Thank you for reading our blog. This post will be long so feel free to use the section headers to help you navigate if you only wish to read a specific section. Of course, you are free to watch attorney Dale Bethel present this information in the video embedded on this page.

Medi-Cal and Estate Planning in California

Below we will be discussing Medi-Cal planning specifically in California. We do practice law in California. So that's why it's specifically designated for California, however, we will interject as to what's going on in some other states here and there. In fact, to give you an overview of what we actually do, here's a beautiful chart that you can see that everything starts with estate planning.

Everything must be in writing, and if you have read some of our other posts, you'll get a little idea of what the estate planning actually entails. You can see that everything spins off of estate planning, specifically the elder law section. Medi-Cal is the only public benefit for long term care, and it is what we have to apply for if we want that benefit to help pay for that long term care. As such, it's a major part of our practice for over 30 years. We've been doing medical planning within the California structure, and we have a great team behind us as to who can help.

What is Medi-Cal and Where are the Rules Headed?

With that in mind, just what is Medi-Cal? Medi-Cal is the long-term care program in California, but it is a federal program initiated by the federal government, and it's called Medicaid. I'm sure most of you from out of state think of it as Medicaid. In California, we typically call it Medi-Cal now because it is a federal program that was started back in 1965 under the Lyndon Johnson administration.

The federal program of medical is delegated to all the states in the nation where each state can implement the bureaucracy of their own long term care program. California just typically calls it Medi-Cal. With that in mind, California now is still running under federal Medicaid rules that were established in the 1980s. So why is that significant? Well, the Medicaid rules at the federal level change every once in a while.

Specifically, what they're doing is changing the rules to make it a little more difficult to get qualified for Medicaid because of the baby boomers that are now coming up through the system, getting to that age where they're going to be applying for a long-term care assistance. However, California is going in the opposite direction. How it really works is each state can adopt up to the restrictions of the federal government, but they cannot be more restrictive.

California has chosen, however, to be less restrictive. The moral of the story here is if you want long term care and want to easily apply for it, move to California. Again, we are running under 1980 federal Medicaid rules that allow us to shelter all our assets that we have prior to immediately going in and qualifying for the Medi-Cal benefit to pay for the long-term care in 49 other states.

To put it easily, there is no movement of moneys, no sheltering of moneys or property, five years prior to going into the nursing home, which makes it very difficult, if not impossible, to actually preplan for Medicaid in all the 49 other states. However, in California, we're allowed to preplan. We're allowed to prearrange our assets to have them sheltered and then turn around and get qualified for the Medi-Cal benefit to pay for everything.

One of the newest implementations that's going on in California right now is we have adopted new rules starting July 1st, 2020, wherein rather than making it more restrictive in getting qualify for the medical benefit, actually make it less restrictive. The new rules of July 1st allow the ill spouse to keep more money than they ever used to, in addition to the well spouse being allowed to keep more as well. Thus, we are now going to go through those new current rules as of July 1st, 2020, to give you an idea of exactly what you as the well spouse or ill spouse can keep and still get qualify for Mid-Cal.

Rumors for Future Changes of Medi-Cal Requirements

As a heads up, we also have rumors coming through the system that in 2024 there's going to be a new implementation of rules in California. They are going to make it less restrictive to get qualified. These rumors are that by 2024, there will be no asset limit in qualifying for Medi-Cal in California. Essentially, you can have millions of dollars of value in property and investments, yet still be able to qualify for Medi-Cal to pay for long term care.

The rumor as to the reason they're doing this (according to friends in the insurance industry) is that California wants a universal health care system, and they want to force everybody to pay for long term care. That is why in 2024, they're not going to care about what assets you have because everybody’s apparently going to have to have the long-term care insurance. Again, those are only rumors. We don't know if that's really going to happen, but that is what we've been hearing through the grapevine.

The Benefits of Preplanning for Medi-Cal

With all that in mind, we'd like to give you a little Medi-Cal overview and the purpose behind actually getting it. In addition, when you do get the Medi-Cal benefit, why are we doing everything that we're going to do in order to rearrange your assets?

