Elder Law Group Blog

Preserving Your Hard-Earned Assets For Your Spouse

Sep 30, 2022 | Estate Planning

During your career, you worked hard and acquired certain assets. You want both you and your spouse to enjoy the fruits of your labor for the remainder of your lives. The last thing you want to worry about is losing your life’s work to estate taxes, long-term care expenses, or a required Medicaid spenddown.  Luckily, that can be avoided through a little advance planning.

Avoiding Estate Taxes

There are legal strategies in place to allow you to minimize substantially – or avoid completely – estate taxes.

ELG Estate Planning serves residents of Idaho and Washington. Idaho does not have a state estate tax, although they are still subject to the federal estate tax of $12.06 million per person. 

Washington residents, on the other hand, are subject to estate taxes on estates worth more than $2.193 million. That sounds like a substantial amount of money, but many couples may have estates worth more than that when residences, investment accounts, retirement accounts, and other assets are considered. 

One very effective legal strategy to protect assets against estate taxes are Wills with a tax protection trust. Commonly known as a “Credit Exclusion Trust” or “Bypass Shelter Trust,” these types of trusts come into being during probate after the death of one spouse (known as the “decedent”). Being a community property state, the decedent’s half of the estate will be placed in the newly-created Trust. Although the surviving spouse has access to the Trust, the Trust is its own legal entity and is not considered part of the surviving spouse’s estate.

Upon the passing of the second spouse, if the decedent’s own money is less than $2.193 million, there is no state estate tax –  on those funds or on the money the in tax protection trust. The money from both spouses will pass to their inheritors as desired without being taxed by the state.

Managing Long-Term Care Costs

According to LongTermCare.gov, “Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years.” In 2021, Genworth’s Cost of Care surveys found that the national median monthly cost of a private nursing home room was $9,034. The median monthly cost of a one-bedroom unit in an assisted living facility was $4,500, and the monthly cost of in-home health care services is $5,148.

Couples are understandably worried about long-term care needs and costs. One spouse may be able to care for an unwell spouse for a short period of time, but as the needs of the unwell spouse increase, the couple may need to seek long-term care.

A Will with an Asset Protection Supplemental Needs Trust protects a couple’s assets against long-term care costs and avoids impoverishment of the surviving spouse. (Keep in mind that a Will has no effect until a death occurs). The money in the trust is not considered “countable” by Medicaid. 

During the spouses’ lifetimes, there are other beneficial legal strategies available to a couple, that allow one spouse to be eligible for Medicaid without impoverishing the healthy spouse. 

It is important to know that a Revocable Living Trust will NOT protect assets from Medicaid. The assets in this type of trust are considered “countable assets.” 

It takes an Elder Law attorney who knows the rules of Medicaid to determine the best legal strategies for your family to protect assets against long-term care costs.

Other Strategies to Protect Assets that are Available to a Couple

An effective Durable Power of Attorney is an important planning tool to any couple wanting asset-protection strategies. It must contain grants of authority to authorize the legal strategies necessary to protect your assets. A generic Durable Power of Attorney downloaded from the internet or even one from a non-Medicaid planning attorney does not provide the authority needed to employ legal options to protect you. An attorney not skilled in Medicaid protection strategies may not know include what’s needed to properly protect you. 

A Medicaid Compliant Annuity is, as the name implies, approved by Medicaid and is not considered a “countable asset.” Purchasing such an annuity at the time of need turns otherwise countable assets into non-countable assets. Another advantage is that the person receiving the annuity has a steady income stream, even if one spouse is receiving Medicaid.

How to Take Advantage of These Asset Protection Strategies

Protecting your hard-earned assets for your spouse begins with consulting a qualified Elder Law attorney. They will discuss these and other asset-protection strategies with you and determine what strategies will be best for your family. The Estate and Elder Law attorneys at ELG Estate Planning know the rules of Medicaid and are skilled at designing an Estate Plan that will protect your assets now and into the future.

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