Medi-Cal Planning
Dear Len & Rosie,
My mother is 84 years old and is in poor health. She has been on Medi-Cal for years. She is very concerned that upon her death her mobile home will have to be sold to payback the cost of her surgeries. Can this be true?
Barbara
Dear Barbara,
The California Department of Health Services, "DHS", is required by federal and state law to assert estate claims against the assets of deceased Medi-Cal recipients. After your mother's death, DHS's estate recovery section will mail you an estate questionairre asking you to tell them about the assets your mother owned upon her death. If she still owns her mobile home, then this home will be subject to Medi-Cal's estate claim. If Medi-Cal has spent a substantial amount of money on your mother's care, you and her other children may not be able to inherit anything at all.
There will be no estate claim if your mother is survived by her husband, or a disabled, blind, or minor child. The Medi-Cal estate claim is also limited to what your mother owns upon her death. If she gives away her home prior to her death, it will be protected from the Medi-Cal claim.
If the value of your mother's home has not increased much since she bought it, she could just give it to you outright, provided that you won't run up against any owner-residency restrictions from the mobile home park. If the park won't let you own your mother's mobile home without you living there, or if the value of the home has grown so much you'll have to pay capital gains tax when you sell it, there are other alternatives. For example, your mother could shelter her home in a particularly specialized irrevocable trust that is very different from the normal kind of trusts people create to avoid probate. If she is interested in this, she should consult with an elder law attorney.
DHS is working on new regulations that will impose Medi-Cal eligibility penalties if applicants or recipients transfer their homes. After the rules change, your mother may not be able to protect her home without giving up Medi-Cal benefits, at least for a while. As of today, there is implementation date for the new rules, but they could come into effect as soon as July. For this reason, your mother should act now to protect her home.
Len & Rosie
Dear Len & Rosie,
My aunt is 90 and has a residence in her name that she shares with my mother. She has Padget's disease and pays $5,800 a month for nursing home care. Her medical costs are funded by a line of credit from a reverse mortgage. My aunt never married. I am her nephew and have durable power of attorney. We do not have unlimited financial resources and seek Medi-Cal as a method to provide payment for the cost of her care.
Steve
Dear Steve,
Your aunt may already be eligible for Medi-Cal. Unless she made substantial gifts of her assets in the last 30 months, and the transfer penalties for these gifts have not ended, she is qualified for Medi-Cal long term care benefits if she has less than $2,000 in countable assets. If she has more than that, she can probably pay down the loans against her home to get her below the $2,000 resource limit. She does not have to borrow money each month to privately pay for her care, because her home is an exempt asset that she can still own while being on Medi-Cal.
In fact, your aunt may be retroactively eligible for Medi-Cal for the last three months, if she had less than $2,000 in countable assets in each of those months. The only monkey wrench would be if the her nursing home does not accept Medi-Cal benefits. If it does not, she will have to move to another nursing home that does if she wants Medi-Cal to pay for her care.
Your family should sit down with an elder law attorney to review your aunt's situation. From the facts in your letter, she seems to be eligible for Medi-Cal already, and she's just throwing money away by needlessly spending her equity on her care. Also, if she is going to receive Medi-Cal benefits, it is important to act now to shelter her home from Medi-Cal estate recovery claims so that after your aunt's death, your mother can continue to live in the home. The best way of sheltering the home is with an irrevocable trust, but there are other alternatives that should be explored.
Len & Rosie
Dear Len & Rosie,
My 84-year-old mother will go into full time nursing home care within a month. Since her bank account has sufficient funds to pay for this care for about four years, and given that I have power of attorney over her finances, what legal steps can I take to exempt any of her assets before she qualifies for Medi-Cal?
John
Dear John,
There are a number of different techniques available to qualify your mother for Medi-Cal nursing home benefits. Gifting assets out of your mother's name is one of those techniques, but you have to be very careful if you do this. Having your mother's power of attorney is not enough. You cannot use her power of attorney to gift away her assets unless it specifically grants you the authority to make gifts. Otherwise, you're simply stealing your mother's life savings.
