When a person enters a nursing home or skilled nursing facility and cannot pay, then Medi-Cal is usually the source of funds for payment. Medi-Cal is California's version of Medicaid. Medi-Cal is essentially a form of public health insurance which provides needed health care services for qualifying individuals. To qualify, limits are imposed upon the assets that can be owned requiring assets to be spent down. With California's community property law, these limitations may effect both the institutionalized spouse and the well spouse.

In determining the qualification for Medi-Cal, the person's residence or home is not counted. However, if benefits are paid, a lien will be filed against the home seeking to recover the cost of the benefits paid. If assets are gifted or transferred away within 30 months of the application for Medi-Cal benefits, then a penalty period is imposed during which he or she does not qualify for benefits. The stakes are high as the average monthly cost for a stay at a nursing home often exceeds $8,000.

Many families seek to protect the family home. One of the best tools to protect the family home is the use of an irrevocable Medi-Cal Protection Trust. The Trust protects the family home from a Medi-Cal recovery lien. The Trust can be designed as a grantor trust which will not be required to file a separate tax return. A grantor trust preserves the favorable tax treatment of the residence (the first $250,000/$500,000 is tax free if sold depending upon filing status) and the step-up in basis at death. The Trust can also be designed to avoid a change of ownership for property tax purposes to prevent an increase in the property tax.

There are many other tools that can be used to help protect your family's legacy from Medi-Cal liens or spend down rules. As with most challenges, planning and implementation are needed to protect your family's legacy.

Some of the most overlooked tools to utilize are the personal care contract and stacked or successive gifts. The personal care contract can be used to transfer substantial assets or cash to family members providing care. A personal care contract can be used to transfer amounts for future services based upon the remaining life expectancy of the family member in need and the reasonable value of those services.

The first instinct when seeking to qualify for Medi-Cal is to transfer or gift assets to children or other family members. If a gift exceeds the average private pay rates ("Appr") for long term pay results in a penalty. The Appr is currently $7,628.00. A transfer of non-exempt assets results in a period of ineligibility for medical benefits or a penalty equal to the lesser of 30 months or the value of the assets transferred divided by $7,628.00 (the Appr). For example, a transfer of $100,000 results in a penalty of 13 months of ineligibility.

The California Medi-Cal rules have a number of unique twists. In particular, multiple gifts if made correctly are analyzed separately which provides the opportunity to transfer separate gifts each day without triggering a penalty.

Finally, you may have heard that transferring assets, or helping someone to transfer assets, to achieve Medi-Cal eligibility is a crime. Is this true? The short answer is that for a brief period it was, and it's possible, although highly unlikely under current law, that it could be in the future.

As part of the 1996 Kennedy-Kassebaum health care bill, Congress made it a crime to transfer assets for purposes of achieving Medi-Cal eligibility. Congress repealed the law as part of the 1997 Balanced Budget bill, but replaced it with a statute that made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medi-Cal. This meant that although transferring assets was again legal, explaining the law to clients could have been a criminal act.

In 1998, Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment protection of free speech, and she told Congress that the Justice Department would not enforce the law. Around the same time, a U.S. District Court judge in New York said that the law could not be enforced for the same reason. Accordingly, the law remains on the books, but it will not be enforced. Since it is possible that these rulings may change, you should contact an elder law attorney before filing a Medi-Cal application. This will enable the attorney to advise you about the current status of the law.

The bottom line is that just like planning to avoid probate and to avoid or minimize estate tax, careful planning can help protect your assets and qualify for Medi-Cal benefits. The rules are both technical and fact specific. Do not hesitate to call if you have any questions regarding Medi-Cal planning. We will be providing a webinar on this issue in the near future. Please let us know if you have an interest in attending.  

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