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When they sent Archie home with hospice care, Edith, his wife, (names have been changed) knew that he didn’t have long to live.

It was an emotional time and the couple had a long list of things that needed to get done.  But one of the things they did saved themselves a fortune. How? They changed Archie’s will.

Let me explain. Archie and Edith had done their wills years ago, leaving everything to each other. Because Louisiana is a community property state, Archie owns half of the couple’s assets (such as the home, the car and the bank account), while Edith owns the other half. If Archie’s will says he leaves his half of everything to Edith, then when he dies, Edith will own 100% of the assets.

Which would be fine except that Edith wasn’t in such great health herself. And if she needs to go into the nursing home, she will have to spend everything she owned on nursing home care. (Because Edith was over 65, she had Medicare.  But Medicare does not pay for nursing home long term care.) Only after Edith was broke would Medicaid start paying the nursing home bill.

But Archie and Edith didn’t want the nursing home getting everything they owned.  They had scrimped and saved their entire lives with the hope of leaving something to Gloria, their daughter.

So while Archie was still alive and under hospice care, Edith gave her half of the community assets to her husband.  Which meant that Archie now owned 100% of everything.

Normally, that wouldn’t be such a great idea.  Giving stuff away within 5 years of going into the nursing home can be a big problem.  But sometimes this “5 year look back” rule doesn’t apply to married couples.

After Edith gave her half of the assets to Archie, he then changed his will: rather than leaving everything to his Edith, he left everything to a trust for his wife.  When Archie dies, Edith’s trust will own 100% of the assets.  And because the trust inherited the assets, as opposed to the couple putting the assets in trust while they were alive,100% of the trust assts will be protected from the nursing home.  And there’s no problem with the 5 year look back rule.  (If Edith had made the gift to anyone other than her spouse, then the 5 year look back period would be a problem.  But gifts to spouses are a special exception to the 5 year look back period rule.)

And what happens to the assets in the trust?  Even though everything will be in the trust, the assets can be used for Edit’s benefit. Edith can be totally in control and can do whatever she wants with the trust assets. If she wants to sell the house, she can. If she wants to sell one car and buy another, she can. And when Edith dies, if there is anything left, it will go to Gloria.

But if the assets had been left to Edith directly instead of Edith’s trust, nothing would be protected from the nursing home.

Here’s an example: Together Archie and Edith own their home, 2 cars and have $8,000 in the bank. Archie’s will leaves everything to Edith.  Archie dies.  Now Edith owns the home, the cars and the money in the bank.  She’s not poor and Medicaid won’t pay for the nursing home. But if Edith gives her half of the estate to Archie while he is alive and Archie’s will leaves everything to Edith’s trust, then, when he dies, Edith’s trust will own the home, the cars and the money in the bank account.  Because it’s all owned by the trust instead of Edith, she will be considered poor and Medicaid will pay for the nursing home.

But be careful.  In order for this to work, Archie and Edith have to do 2 things: Edith officially gives her half of the assets to Archie while he is alive AND Archie changes his will leaving everything to Edith’s trust.  It won’t work without both steps.

And here’s something else that won’t work.  Let’s say that Archie is not dying.  Instead, he has dementia and needs to go into a nursing home.  Edith, on the other hand, is just fine and will continue to live at home. Archie can’t just give his half of the assets to Edith one day and declare himself poor the next.  Medicaid won’t allow that.

Why did they write the law this way?  Why would the government give such a good deal to people with this special type of trust and leave everyone out in the cold? I don’t know.  But they did.  And those who know about it can save big money.  Perhaps that’s why they made it so complex: so that no one would know about it or understand it.

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