The bottom line is Medi-Cal rules have a limit on what you're allowed to have at this particular point in time. As such, what we want to do is protect your assets from medical spend down. In other words, we don't want you to go out and spend the money on a long-term care facility when in fact, legally, you can save everything you have and shelter it and still get the medical benefit.

Next, we’ll go through the spend down process – how to protect your assets. We also want to make sure we're avoiding any kind of recovery claim against your home or any other real estate that you may have. That rule has become very simplified lately. Bottom line is, if you have a revocable living trust, you're avoiding probate. So long as your house is titled in your revocable living trust. The state of California under Medi-Cal will not come after that home as a recovery asset to pay them back for money spent on your care. Think about it the importance of having a revocable living trust not only to avoid probate for your family and keep your family out of court, but also to now make sure that if you go into long term care, the state's not going to come after your house.

There are certain legal ways to turn countable assets into protected assets. This is, in a sense, what we've already discussed regarding the spend down. We want to change countable assets (as they are going to be what deprives you of getting the benefit) and turn them into protected assets so that we can actually shelter everything. There are special powers that go in your revocable living trust that allows us to protect your assets.

What we mean by special powers is, is that the typical scenario of how this gets started is we get a phone call from a son or a daughter or some other family members about mom and dad. Mom and Dad are heading towards long term care. Their concern is, what do we do? How do we protect the assets? How do we get some coverage for them? How do we protect them when it comes to long term care concerns? Well, to do so, we are going to be moving and sheltering the assets. Once you start moving and sheltering the assets on behalf of parents, the children have to be on the parents’ powers of attorney.

There must be certain language in the trust documents that allow this to happen. Nobody wants to be accused of elder financial abuse or any of the other issues that could crop up. Thus, having a writing where these powers have been delegated from the parents to the children in order to act on their behalf to protect the estate is very important.

This means one of the first things we do is ask, do you have a revocable living trust in place? Do you have a valid financial power of attorney with these special powers that will allow the family to protect the assets if a parent has to go into long term care? Now, when it comes to Medi-Cal, a good overview is to think of preliminary matters that may be accomplished prior to coming in and seeing us.

What You Need to Know and Do Before Applying for Medi-Cal

This is a typical question we get asked all the time, what can I do ahead of time to protect my parents from losing everything that they worked for on a long-term care facility?

Consolidate Your Assets

The first point is to consolidate your assets. It's very difficult to deal with parents’ assets that are spread all over town and maybe 12 different institutions, 12 different banks, brokerage houses and things of that nature. In our opinion, it's nice to have one brokerage account where you keep your stocks, bonds, mutual funds, your investments. It's okay to have a savings account for your cash money and a checking account outside of that.

There's really no reason as we age and get into our late eighties, early nineties, to have assets spread all over town and various different institutions. If the assets are spread all over town and different institutions, it just takes that much longer to consolidate them anyway into one workable account, especially in order to help shelter and get them moved.

Address Rental Property

The other big issue has to do with addressing rental property. Rental property is actually one of the most difficult assets to contend with when it comes to Medi-Cal planning and sheltering of assets. Right away, one of the first questions after we ask if you have a revocable living trust, is do you have rental properties? Protecting the house that the parents live in, or the ill person lives in is very easy, but rental properties are a little problematic and we'll get into that a little bit later on.

Revocable Living Trust with “Special Powers”

The next step is, does everybody have a revocable living trust with those special powers that we've already talked about. If, in fact, you do not have a revocable living trust set up and the parents or the ill spouse actually does need one, those are what we're going to assess and we're going to provide as part of the Medi-Cal planning. However, we'll also look over the existing revocable living trust and if there's any updating that needs to be done, we'll make sure that they get done, especially making sure those special powers we alluded to earlier are actually in the document.

Powers of Attorney

We're also going to be looking at the powers of attorney. We do want to make sure that there are valid health care and financial powers of attorney in order – especially the financial power of attorney. Again, that special power or special language regarding Medi-Cal must be not only in the revocable living trust, but also in your financial or a general power of attorney.

Valid Phot ID

A small point that you may not have considered ahead of time but that is nevertheless important is having valid photo IDs. Does your parent or the ill spouse have a valid photo ID? It is very common that folks will come in and as they've age, they've let their driver's license lapse and they've never gone out and gotten a valid California ID card.

