Almost everyone hears about “the five-year look-back” in Medicaid planning. A better kept secret is the Spousal Testamentary Trust Exception.

What is a Spousal Testamentary Trust?

Simply put, it’s a trust written inside your will solely for the benefit of your surviving spouse while she’s alive. So long as the trustee has absolute discretion to use the assets inside the testamentary trust for your surviving spouse’s benefit then those assets will not count against her if she applies for long term care benefits through Medicaid. This means the trust assets are not part of any potential spend down.

Another situation when this type of trust is beneficial is if your spouse is already placed in a nursing home and she has been found eligible for Medicaid benefits before you pass away. If she receives your legacy outright then she will be faced with a spenddown of those assets. However, if your assets instead pass into your estate and then your estate funds the trust within your will the assets do not count against your spouse. Her Medicaid benefits remain intact.

The trustee can only spend the money on items and services for the benefit of your surviving spouse. She cannot receive the money outright, not even from the trustee. Otherwise it counts against her for that month.

If there are any assets remaining in the trust once your surviving spouse passes away, then they will be distributed to your ultimate beneficiaries.

If your family happens to find themselves within circumstances where the death of one spouse appears to be imminent, then it may be best to transfer the joint assets into that person’s name. Once the ill spouse passes away the assets pass into their probate estate. The personal representative of the estate then transfers those assets to the trustee of the spousal testamentary trust. This is one time where probate is your family’s friend.

Often, we establish these trusts before anyone is sick or in the nursing home. The key is to pay attention to who holds title to the assets. Whose name is on the bank account? Joint bank accounts avoid probate, so they won’t work. Is the deed to the family home going to avoid probate with right of survivorship language, or has the deed been updated to take advantage of this form of trust protection?

At a time of potential crisis such as this pandemic, it seems this type of plan would possibly benefit many people. In addition to consultations, it would include:

• Two wills with spousal testamentary trusts
• Two durable powers of attorney
• Two health care proxies
• Two HIPAA releases
• One deed for the primary residence
• One declaration of homestead

This plan can usually run approximately $2,500.00 – $3,500.00, plus registry recording fees, for a married couple. With so much uncertainty caused by the shutdown, I am offering this particular package, during the shutdown, for $2,000.00 plus recording fees, which I expect to typically be about $210.00. Contact the office here and mention this article if I can be of assistance.