The Hidden Risk of Spousal Transfers: How Poor Planning Can Leave the Healthy Spouse Exposed

When one spouse needs long-term care, it’s common for families to assume that transferring assets to the healthy spouse will protect them. Unfortunately, without proper Medicaid and legal planning, these “spousal transfers” can have devastating financial consequences especially when Medicaid’s complex rules come into play.

The Medicaid Spousal Impoverishment Rules

Medicaid’s goal is to prevent the community spouse (the one still living at home) from becoming destitute but the protection only applies if assets and income are structured correctly. Each state sets strict limits: the community spouse can keep only a certain amount of the couple’s combined assets, known as the Community Spouse Resource Allowance (CSRA). In Connecticut, this figure is capped and closely monitored.

If assets are transferred incorrectly or exceed the allowable limit, Medicaid can deny coverage for the spouse needing care until the couple spends down the excess. That means the healthy spouse may be forced to use joint savings, cash out investments, or even sell property before help arrives.

Why a transfer of assets to a spouse can backfire

Many families make the mistake of transferring all assets into the healthy spouse’s name, believing it makes them “safe” from Medicaid scrutiny. But Medicaid still counts both spouses’ combined resources when determining eligibility. In other words ownership on paper doesn’t matter; control and access do.

Additionally, these transfers can create:

• Eligibility Delays: Transfers that aren’t part of a Medicaid-approved spousal plan can trigger penalty periods.

• Estate Recovery Risks: After the ill spouse passes, the state may seek reimbursement from jointly owned or improperly transferred assets.

• Tax and Title Issues: Moving property without legal oversight can lead to capital gains problems or unintended probate complications later.

Strategic Planning Protects Both Spouses

Proper Medicaid planning uses legal tools such as spousal refusal, Medicaid-compliant annuities, or irrevocable trusts to ensure that both spouses are protected. These strategies must be timed and executed carefully under the guidance of an elder law attorney familiar with Connecticut’s Medicaid rules.

The right plan can:

• Preserve the healthy spouse’s income and home

• Ensure the ill spouse qualifies for Medicaid sooner

• Protect family assets from being depleted by long-term care costs

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Transferring assets between spouses without understanding Medicaid’s rules can backfire — leaving the healthy spouse financially exposed and emotionally overwhelmed. Early legal guidance makes all the difference so call us today to get a solid retirement plan in place!

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