Thursday, September 4, 2014

The Effect of the Elective Share on Medicaid Estate Planning

If your husband is in a nursing home, can you disinherit him? This may not be that easy to do. 

What is the elective share?

The purpose of the Pennsylvania elective share law (20 Pa. C.S. 2201-2211) is to provide a surviving spouse with a reasonable share of a decedent's estate. This is meant to protect the surviving spouse from becoming impoverished by an inadequate inheritance. 

In Pennsylvania, the surviving spouse is entitled to approximately 1/3 of certain property interests. The surviving spouse may either claim this "elective share" or "waive" it. If it is waived the surviving spouse gets to keep whatever he or she receives as a result of the will and other arrangements made by the decedent.

When one spouse is admitted to a nursing home and may need financial help from the Medicaid program, a married couple will often arrange all of the couple's assets so that they are held in the sole name of the spouse at home ("community spouse"). But, if the community spouse is the first to die, assets inherited by the institutionalized spouse will likely disqualify that spouse for continued Medicaid benefits.

In order to preserve the Medicaid benefits for the institutionalized spouse, and provide for an inheritance for a couple's children, the community spouse may sign a new will that disinherits the institutionalized spouse. The idea is to have the couple's assets pass to the children rather than being lost to the cost of nursing home care. 

However, if the institutionalized spouse elects to receive the 1/3rd elective share, that election will take priority over the community spouse's will. And the assets received will normally mean that the institutionalized spouse would no longer be eligible for Medicaid nursing home benefits. 

So, what happens if the institutionalized surviving spouse waives his or her right to their elective share?

Does the Department of Public Welfare require that the institutionalized spouse claim the elective share?

Yes.  The Department of Public Welfare requires that a disinherited institutionalized spouse claim the elective share
or else face a Medicaid transfer of assets penalty. 

What if the institutionalized spouse chooses to waive the elective share?

If an otherwise disinherited nursing home spouse waives the elective share, the Department of Public Welfare will deny Medicaid eligibility based on the theory that there was an available asset that could have been collected and thus used to pay for the nursing home resident's care. The waiver of the elective share will be deemed to be a non-exempt transfer of assets by the institutionalized spouse. This deemed transfer will create a period of ineligibility for Medicaid benefits.

How is the penalty period calculated when the elective share is waived?

The Department of Public Welfare will consider the non-election as a transfer of assets for less than fair consideration and deny benefits for a period of time based on the value of the unclaimed elective share divided by a penalty divisor (which is based on the average cost of nursing home care). The result of this arithmetic establishes the length of the period of time during which the surviving spouse will be ineligible for continued Medicaid long term care benefits.

The elective share is a complicated planning issue. But, effective planning by a knowledgeable elder law attorney can reduce or eliminate the negative impact of the elective share on the continued eligibility of the surviving spouse for Medicaid. 

It is extremely helpful if appropriate planning was completed during the lifetime of the community spouse and appropriate provisions have been included in powers of attorney, wills and trusts. Don't wait for a crisis. Plan in advance.

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