Also, if and when you apply for Medi-Cal for your mother, you must disclose any gifting that was done during the thirty month "look back period" prior to the date of the Medi-Cal application. Any gifts made during the look back period trigger a transfer penalty during which your mother is ineligible for Medi-Cal. Fortunately, the transfer penalty starts when the gifts are made, not when you apply for Medi-Cal. There are ways of minimizing transfer penalties to qualify your mother for benefits sooner rather than later.
In general, there are three techniques for gifting assets to qualify for Medi-Cal. Your mother could simply give everything away and wait out the thirty-month look back period, but that is almost never the most efficient way to qualify someone for Medi-Cal. She could make a "half-a-loaf" gift in which part of her assets are gifted away and the remaining assets are used to privately pay for her care until the transfer penalty runs out. Monthly gifting is also a commonly used technique.
The best way to qualify someone for Medi-Cal varies from case to case. You should also consider whether or not trying to qualify your mother for Medi-Cal is worthwhile. Depending on her health, she may not live long enough to qualify for benefits, and there can be some adverse tax consequences to making gifts of her assets during her lifetime.
Your mother will not have to give away her home to qualify for Medi-Cal, but it's important to shelter the home from Medi-Cal reimbursement claims after her death. Usually the best way of going about this is with an irrevocable trust, but there are other alternatives. This is why Medi-Cal planning falls into the category of "don't try this at home, kids". If you want to qualify your mother for Medi-Cal, you should start by consulting with an elder law attorney who does Medi-Cal Planning.
Len & Rosie
Dear Len & Rosie,
My mother has been on Medi-Cal for the past eight years. My father passed away ten years ago. My mom lives in her home which was purchased thirty years ago and is paid in full. She has a trust which leaves her home to my sister and me after her death. If she sells her home now, or if she dies, does Medi-Cal require my mother to pay back all the financial aid that she has received so far?
Alec
Dear Alec,
The California Department of Health Services (DHS) operates an estate recovery program. After your mother dies, DHS will assert an estate reimbursement claim against everything she owns upon her death. The good news is that your mother will not have to reimburse Medi-Cal while she's alive, and it's possible to shelter her assets from Medi-Cal estate claims after her death.
If your mother sells her home today, she will not have to immediately reimburse Medi-Cal. DHS can normally assert reimbursement claims only after the deaths of Medi-Cal recipients and their surviving spouses. The exception to this rule is if your mother has received Medi-Cal benefits that she wasn't really entitled to. DHS can always assert reimbursement claims for money spent on people who were not really eligible for Medi-Cal benefits.
Your mother will not even lose her Medi-Cal benefits if she sells her home. She is allowed to keep the proceeds of the sale of her home for up to six months to buy a new home. After the six months are up, any money left over will cause her to lose Medi-Cal eligibility.
Fortunately, your mother can act now to shelter her assets from Medi-Cal estate claims. Because the claims are limited to only what she owns upon her death, she can avoid reimbursing Medi-Cal after her death by giving her home to her children. Usually, an irrevocable trust is the best means of doing this, but this would prevent your mother from taking the $250,000 capital gains tax exclusion if she sells her home during her lifetime.
There are other alternatives. Before she commits to selling her home, your mother should sit down with an elder law attorney and decide for herself the best way to shelter her assets from Medi-Cal estate claims and maintain her eligibility for Medi-Cal benefits.
Len & Rosie
Dear Len & Rosie,
My mother is 75 years old and receives $734 per month of SSI. She has somehow managed to incur $15,000 of credit card debt. Every time she received something in the mail offering her a good deal she'd sign the pre-approved application and a few weeks later she'd have another credit card. I finally put a stop to this when I got involved in her finances. My mother owns nothing except for two insurance policies worth $10,000. Should she declare bankruptcy? Can bill collectors demand payment from mom's insurance money after her death?
