Growing older can come with its share of challenges. Personal struggles, health issues, financial changes – the golden years aren’t always all golden. The reality for many older Americans, is that declining health and its related financial costs are significant concerns. These concerns can affect not only the person dealing with them, but their spouse as well, and possibly their entire family and one’s Estate Plan.
As a person ages, they may need more healthcare than they needed when they were younger. Age-related conditions may require medications, lifestyle changes, or more care at home. Common illnesses can require surgeries, rehabilitation, or care in a facility. And none of that is cheap. If a person is sixty-five or older, then they typically have Medicare health coverage and may receive some Medicaid benefits, too – based on their income and level of need. But, even together, Medicare and Medicaid will not necessarily cover everything.
What does that mean? The cost of common types of senior-citizen healthcare, including long-term care in a nursing home or assisted living facility and home and community-based care, can depend on the income and assets that a person has. If a person’s countable assets exceed Medicaid’s limits, they may be responsible for a portion of the cost of their care. In most states, the income and shared assets of both spouses will be considered when determining Medicaid eligibility. For couples who have amassed significant assets over a lifetime and for those with a higher net worth, this may be a problem. If a couple’s combined income is too high or their assets are too great (excepting several types of assets, like a primary residence and a vehicle), the ill spouse may not qualify for Medicaid coverage. Since the type of full-time care that may be required for some seniors or others who have become disabled can be very expensive, a couple’s savings may be quickly depleted by paying for the care of one spouse. When one spouse needs long term care and the other spouse is interested in keeping the majority of their assets, spousal refusal may be utilized.
How spousal refusal works
As its name suggests, spousal refusal is when one spouse refuses to pay for the care of the other spouse. This refusal then puts the financial burden of care onto the state. Spousal refusal isn’t simply saying no, however. There are several steps involved in spousal refusal, steps that essentially make the ill spouse, or applicant-spouse, eligible for Medicaid coverage:
Any assets that exceed Medicaid limits are to be transferred to the non-applicant spouse. Medicaid allows spouses to transfer assets without penalty.
The non-applicant spouse must sign a written notice of spousal refusal and submit it to Medicaid. Thus, the non-applicant’s assets will not be a factor in paying for the applicant spouse’s care.
The applicant spouse must apply for Medicaid and also complete a spousal refusal form. This form makes the state responsible for the costs of the applicant spouse’s care. This also gives the state the option to sue the non-applicant spouse to recover the cost of the ill spouse’s care.
What is a spousal refusal letter?
When making use of the Medicaid planning strategy of spousal refusal, the spousal refusal letter is something that can’t be left out. The spouse who is not applying for Medicaid coverage must create a written document known as the spousal refusal letter. In this document, they will absolve themselves of financial responsibility for their applicant spouse’s care. The monthly income of the non-applicant spouse and the assets that are in the non-applicant spouse’s name will not be used to pay for the cost of care for the applicant spouse. Since the non-applicant spouse’s assets aren’t counted, the applicant is treated as a single applicant and only their income and assets are reviewed when they are considered for Medicaid eligibility. Keep in mind, the ill spouse may often transfer some or all of their assets and even a portion of their monthly income to their spouse in order to qualify for Medicaid benefits.
What states allow spousal refusal?
Currently, only two states allow spousal refusal: New York and Florida. It could be argued that spousal refusal could be used in all states as a financial planning and Medicaid planning strategy, but only the two states named above recognize spousal refusal outright.
Legality of spousal refusal
Medicaid allows for the transfer of assets between spouses. However, the possibility of being sued by the state for the cost of the applicant spouse’s care is inherent to spousal refusal – it’s part of the spousal refusal form in the Medicaid application process. So, if an ill spouse transfers their assets to their husband or wife in order to qualify for Medicaid coverage of long-term care, there is a chance that the husband or wife can be sued later for the cost of that care. If they are sued, they can pay the amount owed, negotiate a lesser payment, or refuse to pay and possibly face a lawsuit. Since Medicaid negotiates a lower rate than private insurance, though, if the ill spouse received care as a Medicaid patient, the bill for their care may be up to a third lower than it would have been with private insurance.
Alternatives to spousal refusal
Spousal refusal is one Medicaid planning tool that can be used to preserve assets and limit healthcare costs, but there are others. If a couple has assets that are only slightly above Medicaid’s asset limit, they may choose to spend down what they have in order to qualify. Paying off debts and paying for home renovations are two ways a couple may spend savings in order to qualify for Medicaid. An irrevocable funeral trust – which uses some of a person’s assets for funeral expenses – may also be created. Some couples, especially those with significant assets, may choose to get what’s called a Medicaid divorce – legally divorcing in order to place the assets safely with the non-applicant spouse.
Planning for life changes in old age is just one part of responsible financial planning. If you are considering spousal refusal and its alternatives, look at the rest of your estate planning, too. Now may be a good time to draft or review your Will online, create a Trust, and protect assets for your family’s future. Don’t have a Will yet? What are you waiting for? Here at Trust and Will, we make it easy to get all of the estate planning documents you need, customized from your needs and made for your state. Take our quiz to see where you should start, or get your stat-specific estate planning online documents now from Trust & Will.
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