Happy New Year!
With a New Year comes the implementation of new laws. The Virginia Legislature certainly wants to keep us on our toes! Read on to learn how the newly implemented Virginia Code § 64.2-308 et. seq. could affect your Medicaid eligibility.
The Quick Answer
A testamentary spousal Special Needs Trust (SNT) will no longer preserve a surviving spouse’s eligibility for Medicaid if the trustee is an “adverse party.” A child is usually always an adverse party. Many people have named their children as trustee of their SNTs, so these people need to visit their elder law attorneys and have their wills amended to name a non-adverse party as trustee. (If those last few sentence sounded like Greek, keep on reading to see how this situation plays out with Barney, Betty, and Attorney Wilma).
The Set Up
Let’s say that Barney lives in Bedrock Nursing Home in Virginia. His wife, Betty, has grown concerned about their ability to keep up with the payments. With the help of her Elder Law attorney, Wilma, Betty is able to procure Medicaid coverage for Barney by transferring all of the marital assets into her name and implementing some asset protection strategies. Barney and Betty are happy with this outcome.
However, Attorney Wilma realizes that things won’t be so rosy if Betty passes away before Barney. Right now, Betty’s will says that Barney will inherit everything from Betty if he survives her. This is a problem because the inheritance would disqualify Barney from receiving Medicaid. To fix the problem, Attorney Wilma draws up a new will that directs Betty’s estate to a Special Needs Trust (SNT). The assets in the trust will be used to take care of Barney after Betty is gone, but they won’t disqualify Barney from receiving Medicaid. Betty decides to appoint their son, Bam-bam, as the Trustee of the SNT.
If Betty died before January 1, 2017, then the plan outlined above will work perfectly. Elder law attorneys have been doing this for years and many people today have a similar plan in place. However, Virginia Code § 64.2-308 et. seq., passed in the most recent session of the Virginia legislature, sets out new rules for people who pass away after the first of January, 2017.
Under the new rules, Barney would not keep his Medicaid benefits after Betty passed away because Bam-bam is the trustee of the SNT. Bam-bam is the eventual beneficiary of anything that is left in the SNT after both his parents are gone. This means that he is an “adverse party.” The new rules require a “non-adverse,” or disinterested, trustee. If the trustee is adverse, Barney is at risk of losing his Medicaid coverage.
Though the set-up is rather complicated, the solution is really quite simple. Betty needs to change her will to name a new trustee. She could pick a different family member who is not going to inherit (a nephew or an in-law, for example), a trusted friend, or a professional. A professional could be a CPA, a bank, a financial adviser, a lawyer, or a professional fiduciary. Attorney Wilma will also edit some of the provision of the SNT to make it compliant with the new regulations.
The Take-home Lesson
If you are considering Medicaid as a future possibility for you or your spouse, visit your Elder Law attorney for a review of your estate plan. This is a great opportunity to sit down together and ensure that everything is up-to-date. If you haven’t done any planning yet, there is no better time to get started! Come visit us at The Heritage Law Group to begin the process of protecting the financial future of your family.