Photo of senior couple smiling in their Beach wedding with the ocean in the background.
Senior newlywed couple happy on a beach because they protected assets from harsh Medicaid treatment with a prenuptial agreement estate plan

We left readers asking, “How Medicaid treat a prenuptial agreement estate plan?” in MEDICAID & PRENUPTIAL AGREEMENTS – PART 1 last month. The question required Part 1’s background information to support our answer in this Part 2. This conclusion of our two-part series about Medicaid and prenuptial agreements explains how Medicaid treats prenuptial agreements. [Please note that this article provides more complex information than we normally provide in this blog, and people should not act on this information without consulting an experienced and reputable elder law attorney. If you missed Part 1, please go to our blog at www.hawkinselderlaw.com/blog/ and read it now.]

Prenuptial Agreement Effectiveness in a Nursing Home Resident’s Medicaid Application

Remember our discussion of the “Snapshot” and “Resource Allowances” in Part 1? The Medicaid Snapshot counts a married couple’s resources – his, hers, and their resources – even if the couple made a prenuptial agreement. This does not mean that prenuptial agreements are worthless, but couples must plan well to protect assets against nursing home costs. A well organized couple should plan specifically for this situation before a spouse needs nursing home care. Their pre-wedding plans should include a prenuptial agreement estate plan.

Include LTC Planning in the Prenuptial Agreement Estate Plan

A prenuptial agreement and asset protection estate plan that includes long-term care (LTC) details in the prenuptial agreement may offer great results. Important LTC details include:

  1. Acknowledgment that a spouse may need Medicaid assistance to pay nursing home costs.
  2. A plan to transfer an institutional spouse’s assets to the community spouse for safekeeping from nursing home costs.
  3. A plan to deliver each spouse’s assets to that spouse’s intended beneficiaries.

Foreseeable LTC Needs

A prenuptial agreement needs to state that it is foreseeable for the husband or wife to need nursing home care in the future, because Indiana Code Section 31-11-3-8(b) says:


If:
(1) a provision of a premarital agreement modifies or eliminates spousal maintenance; and
(2) the modification or elimination causes one (1) party to the agreement extreme hardship under circumstances not reasonably foreseeable at the time of the execution of the agreement;
a court, notwithstanding the terms of the agreement, may require the other party to provide spousal maintenance to the extent necessary to avoid extreme hardship.

http://iga.in.gov/legislative/laws/2018/ic/titles/031#31-11-3-8

An engaged couple should expect the husband or wife to require nursing home care in the future, because the Indiana Long Term Care Insurance Program website says:

Overall, individuals living over the age of 65 will have a 60-70% chance of needing some type of long term care service.

https://www.in.gov/iltcp/2371.

A prenuptial agreement can cover this base with a statement that it is foreseeable

Plan to Transfer Assets to Community Spouse

When a spouse needs nursing home care (the “Institutional Spouse”), Medicaid limits the Institutional Spouse’s resources to $2,000. However, Medicaid allows the other spouse (the “Community Spouse”) to keep many more countable resources (up to $126,420 in 2019). The Community Spouse can also keep many assets that are exempt from being counted as resources. The couple’s asset protection plan can use the Community Spouse’s large resource allowance and ability to keep exempt assets to protect most of both spouses’ assets. The asset protection plan must include powers of attorney and wills that include specialized language for couples with prenuptial agreements.

Separate Trusts for Each Spouse’s Beneficiaries

The specialized wills must include separate trusts for each spouse’s assets. The separate trusts help ensure that each spouse’s family members will receive that spouse’s assets.

A Prenuptial Agreement Really Counts After the Community Spouse’s Death

Indiana law gives a deceased person’s surviving spouse rights to receive assets even if the deceased person’s will leave nothing to the surviving spouse (see http://iga.in.gov/legislative/laws/2018/ic/titles/029#29-1-3 and
http://iga.in.gov/legislative/laws/2018/ic/titles/029#29-1-4-1).

The Indiana Family and Social Services Administration can disqualify an Institutional Spouse for Medicaid benefits for failing to claim his or her deceased Community Spouse’s assets (See 405 IAC 2-3-1.1(j)(4), downloadable at http://www.in.gov/legislative/iac/pdf-iac/iac2006oldfmt/T04050/A00020.PDF?IACT=405 ).

Indiana Code Section 31-11-3-5 permits a couple to limit the surviving spouse’s rights with a prenuptial agreement (See
http://iga.in.gov/legislative/laws/2018/ic/titles/031#31-11-3-5 ). No Indiana courts have ruled on the issue yet, but a well-drafted prenuptial agreement and asset protection estate plan should protect the couple’s assets and preserve the surviving Institutional Spouse’s Medicaid eligibility

Seek Expert Elder Law Counsel Before the Wedding

An engaged couple should remember that the “pre” of “prenuptial agreement” requires the couple to make a prenuptial agreement
and asset protection estate plan before the wedding day. Proper prenuptial agreement planning requires time, so the couple should seek legal counsel as soon as possible before the wedding. Many other details described in this article require unusual estate planning expertise, so older couples that want to protect land, retirement plans, and other assets should seek elder law attorneys that specialize in estate planning. Websites that can help people find lawyers with this expertise include:
https://indianatrustestatelawyers.org/category/lawyers/ and
https://www.actec.org/fellows/directory/ .

About the Authors

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys.

Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois.

Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation;  a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.

More Information

Find more information about these and other topics at www.HawkinsElderLaw.com, like @HawkinsElderLaw on Facebook, follow @HawkinsElderLaw on Twitter, follow https://www.linkedin.com/company/hawkinselderlaw on LinkedIn, or call us at 812-268-8777. © Copyright 2019 Hawkins Elder Law. All rights reserved.

[See our Disclaimers page about relying on this website’s contents.]