Inheriting from a Spouse
Carissa Giebel 7:21 p.m. CDT June 29, 2015
Most married couples plan to leave most, if not all, of their assets to their surviving spouse. However, many have not considered the possibility that the surviving spouse might need some type of care and failed to plan for that in their estate plan.
Creating a flexible estate plan is important, but it's just as important to have your estate plan reviewed every few years, and especially if there is a change in life circumstances, such as a spouse needing nursing home care.
A simple estate plan for a married couple probably names the spouse as primary beneficiary. But what if that spouse ends up needing nursing home care after inheriting all the assets or is already receiving costly care? What if that inheriting surviving spouse is receiving state or federal benefits to help pay for that care, such as Medicaid? If care would be needed, without further planning, the surviving spouse probably would have to use their assets, along with the assets inherited from their deceased spouse, to pay for the cost of their care. If the surviving spouse was on Medicaid benefits, those benefits probably will be lost. After the inherited assets are spent down, then the surviving spouse can reapply.
This is typically not the desired outcome for the couple. This is why it's important for married couples to consider these scenarios when creating their estate plan. There are ways to create the plan so that the surviving spouse could inherit in a special needs trust, allowing the inheritance to be used for their benefit if needed, but not affecting any state or federal benefits they might be receiving.
Better yet, an irrevocable trust can be established to protect the assets from the potential cost of care. Although most liquid assets, other than qualified accounts, can be put into these trusts, real estate works great, especially that cottage or land you want to preserve for your beneficiaries. This option can avoid probate altogether, so there probably will be no court involvement. The trust also can be structured so the beneficiaries inherit assets that are protected from their creditors, a divorce, lawsuits, bankruptcy or their own long-term care costs. If a beneficiary is receiving any federal or state disability benefits, a special needs trust can be set up for them through the irrevocable trust, so the disability benefits are not disturbed.
It's always important to make sure your beneficiary designations are coordinated with your estate plan. Be careful not to rely on updating those forms by removing your spouse and naming your children or other beneficiaries. Upon the nondisabled spouse's death, whether it be before or after the disabled spouse, estate recovery has recently broadened their horizons and will make claims to those nonprobate assets, even if a non-spouse beneficiary was named.
To maximize the options to protect the most assets, it's important to have a good durable power of attorney. This has to be done before incapacity. It's also important to put together your will or trust while you still have capacity.
Proactive, careful planning provides comfort to couples who want to make sure their surviving spouse is taken care of, while also providing protection for loved ones.