Question: My parents are currently in their 80s and still have their Last Will and Testaments which were prepared 40 years ago. The Wills say that everything goes to the surviving spouse and then to their children if the spouse is deceased. Are these Wills still valid? Are there any updates which should be made?
Answer: Your parents’ Wills are still valid, however, they should consider updating them to take advantage of some new planning techniques. One of the most important provisions which all Wills should incorporate is a trigger “Supplemental Needs Trust.” This is a trust for the benefit of beneficiary who is disabled in order to preserve the inheritance so that the disabled beneficiary can continue to receive their Medicaid or SSI benefits. The trustee can use the trust assets to provide for the needs of the beneficiary which will supplement, but not supplant, their government benefits. We use the term “trigger” because Wills can be drafted so that the trust only becomes effective if, after the testator’s demise, a beneficiary is disabled and in need of this type of trust. If no beneficiary is disabled, the trust will not be triggered.
A Supplemental Needs Trust can be an enormous benefit to a disabled person who, as a result of their inheritance, would otherwise lose any means-based government benefits they were receiving. This includes spouses who may be receiving Medicaid to cover the cost of long term care. For instance, if assets pass through a Will directly to a surviving spouse who is in a nursing home and receiving Medicaid, that spouse will be ineligible for Medicaid because of the receipt of this inheritance from their spouse. However, if a spouse inherits assets in a Supplemental Needs Trust, they will not become ineligible as a result of that inheritance. Moreover, so long as the Supplemental Needs Trust is created through the spouse’s Will, as opposed to through a living trust, there is no five year look back on the inheritance to the surviving spouse on Medicaid. Upon the death of the second spouse, the Supplemental Needs Trust would be distributed according to the Will of the spouse who died first. There is no requirement to pay any of the money to the Medicaid program for the cost of services received. The only requirement Medicaid could enforce is that the surviving spouse take their “elective share” which is equal to one-third of the decedent spouse’s estate, excluding life insurance policies. However, the remaining two-thirds would remain protected for the surviving spouse.
Another update would be to include Descendants Trust for the distribution to you and your siblings. This would protect your inheritance from creditors and divorcing spouses, but each child could be their own trustee. Lastly, if your parents had a taxable estate, there is planning available to minimize or eliminate estate taxes when both spouses are deceased. While your parents existing Wills are still valid, they are unlikely to protect each other or you and your siblings to the fullest extent possible.