Co-Habiting? Protect Yourself

By William S. Fralin, Esq.

The Estate Planning and Elder Law Firm, PC

More Legal and Health Articles

Co-Habiting? Protect Yourself

Many laws are structured to protect married couples, for example, the allowance of unlimited gifting among married couples, provisions for Social Security survivor benefits, and the community spouse resource allowance for Medicaid eligibility purposes. Same-sex and unmarried co-habiting couples are not afforded these protections and thus have a variety of challenges to overcome when creating their estate plans and planning for their retirement.
In particular, long-term care and Medicaid planning become more difficult for unmarried couples. The Virginia Medicaid rules require a single person to have countable resources of $2,000 or less before they can be Medicaid eligible. This includes the value of a house, any life insurance, investments, annuities, etc. For married persons, however, the spouse who is not attempting to qualify for Medicaid and still lives in the community can reside in the jointly owned residence, and the residence is not a countable resource for Medicaid eligibility purposes. The community spouse can also retain certain monetary assets for his or her personal use, and those assets are not counted as those of the qualifying spouse. Unmarried couples do not have the benefit of these protections, and, therefore, if one partner needs to qualify for Medicaid, all assets owned jointly with the other partner are countable for Medicaid eligibility purposes.
For example, married couples have no Medicaid countable resource problem when one spouse lives in the jointly-owned home. In the case of a same-sex couple or an unmarried couple, when the partners own the home jointly, one half the value of that home is be considered a countable resource for the partner attempting to qualify for Medicaid. One solution is to gift the one-half interest in the house to the community partner. Under Federal law, this transfer is a gift for gift tax purposes and both a state and federal gift tax return must be filed. In addition to the federal and state gift tax consequences, this transfer may result in Medicaid penalty period, possibly leaving the partner ineligible for Medicaid for a period of time.
Another solution is for the unmarried couple to sell the home. In this instance, one-half the value of the proceeds are a countable resource for the Medicaid partner, leaving him or her ineligible for Medicaid.
This illustrates some of the many challenges when one member of a same-sex or unmarried couple needs to obtain Medicaid assistance. Typically, the longer the partnership continues the more jointly-owned assets the couple has accumulated. With each jointly-owned asset come the same challenges and penalties associated with the transfer of the asset.
A way to avoid this Medicaid dilemma is to purchase long-term care insurance. Long-term care insurance can provide for care in the home, in an assisted living facility, or in a nursing home for each partner without the need for Medicaid assistance. Generally, coverage can be for three years or five years, or it can provide lifetime benefits. If both partners have long-term care insurance and their long-term care needs arise at different times, then the concerns surrounding the sale or transfer of the couples home is avoided.
The time to consider purchasing long-term care insurance is sooner rather than later, prior to either partner needing long-term care, and while both partners are medically eligible to purchase the insurance.