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Special Needs Trusts – The Mechanics

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 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 $552,000 (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.

WHAT MAY THE ASSETS IN THE TESTAMENTARY SPECIAL NEEDS TRUST BE USED FOR?

Answer:  One especially helpful use of the funds in the Testamentary Special Needs Trust is to pay for the amount adult family homes sometimes ask the family to pay, in addition to the amount Medicaid pays.  Without the funds in the trust being available, there may be no other choice than to receive your care in a nursing home, (since nursing homes, unlike adult family homes, cannot request the family to supplement what Medicaid pays for).

WHO MAY 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 to avoid probate.  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 go into your trust and not outright to your spouse.

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 2014

(The above should not be construed as specific legal advice and is intended for general information purposes only)

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