It’s finally official—ALTCS recently updated its policies to permit the establishment of Spousal Special Needs Trusts under a Will. Now couples have an amazing Medicaid Assets Protection tool that was not available before in Arizona.
Understanding Spousal Trusts Under a Will: Protecting Your Family’s Financial Future
A Spousal Trust under a Will is a powerful estate planning tool designed to safeguard your family’s assets and provide financial security for a surviving spouse. While not widely known among older married couples, this strategy offers significant protection and peace of mind.
What Is a Spousal Trust Under a Will?
A Spousal Trust is a legal arrangement created through the terms of a Will. When someone passes away, assets are set aside in a trust for the benefit of the surviving spouse. This ensures ongoing financial support while also protecting those assets for future beneficiaries, such as children or grandchildren.
Why Consider a Spousal Trust?
There are several compelling reasons to include a Spousal Trust in your estate plan:
- Financial Support: The trust provides funds for your spouse’s living expenses and medical care.
- Asset Protection: It shields family wealth from risks like creditors or lawsuits.
- Control Over Distribution: You can determine how assets are distributed after your spouse’s passing, ensuring children or other beneficiaries are cared for.
How Does a Spousal Trust Work?
Each spouse creates a Will that establishes a trust funded with their assets upon death. Typically, one or more children serve as Trustees, managing the trust for the surviving spouse’s benefit. Trustees can use trust income and principal to pay for expenses such as housing, vacations, and medical care.
Impact on Medicaid Eligibility
One of the most significant advantages of a Spousal Trust is its effect on Medicaid eligibility for long-term care. If properly structured, assets in the trust are not counted when determining Medicaid eligibility for the surviving spouse. This allows your spouse to qualify for Medicaid benefits while still having access to trust funds for their needs.
Given the high cost of long-term care—which can range from $26,000 to $127,000 annually nationwide, and even higher in places like New York—this protection is crucial.
Risks of Not Having a Spousal Trust
Without a Spousal Trust, assets left directly to the surviving spouse may disqualify them from Medicaid, forcing the family to spend down those assets to pay for care. This can be financially devastating and may require crisis Medicaid planning, which often limits the ability to benefit the spouse directly.
When to Act
If you or a loved one does not have a Spousal Trust as part of your estate plan, now is the time to act. Advance planning can make a significant difference in protecting your assets and ensuring your spouse’s well-being.
Spousal Trusts in Revocable Living Trusts
While it’s possible to create a Spousal Trust within a Revocable Living Trust, it does not offer the same Medicaid protection as one established under a Will. Revocable Living Trusts are typically used for other purposes, such as avoiding probate, but do not shield assets in the same way. It’s important to consult with an attorney to determine the best approach for your situation.
Considerations and Next Steps
Setting up a Spousal Trust requires careful drafting to meet your goals and comply with Medicaid rules. Working with an experienced elder law attorney is essential to ensure the trust is properly structured. Trustees will have administrative responsibilities, but the benefits of asset protection and financial security often outweigh these challenges.
If you’re considering a Spousal Trust or want to review your estate plan, consult with a qualified elder law attorney to explore your options and protect your family’s future.
