Medicaid Spousal Refusal in New York

A spousal refusal form is attached to the nursing home Medicaid application. Executing it and transferring all assets to the name of the non-nursing home spouse qualifies a married person for Medicaid.

New York is one of only three states in the country that allows spousal refusal to qualify a nursing home spouse for Medicaid. New York recognizes a spousal refusal and does not apply the five year look-back period when you transfer assets to a spouse or to a disabled child.

This Medicaid planning technique is ideal for someone who is about to enter a nursing home and has a spouse who is well enough to stay at home. It is not recommended when the community spouse is also likely to soon enter a nursing home, because a person who has assets will be denied Medicaid.

It is imperative to not transfer assets from the community spouse to someone else before the Medicaid application gets approved.

It is important to get advice from an experienced Medicaid attorney before executing a spousal refusal. The spouse going into the nursing home might be required to sign an assignment of support in favor of the Department of Social Services, which would give Medicaid the option of suing the community spouse for support. There are some exemptions to this requirement, such as the potential Medicaid recipient not being able to sign the form due to not having capacity, or imposing undue hardship on the family. Having an attorney is crucial if one wishes to obtain Medicaid without having to sign an assignment of support.

The Statutory Basis for Spousal Refusal

New York's spousal refusal procedure rests on Social Services Law § 366(3)(a), which provides that "Medical assistance shall be furnished to applicants in cases where, although such applicant has a responsible relative with sufficient income and resources to provide medical assistance as determined by the regulations of the department, the income or resources of the responsible relative are not available to such applicant." Federal Medicaid law allows states to require contribution from a community spouse but does not require it, and New York has chosen a more applicant-friendly approach.

The practical effect is that a community spouse can refuse, in writing, to make her income and resources available to support the institutionalized spouse. Once the refusal is documented, the applicant is treated as if those resources do not exist for eligibility purposes. The applicant can qualify for Medicaid even though the household, taken as a whole, has assets and income well above the program limits.

How the Process Works

The process begins with transferring all jointly-held assets and the institutionalized spouse's assets to the community spouse's sole name. Bank accounts are retitled. Real estate may be deeded to the community spouse. Brokerage accounts are reregistered. The institutionalized spouse is brought down to the small allowance permitted for Medicaid applicants. The community spouse holds the rest in her own name.

The institutionalized spouse then applies for Medicaid. With the application, the community spouse signs and submits a Spousal Refusal form declaring that she refuses to make her income and resources available. The application is then evaluated against the institutionalized spouse's own resources, which by this point should be below the applicant limit. Medicaid approves the application, and the institutionalized spouse begins receiving benefits.

The community spouse continues to live in the home, manage the assets she now owns, and use her income for her own support. The institutionalized spouse's care is paid by Medicaid.

The Five-Year Look-Back Does Not Apply to Spousal Transfers

A critical point: transfers from one spouse to another are exempt from the Medicaid transfer penalty. The 60-month look-back period that applies to other transfers does not apply to spousal transfers. This means the community spouse can receive assets from the institutionalized spouse on the eve of the Medicaid application without any transfer penalty attaching. This exemption is what makes spousal refusal a "crisis planning" tool – it can be deployed at the last minute when a long-term planning horizon does not exist.

Disabled-child transfers are also exempt. A spouse can transfer assets to a trust for a disabled child without the look-back applying. This option is sometimes used in conjunction with spousal refusal where a disabled child is part of the family.

The Medicaid Right of Recovery

The trade-off for spousal refusal is that the state retains a right to recover the cost of services from the community spouse. This recovery can happen during the community spouse's lifetime through a "support action" by the local social services district, or after the community spouse's death through a claim against the community spouse's estate. The legal authority is the same Social Services Law § 366(3)(a) that allows the refusal in the first place.

In practice, the state usually does not pursue recovery during the community spouse's lifetime. The administrative burden, the legal cost, and the political sensitivity of suing a surviving spouse weigh against it. Most recovery happens after the community spouse dies and the state files a claim against the estate.

Settling the Recovery Claim

Recovery claims are heavily negotiable. The state's bargaining position depends on the size of the community spouse's estate, the existence of competing claims, the strength of any legal defenses, and the cost of litigating versus settling. In our experience, settlements at 25 to 50 cents on the dollar are common, and even more favorable settlements are possible in particular cases. The negotiation is conducted between the community spouse's attorney (or, after death, the executor's attorney) and the local social services agency's recovery unit.

Several defenses can reduce the recovery amount:

• Statute of limitations. Claims have to be brought within statutory time limits, and stale claims can be barred.
• Documentation gaps. The state has to support each portion of the claim with itemized records. Unsupported portions can be excluded.
• Equitable defenses. Where the community spouse had medical or financial hardships of her own, or where she devoted substantial personal effort to caring for the institutionalized spouse before institutionalization, courts may reduce the recovery amount.
• Specific service eligibility. Not all Medicaid services are subject to recovery. The state's claim has to be limited to recoverable services.

When Spousal Refusal Makes Sense

The strategy is most effective when:

• One spouse needs nursing home or long-term care and the other does not.
• The couple's combined assets exceed the Community Spouse Resource Allowance.
• Long-range planning was not done, leaving little time for a five-year look-back trust.
• The community spouse is in good health and likely to live long enough that the lifetime cost of Medicaid services exceeds what would be paid out in private-pay nursing home care.
• The community spouse has the support of an attorney who can manage the eventual recovery negotiation.

When It Does Not Make Sense

Spousal refusal is not the right strategy when both spouses are likely to need long-term care soon, when the community spouse has very little life expectancy, when the family wants to avoid any state involvement after death, or when the couple's assets are modest enough that they will fall under the resource allowance without refusal. Each of those situations calls for different planning.

Other Planning Pieces That Pair with Spousal Refusal

Spousal refusal is rarely used in isolation. It is often combined with:

• A new will for the community spouse that excludes the institutionalized spouse, to limit the right of election that DSS could otherwise exercise.
• An immediate annuity for the community spouse, which converts some of the community spouse's assets into an income stream that is not subject to recovery in the same way as principal.
• Transfers of assets to a special needs trust for a disabled child, where applicable.
• Coordination of beneficiary designations on retirement accounts and life insurance.
• Pre-funded funeral arrangements that remove assets from the recovery pool.

Talk to a Medicaid Spousal Refusal Attorney

Spousal refusal is one of the most powerful Medicaid planning tools available in New York. The execution requires careful attention to documentation, timing, and the broader plan. Contact the Law Offices of Albert Goodwin at 212-233-1233 or by email at [email protected] to discuss whether spousal refusal makes sense for your family.