Testamentary Special Needs Trusts in Medical Planning

Creating a Testamentary Special Needs Trust (TSNT) is often a good tool to utilize when planning for Medicaid for a spouse.  A TSNT is a trust created under your Last Will and Testament.  Under current rules, funds contained in a properly drafted testamentary trust generally do not count as assets of a person receiving public benefits. Funds held in a TSNT are treated as available to a Medicaid applicant only to the extent that the Trustee has an obligation to pay for the applicant’s support.  If payments are solely at the Trustee’s discretion, the assets are considered unavailable.  This rule does not apply to revocable living trusts.  Assets held in a revocable living trust for a spouse are considered countable to the Medicaid applicant.  Thus, a TSNT can provide an important mechanism for community spouses to leave funds for their surviving institutionalized spouse that can be used to pay for services that are not covered by Medicaid without jeopardizing that spouse’s eligibility for benefits. 

For example, suppose Wife is in the nursing home and receiving Medicaid benefits.  Husband predeceases Wife leaving an estate worth $250,000.  If Husband dies intestate (without a Will) or with the typical “I Love You” Will leaving all assets to the spouse if surviving, Wife will inherit Husband’s estate.  Since the Medicaid asset limits are $2,000 for an individual, Wife will no longer qualify for Medicaid benefits.  Wife will have to spend down those funds on her nursing home costs until she is under $2,000 in assets. 

However, if Husband had created a Will with a TSNT for the benefit of his wife, her Medicaid benefits would be protected and there would be a source of funds available for her additional needs not covered by Medicaid.  These may include extra therapy, special equipment, clothing, hearing aids, eyeglasses, dental expenses, transportation services, evaluation by medical specialists or others, legal fees, visits by family members or companions, bed hold at the nursing home, etc.  When Wife passes, any funds remaining in the TSNT will pass by the terms of the Husband’s Will, to his children or other named beneficiaries.  Medicaid is not entitled to any of the funds held in the TSNT. 

The information provided above has been a general summary regarding Testamentary Special Needs Trusts for Medicaid planning.   As with any planning for Medicaid, there are many pitfalls and traps for the unwary that must be assessed on a case by case basis.  To determine whether Testamentary Special Needs Trust would be a helpful planning tool for you, you should consult an elder law attorney.