Watch out for elective share issues in Medicaid planning

When a married person requires nursing home care, the spouse often seeks advice on how to preserve assets and minimize his/her exposure to the high cost of care. Often this will require consideration of how the Medicaid program (MLTSS or NJ FamilyCare) can help out. Assets may be transferred to the “community spouse,” and beneficiary designations may be changed. Some assets will be retained and others may be spent. There may be gifts, and there may be annuities that are purchased. Each plan is unique. The Will of the community spouse may be altered so as not to leave everything to the spouse who now requires nursing home care.

What happens if the community spouse dies first, and the institutionalized spouse is receiving MLTSS Medicaid benefits? The Executor of the Estate and the Agent under Power of Attorney for the surviving spouse will have some reckoning to do. This ‘reckoning” refers to calculating and satisfying the “elective share.”

The elective share is a statutory share of the deceased spouse’s estate. It is calculated by following the formula in N.J.S.A.3B:8-1 et seq. Basically it starts with the deceased person’s probate assets (essentially, the assets that have no beneficiaries or co-owners or that aren’t held in a living trust), minus expenses and debts, plus an array of other assets such as joint accounts, pay on death accounts, and assets that were given away within the prior 2 years. This whole combination of subtractions and additions produces what’s called the “augmented estate.” The elective share is one-third of the augmented estate. The share is “satisfied” first from assets owned by the surviving spouse or that he receives as a result of the death, and then from probate assets, and then from non-probate assets.

Sometimes it turns out that the surviving spouse gets a distribution of zero from the estate of his late spouse, but other times, the distribution is substantial, creating some havoc as the Executor tries to figure out how to make the payment — often, there is real property but insufficient cash, and the Will may leave the property to somebody specific.

Why does any of this matter? A person on Medicaid is required to seek all assets to which he is entitled, or he will face the risk under N.J.A.C. 10:71-4.10  of a transfer penalty. The Appellate Division has ruled in I.G. vs DMAHS that.  the failure to claim the elective share is a transfer of assets. If a transfer penalty is imposed, the State doesn’t pay for the nursing home for a period of time.

The Agent under Power of Attorney for a Medicaid applicant or recipient is obligated to report changes to the program. This would include notification that the person has been widowed. Typically, the County Board of Social Services then inquires about the estate of the deceased spouse and whether the Medicaid recipient has received his elective share. If the surviving spouse isn’t yet on Medicaid, then this issue will have to be addressed if the surviving spouse applies for Medicaid benefits during the ensuing five years, because at the time of the application, there is a 5-year look-back to see if any assets were given away/transferred.

What’s the risk? The risk is that Medicaid benefits were wrongfully received by the surviving spouse who failed to receive assets he was entitled to as an elective share. This further creates the risk that there was an overpayment, and the State has options under N.J.S.A. 30:4D-7.1, to pursue all culpable parties by initiating a lawsuit in Superior Court.

Careful planning can prevent a crisis. Senior care planning involves a whole array of activity, some now and some later as situations change. Call us for advice for now, and for later. … 732-382-6070