When people become chronically ill or disabled, they may need long-term care (LTC) services. Given the very high cost of LTC services, many people will apply for MaineCare (Maine Medicaid). People are sometimes surprised to learn that the application of the MaineCare rules varies based on whether the applicant is married and what type of LTC is needed. In general, the MaineCare rules are more favorable to married couples than to unmarried people.
When a person applies for MaineCare LTC benefits, regardless of marital status, certain assets, like a Maine personal residence, are considered “non-countable.” In addition to non-countable assets, a healthy, non-applicant “community” spouse may have further assets in his or her own name. When the applicant spouse needs care in a residential care facility or medically qualifies for nursing home level care at home, the community spouse can have unlimited assets in his or her name. When the applicant spouse needs care in a nursing home, the Community Spouse Resource Allowance, currently set at $120,900, limits the countable assets that can be in the community spouse’s name when filing the application. In comparison, unmarried people are allowed far fewer countable assets.
But what if the community spouse dies first—whether suddenly or from an illness that did not require LTC? In many cases, the couple’s “excess” countable assets flow back into the name of the spouse who had previously qualified for MaineCare LTC. He or she will now be “over-asset” and ineligible for benefits. A spend-down may be needed if advance planning was not done. However, an effective way to address this possibility is by the married couple including supplemental needs trusts (SNTs) for each other in their wills. Even when both spouses are healthy, married couples who are concerned about protecting assets from LTC expenses can consider having their wills drafted in this way. It is even more important when one or both spouses have a condition that could lead to or currently requires LTC services.
The first time a spousal SNT preserves assets is when the first spouse dies. If the community spouse dies first, his or her probate assets will flow to the SNT, not to the surviving spouse. The assets in the SNT will not be countable to the surviving spouse and not disrupt his or her MaineCare eligibility.[1] It is important to note that the SNT must be established upon the death of the first spouse through his or her will to avoid a penalty calculation. It cannot be established during life or through a revocable trust.
Second, a spousal SNT protects assets from estate recovery. Federal law requires states to seek reimbursement from the estates of people who died at age 55 or older if they received medical assistance through the Medicaid program. Assets that were non-countable for eligibility purposes are exposed to estate recovery upon death, which is pursued by a claim against the MaineCare recipient’s probate estate unless the estate is too small or an exception applies. Assets held in a spousal SNT—rather than in the name of the second spouse to die—are protected from estate recovery. Even if both spouses needed to apply for MaineCare LTC benefits, spousal SNTs may still be appropriate to protect a portion of the personal residence or other non-countable real estate from estate recovery.
Couples should meet with an attorney who is familiar with the nuances of this type of planning to ensure that how the trust is structured and funded will effectively meet their goals. This category of estate planning is different from other types of trusts that couples sometimes draft for each other. For example, the surviving spouse cannot serve as trustee of his or her trust and any distributions must be geared toward supplementing, not supplanting, benefits. Also, to ensure that the greatest amount of assets are preserved, the couple must also consider how to re-title their assets as part of the initial planning and also what further steps to take if one spouse becomes chronically ill while the other spouse is still alive.
If both spouses are equally healthy when the initial planning is done, dividing assets so that there is an equal division of value is recommended. The couple could choose to leave their assets as they are if there is a comprehensive financial power of attorney in effect that will allow gifting and beneficiary designation changes later, though waiting also has risks. If one spouse already has a significant diagnosis, the attorney would recommend moving more assets into the name of the healthier spouse. If both spouses are initially healthy, the couple should plan to update asset titling if one spouse becomes ill to ensure the maximum amount of assets are directed into the SNT and preserved. Because there is no MaineCare penalty for asset transfers between spouses, these changes will not bar benefit eligibility. An attorney can analyze the couple’s finances and map out the different funding possibilities.
Although having assets pass to a spousal SNT reduces the surviving spouse’s direct control, including this language in a will can preserve the couple’s assets for the next generation. The appropriate method(s) for paying for LTC depends on the couple’s assets, income, family situation, work history, care preferences, and goals. An attorney experienced in these issues can help determine how these considerations apply to the situation.
[1] Under Maine law, a surviving spouse is entitled to claim up to one-third of his or her deceased spouse’s estate if the deceased spouse’s will does not grant at least that amount directly. That guaranteed minimum is called the spousal elective share. It is equal to one-third of what the Maine Probate Code calls the decedent’s “augmented estate.” When a surviving spouse is on MaineCare and has not received the spousal elective share, the MaineCare rules provide that he or she will have transferred assets. The “transfer” is subject to a transfer penalty, which is a period of time that the surviving spouse will be ineligible for MaineCare. The law on this issue is complicated and currently in flux. Consult an elder law attorney about how the spousal SNT will be treated in this scenario.