Nursing home residents should prepare financially in case their spouse dies first

Seniors who are relying on Medicaid to help pay for expensive nursing home care need to plan carefully for the possibility that their spouse will pass away before they do.

Unlike Medicare, not all seniors are eligible for Medicaid. Medicaid is designed for people with limited income and assets, and to be eligible, you must meet strict financial guidelines. Many people have to spend down their assets to almost nothing and/or exhaust their long-term care insurance before they become eligible.

Of course, this is a problem if a senior is married and his or her spouse does not need nursing home care. It would mean that the spouse would have to be reduced to living in poverty before the senior could be eligible for benefits.

To avoid this problem, most states allow the spouse of a Medicaid recipient to keep a fairly generous amount of assets to live on. Many also allow the spouse to continue to receive some income without having to contribute to the senior’s nursing home costs.

But what happens if the spouse dies before the nursing home resident?

If the spouse dies and leaves everything in his or her will to the senior in the nursing home, the senior will suddenly have a much larger amount of assets. The senior will then have to spend these assets on his or her own care before being able to continue receiving Medicaid benefits. This means that he or she will not be able to leave a legacy to any children or other heirs.

That’s why, if you’re considering relying on Medicaid to pay for nursing home care, it’s critically important to review your estate planning and take this possibility into account. There may be ways to lessen the blow and preserve an inheritance for your family.

Of course, one possibility is for the spouse to revise his or her will to leave assets to someone other than the senior in the nursing home. But while this sounds easy, disinheriting your spouse is a lot more complicated than it appears.

In some nine states, any property that a couple acquire during their marriage is considered a “community” asset, and one spouse is automatically legally entitled to it when the other passes away. This is generally true even if the spouse who dies would have preferred to leave it to someone else.

Virtually all other states have “elective share” laws. These laws say that even if you try to disinherit your spouse, your spouse can legally claim a percentage of your estate anyway.

Now in theory, a spouse in a nursing home could simply refuse to claim his or her “elective share,” and the assets would go to someone else. But if you do that, the government can generally still say that the amount of the elective share is an “asset” that was available to you – and it can deny you Medicaid benefits for the same length of time that it would have taken you to spend down that asset. So if you don’t take the elective share, you’ll have no way to pay for your care.

The amount of the elective share is usually between a third and a half of the spouse’s estate, but it varies from state to state, and may depend on a number of factors such as the length of the marriage and whether you have minor children. States also differ as to what types of assets “count” as part of the value of the estate – including trusts, joint accounts, payable-on-death accounts, prior gifts, life insurance, etc.

This is a technical area of the law, and it’s wise to talk to an attorney. It’s very difficult to completely eliminate this problem, but there are smart planning steps most people can take now to minimize its impact – and the sooner you begin taking these steps, the more effective they may be.