Joint Tenancy and Medi-Cal Recovery Claims

Dear Len & Rosie,

My wife and I and my recently deceased mother held title to a house in joint tenancy that all three of us bought together about seven years ago. My mother was on Medi-Cal for five years. Does Medi-Cal have a legal claim against this property? I was under the impression that joint tenancy property was immune from their claim but Medi-Cal’s claim form seems to indicate otherwise.

Richard

Dear Richard,

You and your wife will probably have to break out your checkbook. Joint tenancy property was once exempt from Medi-Cal estate claims, but that hasn’t been the law since October 1993. Prior to then, state Medicaid agencies could assert estate recovery claim against estates probated in the courts. Any asset that avoided probate, such as a home held in joint tenancy or within a revocable trust, was once exempt from Medi-Cal estate recovery.

That changed in October, 1993, when Congress enacted the Omnibus Budget Reconciliation Act, or “OBRA ‘93”. This law made significant changes in the way Medi-Cal estate recovery claims work. Under the federal government’s definition of the “expanded estate”, Medi-Cal is legally required to assert an estate claim against any assets owned by a Medi-Cal recipient upon his or her death. Since your mother owned one-third of your home when she died, that third is subject to Medi-Cal’s estate claim. The two-thirds you and your wife own together is protected from the estate claim.

There are exceptions to Medi-Cal recovery claims. If your mother was survived by a spouse, the claim would be deferred until after her husband’s death. If she was survived by a blind, disabled, or minor child, Medi-Cal has no claim at all. There is also a means of asserting a hardship waiver, but these waivers are difficult to come by and are most frequently granted only when you can show that care you provided to your mother at home kept her out of a nursing home, saving the state money. Unfortunately for you, it’s more than likely that you and your wife will have to pay off Medi-Cal’s claim.

It is too late for you and your wife, but any living person who is a recipient of Medi-Cal benefits can act now to protect his or her home and other exempt assets from Medi-Cal estate claims. One way of doing so is simply to give the property away to the children. However, this is usually a bad idea because an outright gift would result in a loss of the step-up in cost basis that happens when property is inherited. When the children sell the home, they’ll have to pay a great deal of capital gains tax that they would avoid if they were to inherit the property instead of receiving it as a gift.

Fortunately, it’s possible for a Medi-Cal recipient to shelter his or her home while preserving the step-up in cost basis by transferring the home into an irrevocable trust. These trusts are very different from most irrevocable trusts found in estate planning, and should be prepared only by an attorney experienced in Medi-Cal planning.

Len & Rosie