Estate Planning Isn’t Just For The Elderly

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Separated But Not Divorced: The Long Term Care Planning Implications

By: Anthony J. Enea, Esq.
Enea, Scanlan & Sirignano, LLP

I recently read an article about Katherine Hepburn’s illustrious acting career and life.  The article described her longtime romance with fellow actor, Spencer Tracey.  It was reported that Mr. Tracey was a devout Catholic who, in spite of his romance with Ms. Hepburn, refused to divorce his wife, an arrangement for which, I am willing to venture, Mrs. Tracey was handsomely compensated.

The following is an overview of the Medicaid and Estate issues affecting those that are separated but not divorced.  I suspect that there are thousands of people in New York who may one day suffer detrimental financial consequences because they have not legally finalized their divorce and have not adequately addressed Right of Election and Medicaid eligibility issues.

For purposes of Medicaid eligibility and pursuant to 18 N.Y.C.R.R. §360-4.3(f), the income and resources of “legally responsible relatives” are considered in determining the eligibility of the applicant for Medicaid.  18 N.Y.C.R.R. §360-1.4(h) defines the only “legally responsible relatives” to be:

(a)  A spouse for the other spouse;
(b)  A parent for a child under the age of twenty-one (21) years; or
(c)  A step-parent for a step-child under the age of twenty-one (21).

Thus, a spouse that is separated, but not divorced is included as a “legally responsible relative” whose income and resources are considered for eligibility purposes.  Although the separated spouse has the ability to execute a “spousal refusal” pursuant to § 366(3)(a) of the Social Services Law, the “spousal refusal” will not relieve the spouse of the liability for the medical care paid for by Medicaid, and Medicaid can pursue recovery against a refusing spouse for the actual expenses paid to the applicant to the extent of the resources in excess of the Community Spouse’s Resource Allowance ($74,820 to $119,200 on a sliding scale for 2015). 

Medicaid can pursue recovery of assets against a separated spouse even if the spouse were separated from and living apart from the applicant prior to the applicant’s institutionalization, although the separated spouse’s refusal to divulge income and asset information will not affect the applicant’s eligibility.  In New York State, Medicaid’s decision to pursue, or not pursue recovery against separated spouses, just like with married non-separated couples, often depends on how aggressive a particular County is in pursuing recovery.

Imagine, however, the surprise and shock separated spouses may experience when they learn that they may have financial responsibility for the medical care of spouses from whom they have been separated.  It is not a situation one should ever allow him or herself to be placed.

Pursuant to the New York Estates, Powers and Trust Law (“EPTL”) Section 5-1.1, the surviving spouse of a New York domiciliary who died on or after September 1, 1992, is entitled to a statutory elective share equal to the greater of $50,000 or one-third of the net estate (being the probate estate less certain debts and expenses) plus one-third of the testamentary substitutes, e.g.: gifts, causa mortis, totten trust accounts, etc.  EPTL §5-1.1-A provides a comprehensive description of what is considered to be a “testamentary substitute.”

It is clear that the right to an elective share may affect one’s future eligibility for Medicaid, irrespective of the existence of a waiver of the right of election in a separation agreement, where one is separated, but not divorced from, their spouse.

Unless one is divorced at the time of the death of the first spouse, Medicaid will consider the surviving spouse to be entitled to an elective share for Medicaid eligibility purposes.  Additionally, if one were to execute a Waiver of a Right of Election, it is treated by Medicaid as a non-exempt transfer of assets which creates a period of ineligibility for Medicaid. Further, the period of ineligibility is calculated not from the date the waiver was executed, but from the date of death of the spouse. 

For purposes of Medicaid eligibility an “available asset” includes any income or resources to which an individual is entitled but, because of any action or inaction on his or her part, does not receive.  Thus, for example, if a surviving spouse is already a Medicaid recipient, and he or she fails to exercise the Right of Election, Medicaid can discontinue his or her benefits.  Procedurally, Medicaid must only send the recipient a notice requesting that the person exercise the Right of Election.  If the Medicaid recipient fails to do so, Medicaid will deem the person to have refused to accept an “available asset” and either discontinue or deny benefits.  

As can be seen from the above, there are some significant financial issues that those separated, but not divorced, will encounter.  While I am not advocating that every separated individual obtain a divorce, it may be critical for those who have separated to take the steps necessary to formalize a divorce, if they wish to avoid the potential problems that may arise with respect to Medicaid eligibility and the Right of Election.

Enea, Scanlan & Sirignano, LLP