Court: Medicaid can be denied based on spouse's trust holdings

The use of trusts in your Oklahoma estate plan can offer a wide variety of benefits, not the least of which is the potential for avoiding costly federal estate taxes. Although experts say that legislative changes in 2010 abolished state estate taxes in Oklahoma, the use of trusts is still worth considering. However, trust funds can sometimes impose an unnecessary burden, even though the benefactor only had good intentions. A recent case out of Connecticut demonstrates the importance of making sure that your estate planning documents are properly structured to benefit your heirs.

The Connecticut State Court decided in early June that state officials can choose to reject Medicaid coverage for certain nursing home patients. That may not sound like it is relevant to estate planning, but just wait to hear the rationale. The reason: Officials are allowed to consider holdings in a patient's spouse's trust fund, even if those assets were never intended to be distributed to the spouse who needs care.

The ruling came after the court considered a case in which the Department of Social Services rejected Medicaid coverage for a patient who was placed in nursing home care. Medicaid is generally reserved for low-income Americans and certain people with disabilities. The man had applied for Medicaid a year before his death in 2010, but he was denied because his wife was the beneficiary of a $500,000 trust fund.

Reports show that the woman in this case argued that her trust fund was set up by her late first husband for her well-being and that of their children. The trust was never intended to be used for her other husband's care. The court disagreed, however, essentially forcing the woman to pay for the man's medical care out of her own pocket. This is an excellent example of a special case that could arise even if explicit provisions are included in an estate plan.