Testamentary Trusts

Testamentary trusts are trusts created under a will. The Medicaid rules provide a special ‘safe harbor’ for testamentary trusts created by a deceased spouse for the benefit of a surviving spouse.

Unlike a trust created during life for a spouse, the assets of these trusts are treated as available to the Medicaid applicant only to the extent that the trustee has an obligation to pay for the applicant’s support. If payments are solely at the trustee’s discretion, they are considered unavailable to the Medicaid applicant. While totally illogical, if one spouse creates a trust during his life for his spouse, the funds will be considered available should the wife apply for Medicaid benefits. On the other hand, should the first spouse create the same trust with the same funds — but through his will — the funds will be considered unavailable.

Therefore, these trusts can allow a healthy spouse living in the community (a ‘community spouse’) to leave funds for their surviving institutionalized husband or wife that can be used to pay for services that are not covered by Medicaid. These may include extra therapy, special equipment, evaluation by medical specialists or others, legal fees, visits by family members, or transfers to another nursing home if that becomes necessary. RLF