One proven strategy for a married couple to protect their assets when one spouse needs Medicaid is to use a Community Spouse Will (CSW). The following is a summary of the situations where the Community Spouse Will works, and an explanation of how it works. First, you must be familiar with the two terms used to distinguish the spouses:
· The spouse that requires Medicaid is called an Institutionalized Spouse;
· The spouse that does not require Medicaid coverage is called a Community Spouse.
What is a Community Spouse Will? A CSW is a type of Last Will and Testament created by the Community Spouse to protect assets for the Institutionalized (or soon to be institutionalized) Spouse. The CSW contains one trust for the spouse and another trust for the children (or other beneficiaries). These Trusts take advantage of an exception in the Medicaid regulations that allows a Testamentary Trust (a Trust created under a Will) to shelter the inheritance of the Institutionalized Spouse from being a counted asset for Medicaid purposes. This Trust helps ensure the Institutionalized Spouse does not become ineligible for Medicaid if the Community Spouse dies first.
Why would anyone need a Community Spouse Will? In most instances a married couple prepares Wills or revocable trusts leaving all of their assets outright to the survivor of them. In some instances, the couple prepares no Wills at all and the deceased spouse’s assets go to the surviving spouse per the laws of intestacy. Both situations cause a problem when the surviving spouse is on Medicaid or is expected to need Medicaid to pay for long-term care in the near future. The surviving spouse will be over the asset eligibility level because of the inherited assets and must spend down everything to below $1,600 before becoming eligible for Medicaid. This spenddown can all be avoided with a CSW.
When to Use a Community Spouse Will. A CSW should be used in the following situations:
· After the Institutionalized Spouse becomes eligible for Medicaid and transfers all of his assets to the Community Spouse. Without a CSW, if the Community Spouse dies first owning all of the assets, then the Institutionalized Spouse inherits all of the couple’s assets outright and has to spend down to $1,600 to become eligible for Medicaid.
· When one spouse is diagnosed with a terminal illness and wants to protect the couple’s assets for the other spouse. The couple transfers all of their assets into the name of the ill spouse, who then prepares a CSW to protect the assets for the surviving spouse.
· When both spouses are in poor health and are likely to need Medicaid in the near future. Each spouse should prepare a Community Spouse Will. They should title their assets evenly between them, so when one spouse dies they have protected at least half of the assets. In the future if they have advance knowledge of one spouse’s impending death and time permits, they can transfer all of the assets into the name of the dying spouse to maximize the utility of the dying spouse’s CSW.
How Does a Community Spouse Will Work? In Connecticut, a spouse must receive at least a life estate in one-third (1/3) of the value of the deceased spouse’s probate estate. If a deceased spouse attempts to disinherit the surviving spouse under the Will, then Connecticut law allows the surviving spouse to claim an election for a life estate in one-third (1/3) of the value of all the probate assets. If the surviving spouse fails to make the election, the surviving spouse will be deemed to have made a disqualifying transfer of the foregone value under the Medicaid rules. This will result in a Medicaid penalty period if the surviving spouse is on Medicaid or applies for Medicaid within five years of the death.
A CSW leaves the surviving spouse the income generated by 1/3 of the assets passing under the Will. This is the equivalent of the election against the estate, therefore, no Medicaid penalty is assessed. The income is used to pay for the surviving spouse’s care. Upon his or her death, the balance of the trust goes to the couple’s children or other desired beneficiaries. The State cannot recoup the cost of medical assistance provided from the spouse’s trust because the spouse had no interest in the principal of the trust.
The remaining two-thirds (2/3) of the probate assets is typically left in a fully discretionary asset protection trust for the benefit of the couple’s children or other desired beneficiaries. Again, the State cannot recoup from this trust the cost of medical assistance provided the surviving spouse, because he or she had no interest in the principal or income of this trust.
