A recent client came to my firm because his wife is in a nursing home and he is concerned about having to spend all his savings paying for her care. Unfortunately, he had liquidated his wife’s $30,000.00 life insurance policy for the $15,000.00 cash surrender value, on the advice of his prior attorney. He gave half the value of the policy to the insurance company for no reason.
As explained in “Divorce Will Not Help Pay the Nursing Home” and the four succeeding columns, a community spouse has many options for preserving any excess assets. Surrendering a life insurance policy is almost never necessary to qualify for Medicaid.
A spouse in a nursing home who qualifies for Medicaid must reduce his or her assets to the asset limit – $2,000.00 in Michigan and $2,400.00 or $8,000.00, depending on income, in Pennsylvania – within a certain period. However, instead of surrendering or borrowing against an insurance policy, ownership of the policy can be changed to the spouse who is not in a nursing home. If there is no community spouse, the ownership of the policy can be changed as part of a gift strategy to preserve assets for family member.
Some life insurance policies have a cash surrender value that is close to the death benefit. In that case, surrender may make sense. Otherwise, change of ownership or a loan against the cash surrender value is a wiser choice.
VA life insurance policies do not allow change of ownership. For those policies, it is necessary to borrow against the cash surrender value. For almost any commercial life insurance policy, ownership can be changed.
If you are consulting an attorney about qualifying for Medicaid and he or she advises you to surrender a life insurance policy, get a second opinion. It is most likely bad advice.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2014 John B. Payne, Attorney