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 affect 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.