Many married couples have reciprocal estate plans, where each spouse leaves everything to the other. We sometimes call this arrangement the “I love you” estate plan. As in, “I love you so much that if I die first, I want you to have everything.” The other spouse says the same.
This plan, in theory, seems simple, fair and generous. Each partner trusts the other to eventually pass on their assets to shared beneficiaries, usually their children. This plan often works well for families in good health.
However, when dementia or long-term care enters the picture, traditional estate plans can cause real problems, including serious financial risks. The situation becomes even more complicated when families consider Medicaid eligibility.
At Scott Law Offices, we help Florida families revise their estate plans to avoid any pitfalls. We also help in considering long-term care needs, Medicaid rules, and the rising cost of nursing home care.
So, if your loved one has been diagnosed with dementia or may need long-term care, it’s time to revisit your plan. You also need to arm yourself with information.
The Problem With Reciprocal Wills
Under a reciprocal estate plan, if the healthier spouse passes first, all assets typically transfer directly to the surviving spouse. But if that surviving spouse is already in a nursing home or showing signs of dementia, the inheritance may disqualify them from Medicaid.
The reason lies in Medicaid’s strict financial eligibility rules. A direct inheritance received by a spouse with dementia becomes a countable asset and must be spent down before Medicaid coverage can resume. In some cases, it could mean losing tens to hundreds of thousands of dollars to long-term care expenses instead of being preserved for your family or future needs.
The usual cost of a semi-private nursing home room in Florida is over $9,000, as stated in Genworth’s 2024 Cost of Care survey.
A Better Approach: Trust-Based Planning With a Special Needs Trust
To avoid any issues, we often recommend trust-based solutions that go beyond traditional wills. We specifically advise that instead of a reciprocal plan, the healthy spouse must:
- Create a revocable living trust
- Include a Testamentary Special Needs Trust (SNT) for the spouse who may need Medicaid
Here’s how this approach works.
- The revocable trust holds assets during the healthy spouse’s lifetime and allows them to remain in full control.
- Upon their passing, the assets go to the Special Needs Trust for the benefit of the surviving spouse.
- A trustee manages the SNT, which supplements (not replaces) Medicaid benefits. It can pay for items Medicaid doesn’t cover, such as personal items, entertainment, and transportation. It can even cover a private room or additional care.
- With a properly structured SNT, assets do not become countable, will not impact Medicaid eligibility, and will not disqualify the surviving spouse from Medicaid benefits.
- After the spouse receiving care passes, any remaining assets go to the couple’s heirs.
This setup protects your spouse’s access to benefits and your family’s financial legacy.
Estate Plans Are About Protection, Not Disinheritance
It’s easy for anyone to see this type of planning as disinheriting a spouse. However, that’s not what it is. This strategy ensures:
- That the spouse with dementia continues to receive proper care
- That there is no disruption to their Medicaid eligibility
- That family resources are preserved and passed on as intended
In many ways, it’s a more loving and thoughtful approach considering the high cost of long-term care in Florida.
It’s Time To Revisit Your Plan
If you and your spouse created your wills years ago and now face new health realities, it may be time to take a look at your plan. Laws change, and Medicaid rules evolve. So your plan should grow with your family’s needs.
At Scott Law Offices, we guide families in making these adjustments with compassion, legal insight, and deep knowledge of Florida elder law. We’re here to help if you need to revise your outdated will or implement trust-based strategies that protect you, your spouse, and the entire family.
Let’s Make Sure Your Estate Plan Still Works
Contact us today to schedule a consultation. We’ll assist you in creating an estate plan that protects your spouse and preserves your legacy. It must also meet your family’s current needs and future goals for your peace of mind.
Also, be sure to check out our latest Medicaid Minute video for a quick overview of this important topic.
