January 14, 2022
By: Anthony B. Ferraro

Why might it be necessary to modify estate plan documents on the elder care journey?

Because most people’s estate plans plan for death. Most attorneys will draft these plans well and accomplish the goals of asset transferring upon death. However, when you’re on the elder care journey and death is not imminent but, instead, you face the devastating costs of long-term care, the “traditional estate planning” documents that may serve you well at death may not be adequate (and thus need to be modified) when a healthy spouse may unexpectedly die before their spouse who may be ill and residing in a nursing facility. By “traditional estate planning” documents, I am referring to pour-over wills, revocable living trusts, powers of attorney for property, and powers of attorney for healthcare.

“Senior estate planning” may not be necessary for everyone. However, with long-term care costs in the range of $10,000 to $15,000 a month in certain facilities in the Chicago metropolitan area, this planning may be beneficial to many families who do not have long-term care insurance.

How can you adjust your estate planning documents when you begin the elder care journey?

First, we make sure that, upon death, assets do not go directly from the predeceasing spouse to the surviving spouse. Rather, upon death, assets are transferred from the predeceasing spouse to a supplemental needs trust(s) (SNTs) for the benefit of the surviving spouse. Statutorily, a supplemental needs trust for a surviving spouse must be found in the will of the predeceasing spouse if eligibility for Medicaid for long-term care is being sought. So instead of doing pour-over wills where assets controlled by the will pour-over to the trusts, we do the reverse: assets controlled in the trust will pour-back to the will, where the supplement needs trust must be placed for the benefit of the surviving spouse.

Why is it advisable to do this planning?

If at the time of the death of the predeceasing spouse, the surviving spouse finds themselves either in a long-term care facility or soon to enter a long-term care facility, it may not be advisable to further enrich the surviving spouse directly, thereby causing more potential costly asset spenddown. Rather, by leaving assets in a supplemental needs trust for the surviving spouse, the surviving spouse can apply for governmental benefits (such as Medicaid for Long-Term Care) to cover the devastating cost of long-term care, while at the same time having the benefit of the asset inheritance left by the predeceasing spouse in the supplemental needs trust left for his or her benefit.

Don’t fall into two traps of erroneous thinking.

Don’t fall into the trap of thinking that if one spouse becomes ill, the couple can leave assets directly to the children. This is a formula for disaster. This erroneous strategy may create immediate denial and ineligibility for any governmental benefits related to long-term care under the Medicaid rules.

Second, don’t fall into the trap of thinking that if one spouse becomes ill, we must completely disinherit that spouse or watch a complete spenddown of assets. This is not true either. The reason is under the Medicaid rules, spouses are allowed to leave assets for each other in supplemental needs trusts (SNTs) as described above. Thus, there is no need to completely disinherit your loved one because you can leave assets for their supplemental needs (in a supplemental needs trust), but at the same time allow them to remain eligible and qualify financially for Medicaid for long-term care because the assets that you left for them are not left directly in their ownership, but rather in special needs trusts described above.

Sounds complicated, but it isn’t.

It is not complicated. It’s just that “senior estate planning” is different than what clients have most likely done in their previous “traditional estate planning.” As we start approaching our senior years, in addition to looking into Social Security and Medicare and other related topics for seniors, couples that are concerned about the devastating cost of long-term care should consider modifying their estate documents so that their assets are not left directly from one spouse to the other, but rather, transferred to supplemental needs trusts and thereby avoiding unnecessary spousal impoverishment.