In the Marriage Penalty post – marriage penalty - #26 by JAFO31 started by @1poorguy, I expressed concern about my own upcoming marriage and asked if anyone knew of solutions for “later in life” marriages where there is a big asset discrepancy between the spouses.
As suggested, I met with my estate planning / elder care attorney to get her take on what I could do. My biggest concern is spending down all of the assets to take care of my spouse (who is currently on disability at age 55) and have nothing left for my own long term care. I have no children to look out for me. I don’t care if anything is left over when I die, but I would like to choose my own long term care facility if I need one, which means I need assets for the initial buy-in.
I really do want to marry this guy, for a lot of reasons. And I want to take care of him, if necessary, but I don’t want to drain all of my assets doing so.
Here are some of the things I learned (and some of this is specific to the state of PA):
My attorney said that from a legal perspective I would be better protected if we lived together, held a commitment ceremony and never legally married. PA no longer recognizes common law marriage. If I update my will to leave him my assets, he will owe the state of PA 15% inheritance tax because we are not related. I can assign him powers of attorney whether we are married or not. If we wanted to move into a continuous care community in the future, we could marry at that time (if both of us are still legally competent). Death bed marriages are also legal in PA, again, assuming we are both legally competent.
Can we marry and then plan to divorce later if one of us needs care? My attorney said this is a possible strategy that people are currently using, but may not be available in the future. She believes the Department of Human Services is likely to change the rules and, in the future, may consider this to be Medicaid fraud.
Can we marry and plan to enter a continuous care retirement community together as soon as one of us needs care? My attorney told me that each CCRC has their own rules and they can change at any time. This is a strategy that can work today, dependent on the community. Since we are 60 and 55, it could easily be 20 years in the future before we need long term care. Many of the facilities in our area are closing and many are changing ownership.
What about long term care disability insurance? This is a possible consideration, but companies are dropping coverage, premiums are rising, and it might not be possible to find a policy with a fixed premium that is affordable.
If I marry him, with my eyes wide open, what is the worst case scenario? Worst case scenario would be if he was in a serious accident the day after the wedding, needed permanent long term care, there were no Medicare beds available and I offered to private pay for a year to get him a bed in a specific facility (currently $100K - $150K average in our area). If that happens, we immediately look at asset preservation strategies to isolate assets from Medicaid. Currently the two most popular strategies are: 1) to buy an annuity with my remaining assets that will pay me income for the rest of my life. 2) Buy a more expensive home or make upgrades that add to the value of the existing home since the house is excluded from the Medicaid formula.
There are trust strategies that could be useful, but they are complicated, expensive, and probably not worthwhile for the size of my nest egg.
If we marry, do I really need a pre-nup? In our case, asset division in PA would be reasonably fair without a pre-nup. As long as assets are not intermingled, each party leaves the marriage with what they entered, and an “equitable distribution” formula is used to divide accumulated assets, based on each party’s income. (Obviously, this is a gross oversimplification). Some of the main benefits of a formal pre-nup: 1) each party explicitly provides a pre-marital asset statement; 2) debts of each person are explicitly enumerated and are not the responsibility of both parties in case of divorce; 3) each party can explicitly agree not to pursue spousal support in case of a divorce.
If we marry and he dies before me, am I responsible for his PLUS loans (student aid loans for parents) and any other debt? I would only be responsible for debt incurred during the marriage.
Should I add my fiance’s name to the house title, whether we marry or not? There is no benefit to add his name in either case. If we are married, he inherits the house without tax. If we are not married, and he is named as my beneficiary in the will, he owes the state of PA 15% tax, but he will not be locked out of the house if I die first.
My attorney is drafting my new will and powers of attorney. She will send me a copy of a sample pre-nup form for us to review and we will go from there.
Again, some of the above is specific to the state of PA. Lots to think about.
Marriage is just a legal contract with legal privileges and responsibilities (determined by your state) baked-in. I agree with your attorney that it is really unnecessary, and the responsibilities side could wipe you out (e.g. your worst-case scenario). Why risk it? If you don’t have common-law, just cohabitate and call it done. That seems to be what the attorney is saying. Though if she’s drawing-up a pre-nup for you, that implies you are leaning away from option 1.
But you seemed to cover most of the bases with your questions, which is good.
Note also that if he dies first, the creditors will not care if you technically aren’t responsible, they’ll come after you anyway on the chance that they will be able to get something. I know of some second-hand examples.
Though if she’s drawing-up a pre-nup for you, that implies you are leaning away from option 1.
We are leaning away from option 1, but we haven’t made up our minds. I want him to review the sample pre-nup document as part of our shared decision.
Hopefully, he will not need long term care. I may need it first. I am older than he is and his family members live longer than mine. He was an amazing caregiver for my father (doing more than all of my siblings combined) and is now doing many of the same things for his elderly parents. If I am the one who needs care first, I am in very good hands.
And the MFJ tax brackets will be helpful for me in the short term. I can do some Roth conversions and still qualify for my ACA insurance subsidies.
Note also that if he dies first, the creditors will not care if you technically aren’t responsible, they’ll come after you anyway on the chance that they will be able to get something. I know of some second-hand examples.
I know of some examples also. And, if it’s small, it may be easier to just pay it than to fight it while you’re grieving.
I am not too worried about this. It is not a large amount of debt and he expects to pay it down within the next 2-3 years whether we marry or not. He will also receive a small pension, which I will not.
If you are thinking of this strategy, I would strongly suggest you follow up with your attorney with this question: Can Medicaid claim some/all of the equity in my home after neither of us lives in the home any longer?
While homes are left out of the Medicaid formula for current assets, that doesn’t prevent Medicaid from filing a lien on the home for when it’s sold, or even forcing a sale if both of you no longer live in the home.
Actually, at least in Texas, there is a whole market around selling SPIAs (Single Premium Immediate Annuities) that are based on the lifetime expectancy of one married person and that names Texas as a beneficiary in case that person dies before the end of the annuity, in order to use Medicaid to pay for long-term care for one of a married couple. Of course, one of the issues is that, other than a primary residence home and a car, there can be virtually no other assets, like rental properties, stocks, bonds, retirement accounts (unless annuitized), etc.
In order to convert all of those assets into an annuity, there may be significant tax consequences, so that really needs to be taken into account when making this type of decision.
While homes are left out of the Medicaid formula for current assets, that doesn’t prevent Medicaid from filing a lien on the home for when it’s sold, or even forcing a sale if both of you no longer live in the home.
Thanks AJ. This could be an issue. PA is one of those states that is trying to come after children’s assets for parent’s nursing home care.
PA allows the other spouse to keep house, car, $150,000, life insurance, and annuities. Everything else must go to care before Medicaid will take over. Increasing the value of the house would hopefully allow me to keep enough to buy into a retirement home of my choice. It sounds like Medicaid could still prevent that if they can file a lien.