The Medicaid Institutionalized Care Program, the simple estate plan, and the elective share: why the qualified special needs trust was born.

• Author: Morgan, Robert M.
• Position: Florida

The Florida Legislature enacted sweeping reforms to the elective share statute in 1999. (1) The new law provides a surviving spouse with the right to claim a share of the "elective estate," (2) defined as containing both probate and nonprobate assets, not just assets subject to probate administration as under prior law. (3) Florida's public policy expressed in the new law seems designed to clearly prevent one spouse from disinheriting the other unless a valid agreement between the spouses exists. (4)

Typical estate planning between spouses leaves all property to the surviving spouse; then, after both spouses are deceased, to children or others. Basic estate tax planning wills usually provide substantial benefits to the surviving spouse, even if held in trust, on the first spouse's death. These "simple" plans should cause no problem with the new law (nor should it cause any problems under the previous versions of this legislation) so long as one of the spouses is neither ill nor disabled. However, this planning (or lack of planning) can prove disastrous in situations where one of the spouses is ill or disabled and when the disabled spouse requires nursing home care. Should one spouse require nursing home care and the other spouse does not have the financial means to pay for this level of care and there are no long-term care insurance benefits available, government entitlement programs may be necessary so that the nondisabled spouse is not left financially devastated. One program available in Florida to offset the cost of nursing home care is the Medicaid Institutionalized Care Program ("Medicaid ICP"). This is a "means tested" program to assist the disabled spouse and nondisabled spouse. To qualify for Medicaid ICP, an applicant's (i.e., the disabled spouse's) countable resources must be calculated and not exceed certain levels. As part of the planning to qualify for Medicaid ICP, it is common that the disabled spouse transfer all of the disabled spouse's interest in the marital assets to the nondisabled spouse, individually, prior to or immediately following application for Medicaid ICP benefits. (5)

Should the nondisabled spouse die first owning all the assets in his or her individual name and the disabled spouse is the beneficiary under the simple estate planning option, an inheritance or beneficial interest may cause the disabled spouse to lose Medicaid ICP benefits and potentially cause a loss of inheritance to the spouses' ultimate beneficiaries. This "timing problem" of the nondisabled spouse dying first cannot be rectified by merely disinheriting the disabled spouse or using a disclaimer. (6) Remember, the disabled spouse is entitled to an elective share of 30 percent of the "elective estate." As Professor David Powell explained in his Revised Executive Summary to the Elective Share Statute, "A decision not to claim an elective share may be viewed as a transfer that could disqualify a surviving spouse from Medicaid...