Hidden Medicaid Trap in Elder Nuptials

An unpleasant fact of life in the U.S. is the way that government regulations can leap out of the bushes to bite you when you least expect it. One prime example is in the case of a marriage between elders.

Henry was 75, healthy and retired, he had saved $600k which he held in a revocable living trust for his children and grandchildren. The love of his life, his wife Betsy, had passed away and when he met Lydia he never imagined that romance might bloom again. But it did, and Henry and Lydia, who had no assets of her own, were married shortly thereafter.

What Henry hadn’t counted on was the effect of Medicaid rules on his trust funds when Lydia became ill and was diagnosed with Alzheimer’s disease. When Henry contacted the state Medicaid agency to begin the application process for Lydia he discovered that as a Community Spouse he was expected to “spend down” his trust to about $113k, decimating the inheritance he and his first wife had built up for so many years for their children, before Lydia would become eligible for government benefits.

When Henry contacted an attorney he had difficulty believing that there was no way out of the dilemma. He could spend his money on home improvements, a new car, travel or anything else, but what he wanted was to live simply and save his money for his children. In desperation he asked the attorney if there wasn’t any possible solution, and he learned the brutal truth: in order to protect his financial legacy he needed to divorce Lydia!

Divorce solves Henry’s problem in that his assets would no longer be considered “available” resources to Lydia, who having no resources of her own, automatically qualifies for Medicaid. Henry still loves Lydia and there is nothing to prevent Henry from retaining his spiritual bond with her, and purchasing goods and services for Lydia which go beyond what Medicaid provides, as a way to improve the quality of her life while she is in the nursing home.

The emotional pain of being forced to choose between divorce and impoverishment is a cruel plight which takes the joy out of life for many elders. Single elders involved in a committed relationship and considering marriage need to carefully weigh the financial impact which long term care might have on their respective finances.

For many the solution is a domestic partnership, often celebrated in a church ceremony, with an agreement, formal or otherwise, about sharing expenses, but without registering a marriage. Since Arizona, like most states, no longer recognizes the common law marriage, this arrangement will not be treated by Medicaid as a marriage and will not cause the community “spouse” to have to spend down his/her assets.