I recently received the following email from a financial planner:
“I met with a older couple (80 & 90) with no kids/family, and they were having a hard time understanding Medicaid planning when there are no beneficiaries/children that they are worried about leaving assets to.”
That’s a great question or concern. Medicaid (MassHealth in Massachusetts) planning generally involves setting aside assets in a form them from having to be spent down to qualify for MassHealth coverage of care whether in a nursing home or at home. Strategies to achieve this results, often through the use of irrevocable trusts, mean limiting one’s own access to the assets, whether savings and investments or the equity in one’s home.
The Tradeoff
Parents and grandparents often feel that the tradeoff involved in giving up access to some of their assets to guarantee that they can pass them on to their children and grandchildren is justified. Most often they act to protect their family homes and not other assets for a variety of reasons, including:
- The sentimental value of the home.
- The home is not a liquid asset in the first place.
- The fact that they can keep their home and receive MassHealth, so the planning is primarily to protect it from estate recovery.
- They can still use their savings and investments to pay for whatever they choose.
But even putting a home into an irrevocable trust or life estate entails giving up some control and access. They can no longer dip into the equity if need be. They can only sell the home and purchase another with the cooperation of the trustee (or remaindermen in the case of life estates).
Again, these tradeoffs can make sense for many seniors, but probably not for those, such as the financial planner’s clients, who have no family for whom they wish to protect an inheritance.
But Perhaps Testamentary Trusts
That said, there is one MassHealth planning strategy such clients may want to consider. While most approaches involve giving up access to resources, one does not. The MassHealth rules allow spouses to create trusts for one another in their wills, so-called “testamentary” trusts, that may be spent freely for the surviving spouses without having to be spent down. These can allow a surviving spouse to qualify for MassHealth to pay for home care or nursing home care and still have assets set aside to pay for other needs.
Such trusts can be especially useful for home care where MassHealth coverage can be limited. A combination of MassHealth and private payment for home care can allow the beneficiary to stretch their dollars and stay at home for an extended period of time.
There are still tradeoffs to this approach. The spouses must split at least some of their assets so that the testamentary trust is funded at the death of the first spouse to pass away. His or her estate must be probated, which is usually not necessary upon the death of the first spouse.
Further, setting up wills with testamentary trusts is less vital now that the Massachusetts legislature had reinstated the ability to transfer assets to pooled disability trusts. (See article on this topic here.) But it’s still worth presenting to older clients as an option they may want to consider.