In Part 1, we provided an overview of the Medi-Cal Long Term Care program and its eligibility requirements. In this installment, we will focus on specific planning strategies.
When Should You Plan for Medi-Cal Long Term Care?
It is never too late to get help with Medi-Cal planning, even if you or your loved one is already in a nursing home. However, the sooner you begin to plan, the better. Estate planning and elder law attorneys divide Medi-Cal planning into two categories based on how far in advance it is started. These categories are crisis planning and pre-need planning.
Crisis Medi-Cal Planning
Crisis planning is for people who are facing an imminent need for long-term care. Sometimes, this is because they have experienced a health crisis and, while they are in the hospital or a rehabilitation center, their doctor has told them that they will not be able to return home.
Sometimes, they are already in a long-term residential facility, such as a nursing home, or they are paying for in-home care.
Whatever the reason, many people find themselves suddenly facing the possibility of using their life savings to pay for care. With California’s nursing home costs for a semi-private room averaging over $100,000 annually, a lifetime’s worth of savings could disappear in a few short years, if not a matter of months.
Often, people in this type of crisis situation find themselves unable to qualify for Medi-Cal because their assets exceed the qualification limits – they own too much. The biggest mistake many people make is to assume that it’s too late to seek help and engage in Medi-Cal planning. They think their only option is to pay out of pocket for care until they’ve depleted their assets enough to qualify for coverage.
The truth is, even if you or your spouse is in a nursing home, you can still get help from an experienced estate planning and elder law attorney and put together a crisis plan. Remember our discussion of countable and exempt assets? One type of crisis planning focuses on shifting assets from the countable column to the exempt column. For instance, your attorney might advise you to:
- Replace your car (or purchase one, if you do not already own one)
- Buy a prepaid funeral plan
- Make certain improvements to your home
- Prepay estimated income or capital gains taxes
- Buy furniture for your home
Depending on your circumstances, your attorney might also advise you to take other steps, such as pay off certain debts, buy a “Medi-Cal-qualified” annuity, or enter into a life care contract under which you pay one of your children for providing you with care giving services. Note: Be very cautious about any pitches you may get from an annuity sales person about the Medi-Cal “friendly” features of the annuity. The vast majority of annuities sold are not “Medi-Cal-qualified” and, thus, useless in Medi-Cal planning.
All of these strategies serve a common purpose: they protect your savings and preserve it so that it benefits you and your loved ones. At the same time, these strategies allow you to play by Medi-Cal rules to change the way the Medi-Cal program views your financial situation, allowing you to qualify for coverage without depleting all of your assets.
Disadvantages of Crisis Medi-Cal Planning
Crisis planning can be an essential help to those facing an immediate need for Medi-Cal benefits, however, it has its disadvantages. Because of the intensive nature of legal work involved, this type of planning is very often more expensive than pre-need planning. It is also tends to be more stressful for you and your family, because it takes place during a time in your lives that is already marked by illness and difficult transitions. Finally, because crisis planning prevents you from taking advantage of the either 30 or 60 month look-back period, it may limit the amount of assets you are able to preserve.
Pre-Need Medi-Cal Planning
The best way to plan for long-term care is to do so well before the need arises. Estate planning and elder law attorneys call this pre-need Medi-Cal planning, and it gives you the most options for preserving your assets.
In fact, some people who engage in pre-need planning find that they can buy long-term care insurance and limit, or even avoid, their need for Medi-Cal coverage. However, long-term care insurance is not an option for everyone. Some people have medical conditions that prevent them from qualifying for coverage. Others find that the premiums are too expensive.
Pre-need Medi-Cal planning that begins early enough allows you to take advantage of the current 30 month look-back period in California. This means that, in addition to the crisis planning strategies detailed above, you may be able to gift property or establish an Irrevocable Medi-Cal Trust. These additional strategies not only allow you to preserve your assets and avoid using them to pay for nursing home care in the short-term, they can also protect your property from Medi-Cal liens and from recovery.