Andrea
Dear Andrea,
Your mother can declare bankruptcy if she wants to, but it isn't really necessary. She owns next to nothing. Since she is on SSI, the total value of her assets has to be less than $2,000, and her life insurance policies are almost certainly term life policies with no cash surrender value. Since SSI payments are exempt from attachment, your mother is judgment proof, if only because the consumer lending industry hasn't yet figured out how to squeeze blood from a turnip.
If your mother's insurance policies do not name you as beneficiary, then she should change that now. She gets Medi-Cal benefits automatically because she collects SSI. Upon her death, the California Department of Health Services will assert a claim against anything your mother owns that isn't spent on her funeral and burial expenses. If the insurance pays into her estate, it will be subject to the Medi-Cal reimbursement claim, and anything left after that will wind up going to your mother's creditors. You would wind up with nothing for yourself.
If you are the beneficiary of your mother's life insurance policies, then the money will pass directly to you upon her death. Since the insurance money will not be part of her probate estate, it will not be subject to the claims of her creditors. You will not have to reimburse Medi-Cal either, because insurance proceeds are not presently subject to Medi-Cal estate claims.
You are not legally obligated to pay your mother's debts, but this will not prevent her creditors from asking you to pay them off after your mother's death. If they do, mail them a photocopy of your mother's death certificate with a note telling them that your mother died with no assets and that she was on SSI and Medi-Cal. That should take care of it. If they continue to ask you for money, give them nothing.
Len & Rosie
Dear Len & Rosie,
My dad is an 80 year old widower, who now owns a single-wide mobile home. He wants to sell it and use the money from the sale to buy a double-wide to live in with me. I need advice on how to set this up, whose name should the title be in and what tax results will be imposed. How will this affect Medi-Cal if he needs it later?
Francine
Dear Francine,
There shouldn't be any tax problems with your father selling his mobile home. Mobile homes tend not to appreciate in value so much, so there may not be any capital gains at all when he sells his home. And if there is, he can deduct up to $250,000 in capital gains for selling his home, as long as he has owned it and lived there for any two of the last five years.
If your father ever receives Medi-Cal benefits, then anything he owns on his death will be subject to Medi-Cal Estate Recovery Claim, unless he is survived by a minor, blind, or disabled child. So ideally, the new mobile home would not be titled in his name at all, in order to protect it from potential future Medi-Cal claims.
If your father is really concerned about Medi-Cal, the way to go about it is to sell the old home and buy a new mobile home in his name. Then he can give the mobile home to you. The reason to do it this way has to do with the way Medi-Cal gifting penalties work. If your father sells his old home and gives you the money to buy the new home, there will be a substantial transfer penalty for Medi-Cal benefits if your father applies for Medi-Cal within thirty months of the date of the gift.
However, if your father buys the new home in his name and then gives it to you, there will be no penalty at all, because giving away an exempt asset, such as your residence, does not count as a transfer made for the purpose of qualifying for Medi-Cal.
Your father should see an attorney before doing this. There may be other issues involved, such as other children who may not inherit anything at all if your father gives you his new home.
Len & Rosie
Dear Len & Rosie,
Mom owns only a home valued at approximately $500,000. She gets help from In Home Supportive Services and Medi-Cal. Would it be best to have her gift the house to her three kids or is there a better way to safeguard her home? Mom has a living trust with me as trustee.
Aida
Dear Aida,
After your mother's death, the California Department of Health Services (DHS) will assert a Medi-Cal Estate Recovery claim against everything your mother owns, including everything within her revocable living trust. There will be no claim if your mother is survived by a disabled, blind, or minor child. If she's married, then the Medi-Cal estate claim will be deferred until both spouses have died, but it won't go away. Otherwise, you'll have to reimburse DHS for everything it spent on your mother's care through Medi-Cal and IHSS after she turned age 55, and for care provided to her in a nursing home at any age.
Your mother can shelter her home by giving it to her children, but there are problems with this. You could conceivably sell it out from under her, leaving her without a roof over her head. Her home would also become subject to the claims of the creditors of each of her children. Also, if your mother gives you the home now, the cost basis of the home won't get a step-up to its date-of-death value upon your mother's death. You and your siblings may wind up paying more in capital gains tax than you would otherwise have to reimburse Medi-Cal if your mother "protects" the home by giving it to you today.
