Testamentary Trusts

The Forgotten Trust

Often the care giver spouse has very little time to consider their own needs when they are caring for a spouse who is not well. This situation often continues after the ill spouse enters a nursing home. Even when the care giver spouse actually has an estate plan (Trust and or Will) a significant planning tool is overlooked. This tool is known as a testamentary supplemental needs trust and it is designed to protect assets if the care giver spouse dies before the spouse who is not well.

Most estate plans (Trusts and or Wills) of married couples provide for all of the assets of the first to die spouse to be distributed to the surviving spouse. When a well spouse or caregiver spouse dies before the spouse who has significant health problems or is in a nursing home and the not well spouse inherits all assets, those assets are exposed to being spent on long term care expenses. If the spouse who is not well is Medicaid eligible for payment of their long term care expenses then the inheritance will disqualify them from Medicaid.

If the spouse who is not well is in a nursing home or later enters a nursing home and has Medicaid pay for their long term care expenses the family home in the above situation will be subject to a Medicaid Probate Estate Recovery claim. Essentially this means the state of Michigan will be repaid for the long term care medical expenses (nursing home) of the not well spouse when they die.

Fortunately there is a way to avoid the ill spouse from being disqualified for Medicaid and the potential loss of the family home when the care giver or well spouse dies before the ill spouse. The solution is known as a Testamentary Supplemental Needs Trust or TSST. This is a type of Trust contained in a Last Will and Testament. The TSST is a Trust that is set up to hold assets of the first to die spouse for the sole benefit of the surviving spouse. Assets added to this Trust are not counted for Medicaid purposes.

The Trustee of the TSST cannot be the surviving spouse but may be anyone else that the first to die spouse selected. The Trustee has complete discretionary authority over the spending of assets from this Trust but may only use the assets for the benefit of the surviving spouse to improve the quality of their life by spending on things that Medicaid does not provide for.

When the surviving spouse dies the assets remaining in the TSST are distributed to whom the first to die spouse selected, typically children. There is no payback to the government required with a TSST. Please contact our office today to learn more about the TSST and how it can protect your loved ones.

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