Problems Affecting Medi-Cal Qualification in California

Our, next post will be a detailed discussion on everything you need to know about Medi-Cal and long-term care in California. However, we wanted to highlight a portion of that discussion here about some of the problems that can affect eligibility and qualification for Medi-Cal in California.

Gross Estate Value

First of all, whoever is applying for the medical, if that's the ill spouse or the ill parent, we need to know their gross worth. Nobody cares about the net. Medi-Cal does not care what kind of mortgage you have on your house. It's all about gross estate value. So, the first thing we do is we determine what is that gross estate value of the applicant? And if the applicant has a spouse, we need to know their gross worth too as California is a community property state. This means it's everybody's money – husband and wife. Again, we need to know the gross estate value, not the net.

Rental Property and Rental Income

And then the next big issue has to do with is rental property. When it comes to rental properties, it is an asset that will count against you and the first issue springing from rental property is rental income. You should not have rental income reported to mom and or dad. Whoever is applying or not applying, who's the well spouse? When it comes to Medi-Cal, that income will simply be chewed up and go out to the share of cost of the nursing home. Additionally, it just simply means that Medi-Cal will pay less. So why give the rental income to the nursing home?

Due to the fact that we don't want rental income reported to mom and or dad, the other big issue is, that they cannot have a rental property sitting there unless that rental value falls under the asset limit that they're allowed to keep. To navigate these issues, we have to shelter that rental property. We'll also shift the income over to either a trust or the family members, not to the parents or the one applying for the Medi-Cal.

Keep in mind, there are some hoops we will need to jump through to take care of rental property quickly. Typically, this involves drafting several deeds based on the assessed value of the rental property, not the fair market value. The assessed value can be found on your property tax statement. It’s what the county assessor is charging you in terms of the value of the rental property. We take that number, divide it by 10,000, and that tells us how many deeds we must create to move it out at one deed per day until it's done. We'll go over that more detail when you come in and talk to us.

Probate – Avoiding a Medi-Cal Recovery Claim

Next, we have the probate court to contend with. Whenever we go into probate, we must notify Medi-Cal within California that a probate has been filed so they can review their records to see if there's any recovery claim against the estate that's being probated.

This is exactly why you should do a revocable living trust and stay out of probate. If we have a revocable living trust as an estate plan and we're not ending up in probate, then there is no rule to turn around and tell Medi-Cal what we're up to. The revocable living trust keeps us out of court, avoids the probate, and we now don't have to tell Medi-Cal that the estate's in a probate situation.

Cost in “Cashing Out” Annuities

Finally, another big issue is the cost in cashing out annuities. We mention this simply because there's a lot of protection in the financial planning world to not sell annuities to elderly people. However, some of these annuities we come across outlast the age requirements for selling annuities and may lock those funds away until the applicant is in their eighties or nineties.

If we need to cash out the annuity, then we will need to shelter it. A word of caution, however, cashing out means surrender charges and penalties. If there's anything as a child, you can do is tell your parents not to invest in annuities as they get up into the late eighties and early nineties so that we don't have to worry about surrender charges and the complications of closing down annuities.

Life Insurances – Cash Value

The last problem section has to do with life insurance. Not the largest problem but dealing with life insurances requires a lot of timing and patience. We need to contact the life insurance companies, and if you have whole or universal life, it has a cash value, and we need to get rid of that cash value. The actual rule is you can have a cash value of $1,500 or less and therefore the life insurance doesn't count.

However, $1,500 dollars or less is a very, very small cash value, and we quite honestly never see that. We always see cash values in the tens of thousands, if not more. That cash value is considered a countable asset; thus, we’ll need to ascertain exactly what the cash value is and do some planning to get rid of it. There are some strategies for doing so. Sometimes it may be as simple as changing ownership of the life insurance policy. Sometimes we just cash it out. Sometimes we cash it out down to less than $1,500, but the drawback to all of this is you lose your death benefit by cashing out life insurance. We always must address the life insurance issues.

All these problems are addressable, but it just takes time, and time means money when it comes to qualifying for medical, especially if someone's already in the facility. Be sure to be subscribed to our YouTube channel here or our Newsletter here to be notified when we release our detailed discussion on everything you need to know about Medi-Cal and long-term care in California very soon.

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