Generally speaking, gifts to people other than your spouse may trigger a transfer penalty if they occur within the 30 to 60 months before you apply for Medi-Cal. Planning beyond those time frames eliminates the worry about transfer penalties, so under some circumstances, it makes sense to give certain assets to your children or other loved ones as part of a Medi-Cal plan.
The problem with gifting assets in this way is that once you give away your property, it is gone. You have no way to control what happens to your assets, and even under the best of circumstances, your loved one can lose them.
For example, imagine you are currently healthy, but you have a family history of Alzheimer’s disease. Anticipating the need for nursing home care in the future, you decide to plan in advance and give a large portion of your savings to your adult son, who has a stable job and has always been very responsible. After all, you want him to have this money eventually.
The problem with this approach is that even if your son is very cautious, the money is not as safe as it could be. What would happen if he lost his job and lost the ability to pay his debts or was sued through no fault of his own? His creditors could sue him and gain access to the money you gave him.
Sometimes, experienced and qualified elder law attorneys recommend a more secure solution: a Medi-Cal Income Only Irrevocable Trust.
Trusts can be an effective Medi-Cal planning tool; however, in order to be effective for Medi-Cal purposes, a Trust must conform to strict rules.
For example, only an Irrevocable Trust – one that you cannot change after it is created – meets Medi-Cal guidelines. This means that a Revocable Living Trust (the kind many people use for probate avoidance purposes) is not an effective Medi-Cal planning strategy.
Further, not all Irrevocable Trusts work as Medi-Cal planning tools. For example, if you establish an Irrevocable Trust that allows payments of Trust principal to you or your spouse, then the assets in that Trust are treated as countable assets under Medi-Cal rules.
The best way to make sure a Trust is effective as a Medi-Cal planning tool is to work closely with an experienced estate planning and elder law attorney.
Like gifts, many assets transferred to an Irrevocable Medi-Cal Trust are subject to the look-back rule. Therefore, this planning strategy is generally best for people who can plan as far in advance as possible.
For those who are in a position to take advantage of an Irrevocable Medi-Cal Trust, the arrangement offers a number of benefits:
- Helps to reduce your countable assets, allowing you to qualify for Medi-Cal benefits when the time comes.
- Allows you to ensure your assets are protected and preserved for your chosen beneficiaries.
- Allows you and your spouse to use the Trust income to supplement your living expenses, if necessary.
Another advantage of an Irrevocable Medi-Cal Trust is that it can help protect your home from a state and federal policy known as estate recovery.
Under federal law, after a Medi-Cal recipient dies, the state is required to recover whatever benefits it paid for that person’s care from the recipient’s estate. However, the state cannot try to recover any benefits if the recipient leaves behind any of the following:
- a living spouse
- a blind or disabled child
- a child under the age of 21
- assets in a trust
- certain assets in joint ownership
Because of the way Medi-Cal eligibility rules work, most recipients die leaving their home as their most valuable asset. Therefore, most estate recovery efforts focus on recipients’ homes.
When you transfer your home into an appropriately drafted Irrevocable Medi-Cal Trust, the property belongs to the Trust and not to you. Even if the Trust sells the house, the proceeds of the sale are a Trust asset. Since the home is not part of your estate, it is protected from Medi-Cal’s estate recovery policy.
Where Can You Go for Help?
As you can see, the legal and financial issues that surround Medi-Cal eligibility and planning can be particularly complex and difficult to untangle. Many people find it obvious that they need help navigating all the guidelines, rules, and exceptions to the rules.
Medi-Cal planning falls under elder law planning. Our firm focuses our practice in this area to help our clients with a variety of issues including estate and tax planning, disability planning, and finding and paying for quality long-term care.
When Will You Begin Your Plan?
There’s no way to know what tomorrow will bring. That’s why, when it comes to Medi-Cal planning, there’s no time like the present.