When it comes down to moving assets and signing new documents through a notary and making sure everything's in place in terms of getting everything organized to get qualify for that Medi-Cal benefit, we need to have to have a valid photo ID. Children, if you're thinking about what to do with your parents in terms of their aging and getting on long-term care, please get them out to get a valid photo ID because it will go a long way in getting everything done and running smoothly. If you don't have a valid photo ID, you can't even do a notary. Please get a photo ID that's actually valid.

Address the Checking Account

Another common issue is the checking account. Usually, we advise our clients not to put the checking account into the name of the trust. The reason is if it is a trust asset, you cannot put that trusted son or daughter on that checking account in order to write checks on your behalf. We always keep the checking account out of the trust so that you can add that trusted son, child, daughter, whoever that you have as a confidant in your family so that once they're on the checking account, they're in a position to write checks, which also is a process of sheltering the assets and making sure we get under the numbers that we need to in order to qualify for the Medi-Cal.

Problems Affecting Medi-Cal Eligibility

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

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 Medi-Cal, especially if someone's already in the facility.

Two Approaches in Qualifying for Medi-Cal

Here in California, we actually have two approaches. When we sit down with you to go over what is the best medical approach, these are, in a sense what we're discussing.

First Approach – HCBS Waiver and Long-Term Care: Home and Community Based Services

The first approach really pops up in three instances. If the person has to actually go into long-term care, into a long-term care facility, or if the applicant wants to stay at home and still tap into Medi-Cal to pay for that in-home support services, and that's under IHSS in California, which means in-home support services.

The next choice that we have is board and care under the assisted waiver program. So bottom line is, if we're going to go through HCB waiver and or long-term care program, these are the three goals that we want to ascertain. Is the applicant going to stay at home? Is the applicant going to go into board in care or are they going directly into a nursing home?

What Assets May be Kept

The result is under these new rules, starting July 1st, 2022, we discussed earlier, the applicant can now keep up to $130,000 and still get qualified. Before the rule was, they could not have over $2,000. Now, if you have a well spouse, that well spouse can keep over $137,400. This means if you're a husband and wife with one ill spouse, one going into a nursing home or long-term care type plan, you can actually keep as husband and wife, $267,400 plus whatever is exempt anyway and whatever is exempt anyway is your house that you actually live in your principal residence. This all can stay in the estate. Remember, the estate is going to avoid a recovery claim from the state of California because we're going to have it in a revocable living trust. California will not come after a home if the home has avoided probate.

The other big issue that I come across that is exempt assets. These are your IRAs, all your pensions, and retirement plans do not count in California as an asset when it comes to qualifying for Medi-Cal. The bottom line is we simply don't worry about them. We keep them as they are and don't touch them and they're there to stay.

Second Approach – “Regular” Medi-Cal

Now, the other approach is what we usually call regular Medi-Cal. Regular medical means that somebody wants to preplan. They don't necessarily need the Medi-Cal right now. They're not actually entering into a long-term care facility or staying at home under IHSS.

This is where somebody wants to have it preplanned. They want it in the can, so to speak, so that when things start happening and long-term care is creeping up where it's actually going to be needed, you already have it in place. However, you will also use this when you want to have Medi-Cal cover all your co-pays when it comes to pills and things of that nature.

The result? If we qualify under this approach, the applicant can keep up to $130,000. These are those new July 1st rules, and the well spouse can keep up to $65,000. You'll notice it's a little less than if you go into the long-term care facility on that issue. However, the husband and wife can keep a total of $195,000, including everything we already discussed that's exempt: IRAs, pension, retirement plans and the house, of course.

What if the Medi-Cal Applicant has Minor Children?

Also know that there's a subtle little rule here that if you actually have minor children and you're applying for this type of regular medical, each child can be credited with $65,000 up to ten children. You may be wondering now, why would that ever kick in? Why would I need to worry about that? My parents are 80, 90 years of age. Of course, they don't have minor children.

We do a lot of planning for Medi-Cal when folks come down with advance illnesses, specifically MS. It's a sad situation to see – a 45-year-old lady, who has MS can't take care of her minor children anymore. Yet they're there and they have expenses. The state of California will give the family a little bit of a break, if that's the type of situation that we're working with.

