Most people want the same thing out of their estate plan. Matching wills, leaving everything to each other, and then, when both spouses have died, to the children. Simple, effective, and popular, we call it the “I Love You” Plan.
But what happens when one spouse becomes so ill that he or she requires nursing home care? Then, the “I Love You” Plan becomes the worst possible plan, because leaving everything to the ill spouse means leaving everything to the nursing home.
To qualify for Medicaid, a nursing home patient can keep only $1,500 in countable assets. The healthy spouse may keep considerably more (a maximum of $109,560 in 2011). With some pre-planning, assets can be protected for the family.
While still healthy, each spouse should execute financial powers of attorney. These documents appoint someone, usually a family member, to manage finances when an individual loses capacity. That way, when planning for nursing home placement, assets can be transferred into the healthy spouse’s name, within the rules of Medicaid.
First, the house should be transferred into the healthy spouse’s name alone, before nursing home admission. So long as the healthy spouse lives there, the house is “exempt” for Medicaid purposes, regardless of the name on the deed. However, if the ill spouse passes away with an interest in the house, that interest will be subject to Medicaid Recovery, which is collected after the healthy spouse’s death.
Next, all other assets should be placed in the healthy spouse’s name alone, “payable on death” to the children. Finally, the healthy spouse should execute a new will excluding the ill spouse. If the healthy spouse dies first, Medicaid requires the ill spouse to take the elected share available under law, but this preserves a portion for the children.
The financial burdens of a serious illness can quickly change your lives and your plans. Be prepared. Review your estate plan with your attorney every few years and whenever you have a major life change. It’s the best way to say “I Love You.”
