By far, the most popular estate plan that I draft is what I refer to as the “I Love You” plan. Husband executes a will leaving everything to wife. Wife executes a will leaving everything to husband. Everything is left to children in equal shares when both parents die. For good measure, we title the assets jointly with right of survivorship (house, bank accounts, stocks, bonds) or designate the spouse as beneficiary (IRA’s, life insurance, annuities) so that there isn’t even a probate estate when the first spouse dies. Simple, effective and so popular that the “I Love You” plan is the one chosen by Ohio’s descent and distribution statute for those who never got around to writing a will. Why is this plan so popular? It’s because that is what most people want.
The problem comes when one spouse becomes ill or debilitated to the point he cannot care for himself. The spouse may become so ill as to require nursing home care now or in the future, especially if the caregiver spouse passes away first. Then, the “I Love You” plan becomes the worst of all possible plans because leaving everything to the ill spouse, in essence, means leaving everything to the nursing home to pay for the spouse’s care. Planning ahead is essential to protect assets for the family.
Even more important than a will, which distributes assets at death, each spouse should execute health care and financial powers of attorney. These documents, prepared when both spouses are competent, appoint someone (usually the husband or wife with children named as backups) to direct medical care and manage finances when an individual loses capacity.
In planning for potential nursing home placement, it is important to give the financial agent the power to transfer assets within the rules of Medicaid. With such a document, assets can be moved into the name of the healthy spouse as required for Medicaid qualification. To qualify for Medicaid, a nursing home patient can keep only $1500 in countable assets. This is usually kept in the checking account where the patient’s pension and Social Security checks are deposited. The healthy spouse may keep
considerably more countable assets (with a minimum of $20,328 and a maximum of 101,640 in 2007). These assets should be placed in the name of the healthy spouse alone “payable on death” to the children.
As long as the healthy spouse continues to live in the house, it is an “exempt” asset for Medicaid purposes regardless of which spouse’s name is on the deed. However, if the ill spouse is on Medicaid and passes away with an interest in the house, his or her share will be subject to Medicaid Recovery. A lien will be placed on the house which will be collected upon the death of the healthy spouse. Placing the house in the name of the healthy spouse before a nursing home admission or application for Medicaid home waiver program may protect the house from Medicaid Recovery.
Once the house is in the name of the healthy spouse, he or she should also execute a new will excluding the ill spouse. If the healthy spouse should then die first, the ill spouse would be required to elect to take only that part of the estate available under the law, preserving at least a portion of the assets for the children.
It seems only natural for most married couples to establish an “I Love You” estate plan, but the financial burdens of a catastrophic illness can quickly change both our lives and our plans. Be prepared. Review your estate plan with your attorney every two to five years and whenever you have a major life change such as a birth, death, divorce, major illness or disability in the family. It’s the best way to say “I Love You”.