In a recent case in New Jersey a man died survived by his wife, who was then living in a nursing home. Under NJ law (as in most states) one spouse cannot disinherit the other spouse, no matter what the will of the first spouse to die says. If, for example, the first spouse to die has a will leaving everything to the children of a first marriage, the surviving spouse has the legal right to “elect against the will. " That means she would file a piece of paper in the court indicating that she rejects the will and wants to get her “statutory share. " That share is usually between 1/3 and 1/2 of the deceased spouse's probate estate, again depending on what state the couple lived in.
But what happened in the NJ case is that the spouse in the nursing home did not elect against the deceased husband's will. The husband left all of his property into a trust for the wife's benefit, with distributions to go to the wife in the discretion of the trustee. That might be good, but maybe not as good as getting 1/3 of the property outright!
Under the Medicaid rules, if a person does not take advantage of a legal right to access funds, it's treated as if the person did access the funds and then made a gift of the funds. So in this case, the failure of the surviving wife to elect her 1/3 “statutory share" interest in her deceased husband's estate was treated as a gift by the wife to the children. Such a gift causes the wife to be ineligible for Medicaid coverage for some period of time. The length of time she's penalized for the deemed gift depends on the value of the estate she did not get.
Although the attorney for the wife argued that in fact the wife's lifetime interest in 100% of the husband's property was worth more than 1/3 of the same property outright, the court did not buy that. The court ruled that the test is whether the wife could have made the election, not whether such election was advisable.
So what should the couple have done to avoid this? One possible solution is to leave the minimum amount necessary to satisfy the wife’s elective share to her, outright, and then leave the balance either to the children or in a trust for the wife’s benefit. She would still be disqualified from Medicaid for a certain period of time after the husband's death because she’d have too much money to qualify.
However, once she got the money, she could implement some of the planning ideas discussed in this blog. For instance, typically she could protect at least half of that money, i. e. , 1/6 of the husband’s estate. That’s a lot better than being deemed to have a made a gift of the entire 1/3 elective share, which would cause the wife to be disqualified from Medicaid benefits for twice as long.
Now if you're really clever, you may have thought, “They should have had a pre-nuptial agreement and that would have solved their problem!" Unfortunately, while such agreements are completely legal in most states, the Medicaid rules simply ignore both pre- and post-nuptial agreements. So once again it's important to get the advice of an attorney who understands the ins and outs of the complicated Medicaid rules, if Medicaid coverage of nursing home expenses may ever become necessary.
© 2007 by K. Gabriel Heiser
Attorney K. Gabriel Heiser has devoted his legal practice to Medicaid planning, elder law, and estate planning for the last 23 years.
NOTE: For more information on this topic and other Medicaid planning techniques, see http://www.MedicaidSecrets.com, which describes an exciting new 256-page book written by attorney Heiser, “How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets. " You don't have to go broke to get Medicaid to pay your nursing home bills, you just have to know the rules and planning techniques. For the first time ever, you can learn the inside secrets of high-priced estate planning and elder law attorneys, in attorney Heiser's new book.