What to do if the Family is Above These Asset Thresholds?

What do you do if, in fact, the thresholds we just discussed are going to be exceeded, in the sense that your parents or the ill spouse has more assets than what those thresholds provide. There are really two approaches to this situation. It has to do with whether or not we're sheltering just money funds or whether we're worried about the house.

Revocable Living Trust vs. House Trust

Remember, we've established the house as being left alone in a revocable living trust as the state of California is not going to have a recovery claim against the parent's home. However, if a revocable living trust avoids probate, and thus a recovery claim from the state, why would you use a House Trust? It boils down to the facts and circumstances of each family’s situation. If you want to avoid a recovery claim on the home, we can leave the home alone.

However, consider the fact that a home just sitting there empty is going to cost a lot of money. There are always expenses with the home from property taxes to maintenance, upkeep, etc. and you cannot rent it out with this in being in your parent's name because they have to report the income and that's going to ruin the Medi-Cal. To address this, we sometimes use a house trust to avoid these situations, especially when it comes down to the children not knowing exactly what to do with the house.

Even if you change your mind, you know, later on down the road and you don't want to be stuck in a program that's going to cause a problem. Well, here's what I'm getting at. If you leave it in the revocable living trust, you're fine. You cannot rent it out. But it will sit there. And the state of California is not going to come after it to recover against it.

You can sell that home somewhere on down the line or in the beginning of the Medi-Cal planning, but once it's sold, we simply gift it and move the funds out like we're going to talk about below. The other big benefit for keeping the home is you get a stepped-up tax basis upon death, and that might be very, very important.

Capital Gains & Stepped-up Tax Basis – A Brief Aside

The tax basis of the property is whatever the parents actually paid for it versus how much it appreciated in value. Well, one of the perks that we get for living in the USA is if you pass away and leave behind capital gain property, that would be real estate or stocks, bonds, mutual funds, all that capital gain property will achieve a stepped up tax basis on the death of the owner of the parent here in this case, so that the children can turn around and sell the assets without a capital gains tax it.

That's very important, especially if you have a real low basis on that house. As an example, we have a lot of clients who bought their home in the Los Angeles area for $30,000 back in the 1960s. Now it's worth over $3 million or sometimes $6 million, depending on where it's at. They now have a huge capital gain built up into that household and moving it out to another owner or into another trust could cause a big problem and a big tax hit, and we don't want that to happen.

How to Address Real Property

Thus, one of the first things we do is discuss the value of the home – what kind of basis is in that home and what's the best approach. Why would you use a House Trust rather than just leaving the house and the revocable living trust? It boils down to what the family wants. The first step is, is that if the family wants to rent that house out without selling it, then if they move it into the House Trust and the rental income is reported to said House Trust and not to the parents, so as not to interfere with the Medi-Cal benefit.

However, sometimes the family doesn't know what to do with the house when we get into the middle of planning everything. If you don't have your mind made up on what you're going to do with the home, we could put it into the House Trust, and you can change your mind on what you want to do with it later on down the line without it affecting the Medi-Cal benefits the parent is on.

To summarize, once the house is in the House Trust, you can either keep it there, you can rent it out and report the rental income to the trust, or you could sell it. The sales proceeds go back into the trust, not to mom and dad and doesn't ruin their benefit.

As you would expect, the most important aspect of the House Trust, is taking care of the parents. Once they deed the house into that House Trust, they're going to retain a right to occupy that home. That retention does not have any value according to Medi-Cal, which means Medi-Cal is not going to come after a right to occupy and want to recover against it. The significance of retaining a right to occupy is that upon the parent's death, if you still own that home in that House Trust, you're also going to achieve a stepped-up tax basis because of that right to occupy retention. With that, you get the best of both worlds by using the House Trust in the sense of you can always change your mind with what you want to do with the home without it affecting the Medi-Cal benefit.

