It is a common misconception that any type of living trust can protect your assets from nursing home expenses. While there are various types of trusts, not all of them offer asset protection. Those that do are subject to certain requirements or limitations. However, if you engage in proper Medi-Cal planning, including the use of an appropriate trust, you may be able to avoid exhausting your assets just to pay for nursing home costs.
Revocable Living Trusts
A revocable trust, more commonly referred to as a living trust, provides the grantor with the ability to make changes to the terms of the trust, or revoke the trust altogether, at any time while they are still alive. After the grantor’s death, the trust becomes irrevocable.
A revocable trust is flexible because it can be modified to account for changes in your circumstances or intentions. With a revocable trust, the trustee does not take control until after your death or incapacity. Because of your ability to modify, the assets held in a revocable trust are still considered to be your property as you never relinquish ownership completely.
Although many living trusts focus primarily on issues relating to death and taxes, they lack critical provisions to allow for long term care benefits planning especially if the grantor has become incapacitated, e.g., with Alzheimer’s. In our firm, all our living trusts contain this critical language which we call the “long term care planning tools.”
Irrevocable Living Trusts
An irrevocable trust cannot be altered by the grantor after it has been executed. This characteristic can be very helpful. Once an irrevocable trust has been created, the trust assets are in effect out of the reach of creditors and the probate court. They are not subject to estate taxes either. Although you relinquish control over your assets when they are placed in an irrevocable trust, you gain favorable tax consequences.
Using an irrevocable trust as part of your Medi-Cal planning can help you to qualify for Medi-Cal. When you make the transfer of property, you effectively deplete your estate of disposable assets. But, the trust can provide you with income produced from the assets it holds.
Understanding how Medi-Cal works
Medi-Cal is California’s Medicaid program, which is funded through the federal and state government. The California Department of Health Care Services (DHCS) administers long-term care programs in California. Becoming eligible for nursing home services through Medi-Cal can be accomplished in several different ways, all of which Medi-Cal lawyers can guide you through.
Medi-Cal coverage for nursing home residents
Nursing homes are residential health care facilities which offer skilled nursing care in addition to other supportive services to resident round-the-clock. Not many families can afford to pay nursing home expenses on their own.
Medi-Cal coverage for “medically necessary” nursing home services
Medi-Cal will only pay for nursing home services when those services are determined to be “medically necessary.” In California, services are medically necessary “when it is reasonable and necessary to protect life, to prevent significant illness or significant disability, or to alleviate severe pain.” The potential patient’s health care provider needs to prescribe nursing home care before Medi-Cal will pay for that care. More specifically, the health care provider must establish the need for continual, round-the-clock availability of skilled nursing care or what’s called “intermediate care.”
Qualifying for Medi-Cal
Patients already receiving Medicaid coverage through Medi-Cal will automatically qualify for nursing home services. Recipients of SSI benefits, participants in the California’s Temporary Assistance to Needy Families program (CalWORKs), and individuals enrolled in California’s refugee programs automatically qualify for Medi-Cal, and therefore, qualify for nursing home care.
Medi-Cal limits on income and assets
Patients can also qualify for Medi-Cal based on limited income. Currently, the income limit for Medi-Cal is 138% of the Federal Poverty Level (FPL).
Not all types of assets are counted towards this limit. For example, your residence is not counted as long as either your spouse still lives there or you intend to return to the residence once you’re done receiving nursing care. Additionally, one vehicle, your personal belongings, and small burial or life insurance policies are typically not counted.
You may be allowed to “spend down” your assets in order to qualify
In most cases, you will be allowed to “spend down” your assets in order to qualify for Medi-Cal. Spending down means you use your countable assets to pay off certain debts or expenses. Before patients attempt to spend down their assets, it is wise to obtain advice from Medi-Cal lawyers in order to avoid a penalty period being imposed their benefits.
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