Planning Before the First Spouse Dies (Part 2)

            Last week I was telling you about Mary’s call.  Her mom is in a nursing home paying $11,000 per month and her sister, Terry is in a group home.  Mary doesn’t want to spend down all of Mom’s assets towards her care.  She wants to be able to save some for her sister’s needs, as well as an inheritance for herself, as her parents had intended.

            Setting up a trust now for Terry is an option but only for Terry.  While a transfer to that trust is exempt from Medicaid’s penalty provisions, none of the funds placed in the trust can be used for Mary’s benefit and Terry doesn’t have so many needs.  Probably $150,000 in trust for her would be more than sufficient but whatever isn’t transferred to the trust will have to be spent down.  There is Mary’s dilemma.  She could put more than that in Terry’s trust but it will sit there, probably never needed.

            Had her parents put a better plan in place before Dad died, however, they could have accomplished the desired result.  What they should have done is change their wills so that upon the first spouse’s death, his/her assets pass to an asset protection trust, rather than outright to the surviving spouse.  Because the assets in the trust are not then counted for Medicaid eligibility purposes, Mom could have qualified for Medicaid without having to spend down the trust assets, She only would have had to spend down what she had in her name.

      That trust could then have been set up to pour over to a trust for Terry’s benefit and also set aside an amount for Mary’s inheritance after Mom passed away.  Mary would not have faced the dilemma she now has.  Unfortunately, it was too late for Mary but it just might save the next family from being forced to make the same painful decisions.