WHY AN “I LOVE YOU WILL” BETWEEN SPOUSES OR SIMILAR JOINT PROPERTY ARRANGEMENTS MAY NOT BE THE BEST ESTATE PLAN

By John D. Watts, Esquire

The traditional “I love you Will” is a simple Will that says: “I love you, honey, and I leave my entire estate to you.”  Jointly owning property will have the same effect.

The reason that an “I love you Will” or a jointly owned property arrangement is not in your best interests (especially for the elderly), becomes apparent when you understand the basics of long-term care planning.  To get the discussion started, let’s make a couple of comments about the purposes of long-term care planning relative to Medicaid, also known as Title 19.

When a spouse becomes ill and begins incurring expenses for long-term care services (such as home healthcare, assisted living, or skilled nursing facility), a qualified Elder Law Attorney wants to help position the ill client for qualification and access to public benefits.  Such benefits may include Medicaid or VA Pension with Housebound or Aid and Attendance Allowance.  The Elder Law Attorney will, as soon as practical, assist the client by divesting the ill client’s assets in a qualified way. The ill client’s divested assets would then be held in a trust or by other members of the family in a way that may make those funds available to pay for what public benefits will not pay for.

As the general population continues to age, use of public benefits will continue to have the effect of consuming a larger and larger percentage of the governmental budget.  As a result of growing Medicaid expenditures, the government will respond with increasingly strict laws which, among other consequences, will reduce the benefits that are available to individuals needing access to public benefit programs.

In general, an ill spouse who becomes Medicaid qualified under current law will be required to spend their income for their care.  If the healthy spouse has sufficient income then the ill spouse’s income will have to be applied to the nursing home facility’s monthly bill, with Medicaid paying the rest of the bill due the facility.  The ill client is allowed to retain from his income only approximately $75 per month. This $75 is only enough to get a haircut once or twice a month.  This $75 monthly allowance provides no money whatsoever for any other needs that are not covered by the government.

If the ill client is on Medicaid, has spent all of his funds and needs extra care above what Medicaid will provide, without prior planning, the ill client’s is stuck, has no options and cannot get the additional care which would improve his quality of life.

As a consequence of the Medicaid restrictions, it is very important that in order to maintain the highest quality of life for the longest possible period of time a couple will want to retain some funds in a legal format that is accessible to the family so as to be able to pay for the additional services, equipment, or other needs that the ill client’s is going to require from time to time in the future.

The Elder Law Attorney will also want to carefully consider the financial security of the surviving spouse.  However, a discussion of that type of planning will be the subject of a future article.

With regard to the “I love you Will” or jointly owned property, these estate planning concepts are important when there are married clients.  Medicaid will require an ill spouse to become divested of assets in the so-called ‘spend-down’ arrangement in order to qualify for Medicaid.  Spend-down is generally accomplished by transferring assets (subject to a dollar amount limitation) to a well spouse or by paying for custodial care expenses or other non-insured expenses.

In the Medicaid spend-down process, and after the transfer of assets to a well spouse, there is an important issue that remains unanswered:  what happens if the well spouse predeceases the Medicaid spouse?  If there is an “I love you Will” or jointly owned property arrangement, then all of those assets of the deceased spouse will pass back to the Medicaid ill spouse, thereby immediately disqualifying the Medicaid spouse from benefits and putting the ill spouse in a position where further planning must be attempted in order to try to requalify for Medicaid.  Such post death Medicaid planning is much more difficult (partly because we then do not have a spouse to which exempt transfers can be made).

If we don’t want an “I love you Will” or to hold property jointly, then what do we want?  The Elder Law Attorney should advise each spouse to have a Will that creates an absolute discretionary special needs trust (“Special Needs Trust”) for the surviving spouse.  An appropriately designed testamentary Special Needs Trust, under federal and state law will protect the those assets in such a way that the Special Needs Trust will not be considered available resources for Medicaid purposes.

Federal and state law provides that assets held in a Special Needs Trust cannot be counted or consumed by the State Medicaid program.  In the situation discussed above, where the well spouse all of a sudden dies leaving her estate to the surviving Medicaid ill spouse in a Special Needs Trust, there would be no disqualifying event.  Thus the surviving ill spouse that may in the future access Medicaid or be on Medicaid will continue or be qualified to receive the government Medicaid benefits.  The surviving Medicaid ill spouse that may in the future access Medicaid or be on Medicaid will be the beneficiary of the deceased spouse’s assets that are now held in a Special Needs Trust that was established by the Will of the healthy spouse.  Further, upon the death of the surviving ill spouse, the trust assets may pass to the children without being subject to state Medicaid recovery of claims.

The Special Needs Trust established at death through the Will of the deceased spouse is available to pay for necessary items that are not covered by Medicaid.  Such elder law estate planning enables the family to maintain the highest quality of life for the surviving spouse for the longest possible period of time and protects the assets against state Medicaid recovery.

If you really want to love and take care of your spouse in the event of illness, revoke those “I Love You Wills” and jointly owned property rights arrangements, and have a Special Needs Trust set up within your Last Will & Testament by Attorney John D. Watts.  Call (203) 589-4959.  You can also send an email to mail@johndwattspc.com/.