According to U.S. Census Bureau data, 75% of divorced people will eventually remarry, with 65% of them bringing children from a previous union. For many older Americans in second marriages, the prospect of future long term care needs is an issue that should be considered early because there are considerable financial risks involved, even if the partners have signed a prenuptial agreement. Shawn Weera, a Michigan attorney recognized as a specialist in elder law, has offered some important advice on the topic.
“Prenuptial agreements are completely ignored by the government when calculating Medicaid benefits,” says Shawn Weera, “While many couples in a second marriage might think that they have separated their assets, this is not the case. What it means is that the property and resources of the spouse remaining at home will be used to determine whether benefits will be paid, and further, it could mean that the healthy spouse will see their assets dramatically reduced by long term care expenses.”
Medicaid rules state that the spouse of a nursing home resident (called the “community spouse”) may keep one half of the couple’s joint assets up to $119,220 (2016 rules) – meaning that despite any prenuptial agreement, the community spouse could be required to pay for all long term care costs until their assets are reduced down to $119,220 before being entitled to Medicaid benefits. It is good to note that the applicant’s home will not be considered a countable asset for eligibility purposes, provided the equity in the home is less than $552,000, although in certain states, that may be as high as $828,000.
The way to deal with this is though advanced planning. Couples should consider adopting an asset protection trust while their health is good to avoid the Medicaid “Spend Down Rules.” With an asset protection trust, a spouse’s resources can be preserved for their family and potentially also keep the intent and effect of any existing prenuptial agreement intact. Due to the Medicaid look back rule, planning should be done as soon as possible, because any uncompensated transfers, such as transfers to a trust, must be done a full 60 months before a spouse needs to apply for Medicaid benefits. If there is not enough time to comply with the 60 month look back rule, it may still be possible to preserve part of the community spouse’s assets, but in general crisis planning such as this can cost twice as much as advanced planning, with fewer assets protected.
Nationally-recognized elder law expert Shawn Weera, JD, MFP, is a licensed attorney in private practice, who for more than a decade has assisted thousands of families deal with the many issues associated with retirement, social security, probate and estate taxes and helping wartime veterans and their spouses receive special benefits to help pay for in-home care. For 15 years, he has been helping retirees protect their assets through efficient and wise planning. Recognizing that each client has unique goals and situations, he shuns the “cookie-cutter” approach and develops particular and highly implementable strategies to provide long-term security and peace of mind.