Do You Know about the Spousal Trust that can Protect Your Spouse?

This originally aired on the Catholic Faith Network’s show CFN Live: https://youtu.be/nfG7OC0VBz8

Today we’re diving into an important topic that could impact your family’s financial future: the Spousal Trust under a Will; a planning strategy that is not well known among older married couples but offers tremendous asset protection for a surviving spouse.

What is a Spousal Trust under a Will?

A Spousal Trust under a Will is a legal arrangement that takes effect after someone passes away.

It’s created through the terms of their Will and is designed to set aside assets for the benefit of the surviving spouse. The trust ensures that the surviving spouse has financial support while also protecting those assets for future beneficiaries, such as children or grandchildren. It’s a way to provide peace of mind and financial security for your loved ones.

Why would someone need a Spousal Trust under their Will?

There are several reasons. First, it ensures that your spouse has access to funds for their needs, such as living expenses or medical care. Second, it protects your family’s wealth from risks like creditors or lawsuits. Third, it allows you to control how your assets are distributed after your spouse passes away, ensuring that your children or other beneficiaries are taken care of.

It’s a powerful tool for families who want to plan ahead and protect their legacy.

How does a Spousal Trust work?

Each spouse establishes a Will which provides for a trust to be created and funded under that Will with the individual’s assets when the individual passes. The Trustee under the Spousal Trust (typically one or more children) can use the income and principal of the trust for the benefit of the Surviving Spouse (their parent).

For example, the Trustee can pay for living expenses, housing, vacations, and medical care if necessary.

How does a Spousal Trust impact Medicaid eligibility for long-term care?

This is one of the most important benefits of a Spousal Trust. When it’s properly structured, the assets in the trust are not counted when determining Medicaid eligibility for the surviving spouse.

This means that your spouse can qualify for Medicaid long-term care benefits while still having access to the trust for their needs. It’s a way to protect your assets while ensuring that your spouse gets the care they need.

This is a big deal because long term care at home, in an assisted living facility or a nursing home can range from $26,000 to $127,000 annually in this country.

And it can be much higher in certain parts of the country, such as New York where those costs range from $28,000 to over $145,000 annually.

What happens if there’s no Spousal Trust and the surviving spouse needs Medicaid for long-term care?

Without a Spousal Trust, the assets left to the surviving spouse could disqualify the spouse from Medicaid eligibility. This could force the family to spend down those assets to pay for care, which can be financially devastating.

At that point, Crisis Medicaid planning would have to be considered. There may be options at that point to protect some or all of the assets, but the assets will not be able to benefit the spouse directly.

If you or a loved one does not have a Spousal Trust as part of their estate plan, now is the time to act. If you are a surviving spouse, don’t wait for a crisis to happen, advance planning can go a long way in protecting one’s assets.

Can a Spousal Trust be created in a Revocable Living Trust instead of a Will?

While it’s possible to create a Spousal Trust in a Revocable Living Trust, it doesn’t offer the same Medicaid protection as one created under a Will. A Revocable Living Trust is typically used for other purposes, like avoiding probate, but it doesn’t shield assets in the same way. That’s why it’s important to work with an attorney to determine the best approach for your specific situation.

Are there any downsides to setting up a Spousal Trust under a Will?

One consideration is that the trust must be carefully drafted to meet your goals and comply with Medicaid rules. It is critical to meet with an experienced elder law attorney who understands these rules and will draft a Will with a Spousal

Trust that protects the trust assets for the surviving spouse. There may also be administrative responsibilities for the trustee, such as managing the assets and ensuring that the terms of the trust are followed. However, the benefits often outweigh these challenges, especially when it comes to protecting your family’s financial future.

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