A comprehensive estate plan should accomplish a number of estate planning goals and take into account various estate planning objectives. For example, planning for the possibility you will one day need to pay for long-term care (LTC), referred to as “Medi-Cal planning,” is a common estate planning goal. The overall objective of Medi-Cal planning is to reduce your “countable resources” so you will be eligible for Medicaid should you need it. While it may not be something you previously considered, compensation can play a role in reducing the value of your countable resources, thereby helping you qualify for Medi-Cal. Medi-Cal, in turn, can help cover your LTC costs.
Why Is Medicaid Planning Popular?
Although none of us really enjoy thinking about it, the reality is, we all stand a good chance of ending up in LTC at some point. The longer you live, the greater the odds are you will need LTC. The cost of that care will likely be prohibitive and could quickly diminish your retirement nest egg if you don’t get help covering the cost. As of 2018, the average yearly cost of LTC in California was over $102,000 and the average length of stay was 2.5 years. While most seniors count on Medicare to cover most of their health care expenses, one thing Medicare will not cover is the cost of custodial LTC. Private health insurance policies also routinely exclude costs associated with LTC unless you purchased a separate LTC policy at an additional cost.
The good news is that Medi-Cal does cover LTC costs. In fact, over half of all seniors in LTC depend on Medi-Cal to help cover the cost of that care. Before you can start counting on Medi-Cal to help, in the event you end up in LTC, you must first be eligible for Medi-Cal benefits. Because Medi-Cal is intended to provide assistance to financially needy individuals and families, your income and “countable resources” cannot exceed the program eligibility limits. In California, the countable resources limit is as low as $2,000 for an unmarried individual applicant. Although Medi-Cal does exempt some assets from consideration when calculating the value of an applicant’s countable resources, many seniors find that their non-exempt assets exceed the limit if they failed to plan ahead through the use of Medi-Cal planning tools and strategies. One of those strategies involves the use of compensation.
How Can Compensation Help Me Qualify for Medi-Cal?
As previously mentioned, the goal of Medi-Cal planning is to reduce the value of your non-exempt assets, or “countable resources,” so you will qualify for Medi-Cal if you need it. Using compensation for services rendered is one way to accomplish that goal. As a senior, you will probably need assistance around the house or with the daily tasks of living. Entering into a contract with someone to provide that assistance can effectively lower your countable resources. For instance, imagine the Medi-Cal countable resources limit is $2,000. Your most valuable assets are your home, valued at $250,000, and $25,000 cash in a bank account.
Your home is exempt for Medi-Cal eligibility purposes (but not Medi-Cal post-death recovery efforts), however, the cash puts you $23,000 over the countable resources limit. If you enter into a personal services contract with a caregiver who you will pay $1,000 per month for the next two years, or a total of $24,000, that compensation can effectively reduce your non-exempt assets to just $1,000 – well under the Medi-Cal countable resources limit. The caregiver, however, must remember the compensation received under the contract is considered employment income. As such, the income is income taxable and subject to self-employment taxes.
Medi-Cal planning is a very important addition to any comprehensive estate plan. The individual nature of Medi-Cal planning, however, makes it important to consult with an experienced and qualified estate planning and elder law attorney to determine how best to ensure you will qualify for Medi-Cal if and when you need it.