Movement of Funds

The movement of funds is a common aspect when it comes to protecting the parent's assets. If the parent's money, stocks, bonds, and mutual funds are above the thresholds discussed above, how do you shelter that extra money? Well, in the 49 other states outside of California, there is no movement of any funds five years prior to going into a nursing home. However, in California, we don't care. What we're worried about is how we shelter money. We do not want it to create a period of ineligibility to qualify for Medi-Cal. The period of ineligibility is a time period that is triggered once you write a big check to somebody, resulting in the applicant having to wait before they are allowed to go in and qualify for the Medi-Cal. We need to avoid triggering this waiting period.

However, there is a way to move funds and not trigger this period of ineligibility, which goes back to the fact that California is running under a 1980 federal Medicaid rules which allows all this to happen. In order not to create a period of ineligibility, we are going to take the amount of money that we need to shelter and divide it by $10,000. That number tells us how many days we need to move the money out at $10,000 per day. Once that movement is done, we go into Medi-Cal and report what we're doing and how we want the Medi-Cal benefit. Medi-Cal then does a look back to see that we moved that extra money, but how we moved it never created a period of ineligibility. This means the applicant is immediately eligible for the Medi-Cal benefit, despite the fact that we sheltered the funds.

Methods of Moving Funds so as to Avoid a Period of Ineligibility

To illustrate this movement structure, we have included some examples below.

Movement of Funds with a Special Needs Trust

First is a husband-and-wife example with husband as the ill spouse and thus seeking the Medi-Cal benefit.

The first thing we're going to do is move the money all down into the well spouse's name. Remember, under certain thresholds, the ill spouse can keep $130,000, and the well spouse can keep a little bit more than that – think around $200,000 based on what we discussed previously – and you are allowed to keep whatever is exempt: the house, the pension, retirement plans, etc.

However, what if you're over that threshold again? What we want to do is move out the value of $10,000 per day so that we do not create a period of ineligibility. In the chart above, we're picking a son or a daughter to move the money to and they deposit into their account, before then moving the money in one lump sum into a Special Needs Trust, by using the son or daughter as a conduit for these funds. We then design that Special Needs Trust where the first beneficiary is the well spouse, in this case the wife.

This means if the husband passes away after using long-term care and the well spouse wants her money back, the Special Needs Trust can provide the money right back to that parent. If that ends up not being the scenario, as in perhaps the husband has passed away after receiving the Medi-Cal and now the wife needs the Medi-Cal, we just gift out what she cannot have to qualify. Now that she's a single person, we get her down to $130,000. We move it to the trusted son or daughter, and then move it into that existing Special Needs Trust used for the first ill spouse. When the second spouse passes away, the contingent beneficiary under the Special Needs Trust is the family, just like the old revocable living trust that the parents used to have, for example.

As you can see, it's a very simple process, and we will help you get all this organized and move all the money out. We tell Medi-Cal how we did it so that they know exactly what's going on and of course, approve the benefit.

Movement of Funds with a House Trust

Next, what if we needed a House Trust? In that case, we're going to still gift the money as illustrated in our prior example, at $10,000 per day.

When it comes to the house that the parent or spouses actually lives in, that is an exempt asset in the context that I don't have to worry about a period of ineligibility being created by moving the principal residence, it will only take one deed. We move it into the House Trust with a right to occupy back to the person who moved it to the House Trust. The ultimate beneficiary of the House Trust can be the family, just like the old revocable living trust. Once it's in the House Trust, the family can, rent it out, sell it, let it just sit there and grow weeds, or they can change their mind on what they want to do with the home. This will not affect the eligibility, or the Medi-Cal benefit the parent is actually receiving.

In Closing

Qualifying for Medi-Cal can feel like an insurmountable task. On top of the headache of forms and filings, ensuring the person who needs the help qualifies in the first place may entail a lot of work. Add to this, the potential of a recovery claim, and you have a recipe for procrastination and stress. Our office has been helping those in the community qualify for Medi-Cal for over 30 years and have built a great team around us to do so. If you or a loved one is thinking about applying for Medi-Cal for long-term care or nursing home care, then we highly recommend speaking with an attorney experienced in Medi-Cal qualifications to make sure everything is in the right place before jumping head first into the bureaucracy of long-term care benefits.

BETHEL LAW CORPORATION
ESTATE PLANNING | ELDER LAW | BUSINESS PLANNING

CLICK HERE OR CALL US AT 909-307-6282 TO SCHEDULE A FREE CONSULTATION.