The best way your mother can protect her home from Medi-Cal claims is to transfer the home to an irrevocable trust that would no longer count as her property. The trust would restrict your mother's rights with respect to her home to only a "right of personal occupancy" - the right to live in her home. This right of occupancy is not subject to Medi-Cal estate claims, but is enough of a retained interest to give the home a step-up in cost basis on your mother's death.
When your mother dies, you and your siblings would be able to sell the home and pay no capital gains tax on any of the appreciation in the value of the home before your mother's death. If your mother is not planning on selling her home, and if she is willing to give up her outright ownership of her home, then this is the kind of trust she needs.
Len & Rosie
Dear Len & Rosie,
My father is 83 and is not in good health. He has put his home into a revocable trust with my brother and I as beneficiaries and cotrustees. My name has been put on his bank accounts as a joint tenant. Will this form of ownership avoid probate, avoid possible Medi-Cal recovery and will the house still receive a step up in basis with regard to capital gains tax? Should his life insurance policy and personal property also be put in the irrevocable trust?
Brad
Dear Brad,
If your father receives Medi-Cal nursing home benefits, or non-nursing home Medi-Cal benefits after his fifty-fifth birthday, then his home and anything else he owns upon his death will be subject to a Medi-Cal estate claim. A normal revocable trust will not protect your father's assets. The only way to avoid the Medi-Cal claim is for your father to die owning nothing, or if he is survived by a minor, blind, or disabled child and is thus exempt from Medi-Cal estate claims.
Your father's home is an exempt asset for purposes of Medi-Cal eligibility. That means he can give away his home without losing Medi-Cal or having to delay eligibility by waiting out a transfer penalty period. Giving the home to the children now will protect it from Medi-Cal estate claims, but an outright gift is a bad idea. If you do not inherit your father's home on his death, the home would not get a step-up in cost basis, and you would have to pay a great deal of capital gains tax if you ever sell the property.
Instead of making an outright gift of the home, your father can transfer it into a special form of irrevocable trust for the benefit of his children. The way these trusts work is that the settlor (your father) will retain no interest in his home that is subject to a Medi-Cal estate claim, but he will retain certain limited rights (the IRS refers to these as "incidents of ownership") that cause the home to be subject to Federal Estate Tax upon his death. The inclusion of the home in your father's estate for death tax purposes will trigger a step-up in cost basis, even if no estate tax is actually due. This way, you can sell the home after your father's death at its date-of-death value and pay no capital gains tax and you will not have to reimburse Medi-Cal.
Do not worry about your father possessions and life insurance. Medi-Cal recovery does not extend to your father's personal possessions and life insurance policies and even retirement accounts are not subject to Medi-Cal estate claims unless they pay into your father's probate estate upon his death. To protect his insurance, IRA's and other retirement accounts, your father need only name his children as pay-on-death beneficiaries.
Len & Rosie
Dear Len & Rosie,
I was injured on the job ten years ago, so I cannot get any insurance because of my pre-existing injuries and I have never been able to return to work. I own my own home but I am very concerned about losing it if a major illness were to happen to me. I am a 62-year-old women, and I am not really in the best of health. Can you give me some help on protecting my home and any cash in the bank?
Sharon
Dear Sharon,
You have several options. It is possible for you to qualify for Medi-Cal benefits by spending down and sheltering your countable assets, which more or less consists of everything except your home, car, some life insurance policies and retirement accounts, and $2,000. If you collect Medi-Cal benefits, then it becomes important to shelter your home from Medi-Cal estate claims. The best means of doing so is usually to transfer the home into an irrevocable trust.
But it may not be a good idea just yet. You are only 62, and you are probably not yet ready to give up control of your property. If your home were held within an irrevocable trust designed to protect it from Medi-Cal, someone other than you would have to be the trustee. Also, you would not be able to borrow against the trust property under most circumstances, and if the property were sold within your lifetime, you would have to pay more capital gains tax than you would if you keep the home in your name or in an ordinary revocable trust.
