practical solution. There is a solution though.
Creating a “special needs” Trust for your spouse may solve your dilemma. Also referred to as a “supplemental needs” Trust, a Special Needs Trust for your spouse must be a testamentary Trust that is activated by your Will at the time of your death. As long as the Trust includes the language required by federal law that recognizes it as a Special Needs Trust, the assets held in the Trust will not be counted by Medi-Cal when determining your spouse’s eligibility. Consequently, you can leave a portion of your assets in the Special Needs Trust to be used for the continued support of your spouse and leave the rest of your assets directly to your children in your Will or Trust.
By incorporating Medi-Cal planning into your estate plan, making use of the Medi-Cal spousal impoverishment rules, and creating a Special Needs Trust, you can continue to help your nursing home spouse even after you are gone and still pass on an inheritance to your children.