Special Needs Trust or Community Property Agreement
Which Is Better Way To Protect Your Spouse?
Should you REVOKE your COMMUNITY PROPERTY
AGREEMENT and use a special needs trust?
Many of my clients who are in their late 60’s or older are revoking their Community Property Agreements and using a Testamentary Special Needs Trust to protect their assets from being wiped out if their surviving spouse needs nursing home care.
This is especially true of my clients who cannot qualify for long term care insurance.
A testamentary special needs trust is a very powerful Medicaid planning technique but you can only do it while your spouse is alive and your are competent.
If you are at this point in your life and need help thinking this issue through, you may contact me for an appointment to review your situation.
TESTAMENTARY SPECIAL NEEDS TRUST
SHELTER ASSETS FROM LONG TERM CARE COSTS
By Elizabeth A. Perry
IF I PUT MY ASSETS IN A REVOCABLE LIVING TRUST, WILL THEY BE PROTECTED FROM MY NURSING HOME COSTS?
Answer: No. In fact, when I am helping a client qualify for Medicaid, often the first thing we have to do is revoke his Revocable Living Trust. And to make things worse, the language of some Revocable Living Trusts does prevents the trustor’s attorney-in-fact from revoking the trust. That can be a serious problem if the client no longer has legal capacity and cannot sign legal documents.
MAY I USE A TRUST TO PROTECT MY ASSETS IF MY SURVIVING SPOUSE NEEDS TO APPLY FOR MEDICAID?
Answer: Yes, but only if you put a Testamentary Special Needs Trust in your will. The trust stays inactive until you pass away. But after your death, all assets you own can be protected for your spouse’s benefit. This is called a Testamentary Special Needs Trust.
WHAT HAPPENS IF MY SPOUSE NEEDS TO APPLY FOR MEDICAID AFTER I DIE?
Answer: Since your spouse will then be single, we need to look at Medicaid’s rules for single people.
Under Medicaid, a single person is allowed $2,000, plus one car, no matter how much it is worth, if it is used for transportation for the Medicaid recipient; a $1,500 burial fund or life insurance with a face value of $1,500 (or various combinations thereof) or an irrevocable prepaid burial plan; a burial plot; a home, if the equity interest is not greater than $560,000 (however, the home will be subject to a Medicaid lien) and household furnishings and personal effects.
If you have set up a Testamentary Special Needs Trust , your spouse will only have to deal with the assets he or she owns. All of the assets you own on death will be protected for your spouse in the trust. Your trustee can use the assets in the trust to pay for things Medicaid does not pay for. When your spouse passes away any assets left in the trust can go to your family, without a probate.
WHO CAN BE THE TRUSTEE OF MY TESTAMENTARY SPECIAL NEEDS TRUST?
Answer: Anyone but your spouse.
WHO GETS THE ASSETS IN MY TESTAMENTARY SPECIAL NEEDS TRUST AFTER BOTH MY SPOUSE AND I DIE?
Answer: Whoever you name in your Will.
WHAT IF I HAVE A COMMUNITY PROPERTY AGREEMENT?
Answer: Community Property Agreements are helpful for you to avoid probate on the death of the first spouse. However, probate in Washington often costs less than one month in a nursing home. Therefore, if you sign a Will with a Testamentary Special Needs Trust, you will want to revoke your Community Property Agreement so your assets will not add to the assets which will disqualify your spouse from Medicaid paying for his or her long term care.
SO, HOW DO I KNOW IF I SHOULD HAVE A TESTAMENTARY SPECIAL NEEDS TRUST?
Answer: The best thing to do is to review your goals, your assets and your family’s situation with an attorney who specializes in keeping up with the ever-changing Medicaid rules. Your attorney can help you identify the best way to achieve your goals.
WHAT IF MY SPOUSE OR I NEED TO APPLY FOR MEDICAID WHILE WE ARE BOTH ALIVE?
Answer: Under today’s rules, a knowledgeable Medicaid attorney can usually help either you or your spouse qualify for Medicaid, if you are both alive. However, Medicaid rules are constantly changing and if your need for Medicaid is likely to be far into the future, you should carefully consider whether long term care insurance should be part of your planning.
Elizabeth A. Perry, a member of the National Academy of Elder Law Attorneys, has been helping Clark County residents with their estate planning needs for over 20 years. Her practice emphasizes wills, trusts, probate and Medicaid planning. You are invited to call her to schedule an appointment or sign up for a class at (360) 816-2485. ©Liz Perry 2017
(The above should not be construed as specific legal advice and is intended for general information purposes only)