There are alternatives to Medi-Cal. You will turn 65 in three years, which will allow you to enroll in Medicare which will take care of most of your medical expenses. You could also get Medicare early, if you qualify for Social Security Disability Insurance (SSDI), but since it takes two years of collecting SSDI benefits to get Medicare, that's probably not an option for you. What you need is something to cover your medical needs until you turn 65.
The answer may be for you to buy insurance through the Major Risk Medical Insurance Program, which is a state program that provide you with medical insurance with health insurance providers such as Blue Cross, Blue Shield, and Kaiser Permanente. The cost is fairly low regardless of any pre-existing conditions. Perhaps more importantly, after three years you can transition to ordinary health insurance with your major risk provider and they can't deny you coverage.
You can find additional information about Major Risk Medical Insurance Program on the internet at http://www.mrmib.ca.gov, and you can obtain an application by calling (800) 289-6574.
Len & Rosie
Dear Readers:
You should be aware of the recent changes in federal Medicaid law. This February, the federal government enacted the Deficit Reduction Act, or "DRA", which will have a far-reaching effect on the Medi-Cal program in California. We have an update for you. So far, the California Department of Health Services has implemented only one new rule.
When one spouse of a married couple applies for Medi-Cal benefits, the spouse at home is allowed to keep exempt assets such as the home, one vehicle, retirement accounts and certain annuities, plus $99,540 in non-exempt assets. This amount is called the Community Spouse Resource Allowance, or "CSRA" and it is increased each year for inflation. Under the old rules, it was possible to increase the amount of CSRA to allow the a low-income at-home spouse to keep more money for his or her own needs and avoid being improvised by the cost of long term care.
Under the new rules, the income of both spouses counts towards whether or not the CSRA may be increased in any particular case. But many retirees have single-life pensions that will pay nothing to a surviving spouse and therefore should not be counted when increasing the CSRA for a low-income at-home spouse. These pensions won't be available to provide for the at-home spouse after the spouse in long term care passes away. The new rules do not take this into account. This will make is tougher for some couples to qualify a spouse for nursing home Medi-Cal while retaining enough assets to get by.
Other than that, there is no news. Under the DRA, the "look back" period for which a Medi-Cal applicant must disclose gifts made before applying for benefits has been increased from thirty months to five years. Even worse, the penalty for making a gift will start when the Medi-Cal application is filed and not when the gift was made, as is the case under today's rules. But we have no idea when these new rules will come into effect.
Officials from the California Department of Health Services have informally stated that they expect to implement the rest of the new rules in 2007 or 2008. This is bureaucrat-speak for "we don't know when we'll get around to it" so the forecast is still cloudy. As soon as they figure it out and tell us, we'll tell you.
Len & Rosie
Dear Len & Rosie,
Aunt Katie is in a rehab center. Her doctor said she will not be able to return to her home of 50 years. She has only my mother an my mother's children as her living relatives. I have been assisting aunt Katie for the past 20 years. She refused to give anyone a power of attorney. Now, she is not in a position to do so. She has social security benefits, a VA pension, and her house has a reverse mortgage. At this point ,I do not know what to do about aunt Katie's problem. Please help.
Jack
Dear Jack,
Your aunt is in a difficult situation. On one hand, it is likely to be very easy to qualify her for Medi-Cal nursing home benefits. All you would have to do would be to spend her excess cash paying down her reverse mortgage, and chances are, there isn't a lot of cash. She can still own her home and collect Medi-Cal nursing home benefits, as long as she, or her authorized representative (you can do it) checks the box on her Medi-Cal application stating that she intends to return home, if she is ever able to do so. Whether or not she has a realistic chance of returning home doesn't matter.
There are two problems here. She has a reverse mortgage. This is a loan against her home for which she doesn't have to make any payments. But the loan becomes due and payable when she dies, or if she moves out of her home. If your aunt Katie moves into a nursing home, the lender may call the loan. You may have to refinance the loan with a conventual mortgage, or perhaps an equity line of credit.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday 3-4pm on Newstalk910AM.