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August 5, 2010
TRUST UPDATE
On July 21, 2010 the Appeals Court of Massachusetts decided the case of ETHEL VICTOR vs. MASSACHUSETTS EXECUTIVE OFFICE OF HEALTH & HUMAN SERVICES, denying Medicaid (MassHealth in Massachusetts) nursing home coverage for Ethel Victor.
You, like I, have probably heard radio advertisements proclaiming that it is not too late to protect your assets from nursing home costs, even if you are already in a nursing home, and that the 5 year lookback period can somehow magically disappear. Although true, that’s only part of the story, here’s the rest of the story;
A standard planning opportunity exists exclusively for married couples whereby all of their assets can be protected from nursing home costs immediately, without a 5 year lookback period or penalty of any type. That’s the good news. The bad news is that one of the spouses must die in order to qualify under this provision.
In order for it to work, the first spouse to die must have a will. Not any will, but one that leaves assets to the surviving spouse by way of a trust. This is known as a testamentary trust, a trust whose provisions are all contained within a will. So, instead of leaving everything to your spouse outright, it is left to a trust for her benefit.
One basic concept that you must understand about wills is that they only control what is known as probate property. Probate property is any asset that is in the decedents name alone. Joint property, retirement plans and life insurance typically are not considered probate property because they are either paid to the survivor or to a named beneficiary. The assets must be in your name alone to go through your will and into this trust for the surviving spouse.
If you and your wife own all of your assets jointly, having a durable power of attorney (DPOA) is a good idea. If one spouse falls ill, the DPOA can be used to put all of the assets in the sick spouse’s name alone so that it goes through their will and into the testamentary trust for the benefit of the surviving spouse.
To take advantage of this plan you can’t die too slow because if you end up in a nursing home, we would have to transfer all of your assets into the other spouses name to get you on MassHealth. Then there wouldn’t be anything to go through your will and into the trust for your spouse. You can’t die too fast either. You need time to get the assets transferred into your name alone so that they end up going into the trust. You have to die just right!
Now that you know the basics, let’s look at the Ethel Victor’s case. Her husband created a will that left everything to a trust for his wife. Sounds good so far, but this trust was a separate document. The trust provisions were not part of his will.
The pertinent regulation states that trusts “created or funded by the individual or spouse, other than by a will” will be looked at under a much more stringent set of rules. Ethel’s trust was not “created” by her husband’s will and resulted in all of the assets being counted, and paid to the nursing home.
No one has a crystal ball to see into the future, but if you are married and you or your spouse were to die “just right”, the ability to protect all of your assets immediately is something that should be considered.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves as the President of the Friends of the Saugus Senior Center and is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions, please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org