When it comes to the potential need for long-term care, our Medi-Cal lawyers recommend creating an appropriate plan that will protect your assets, especially your home, from Medi-Cal recovery. One way to do that is to create an irrevocable Medicaid trust. Here is what you need to know.
Homeownership and Medi-Cal benefits
Although you can qualify for Medi-Cal benefits and still own a home, you should know that Medi-Cal can place a lien on your home after your death if you are later admitted to a nursing home. Then, once you pass away, Medi-Cal may also be able to collect against your estate which could put your home in jeopardy. Therefore, it is wise to have certain planning strategies in place that can provide seniors with much-needed benefits, while still protecting their assets. One strategy is to transfer your home into an irrevocable Medi-Cal house trust.
An irrevocable Medi-Cal trust provides benefits during your lifetime
When you create one or more irrevocable Medi-Cal trusts, you can transfer your home and other property into the trusts, which will then be managed by your chosen trustee. Your trustee can be anyone you trust, other than your spouse. If the trust is created properly, then you will retain several benefits, including the legal right to stay in the home as long as you and your spouse are living and the legal right to designate the trust for cash assets as “income only” allowing you to collect the income the property may generate (e.g. rental property).
You can also sell your home during your lifetime and purchase a new home. The irrevocable Medi-Cal trust can also provide benefits for your children or other beneficiaries, as long as the principal does not go directly to you or your spouse.
An irrevocable Medi-Cal trust can protect your assets
Because Medi-Cal trusts are irrevocable, they can protect the trust assets from creditors and legal judgments. This is helpful for beneficiaries as well, especially those who may not be as good at managing their finances generally. If you gift your home to the trust, it will remain sheltered and out of the reach of creditors, including the creditors of your beneficiaries. Let your Medi-Cal lawyers help you include the correct provisions in your trust to provide asset protection.
Retaining a limited power of appointment
During your lifetime, you have the option to retain the power to modify your beneficiaries. This requires a limited power of appointment, which allows modification to the beneficiaries through a will or other estate planning document that references the trust. Consequently, by having a limited power of appointment, you do not need to give up complete control of your assets.
Transferring your home to the trust has other benefits
Using this type of trust for your home also means that your home will still be included in your estate when you die, allowing for a step-up in tax basis which can benefit your heirs. Your heirs will not be required to pay capital gains tax on the immediate sale of your home. Furthermore, the ultimate transfer of your home and other assets will avoid probate, saving your family time and money. By avoiding probate, you also make it more difficult for Medicaid to recover those assets after your death.
What does “estate recovery” mean for Medi-Cal recipients?
It is a requirement that, when a Medi-Cal recipient age 55 or older passes away, the state of residence must seek recovery of payments from that person’s estate. This is known as “estate recovery.” However, because of the eligibility requirement that Medi-Cal recipients have no more than $2,000 in countable assets, recovery payments from an estate is often a complicated endeavor.
An exception to estate recovery for those with surviving dependents
As with most things, there are a few exceptions to the estate recovery requirement. First, some estate are exempt from the estate recovery process because the deceased Medi-Cal recipient has dependents. In fact, states are prohibited from attempting to recover from an estate where a spouse, a child under the age of 21 or a disabled child have survived the recipient. Consult with our Medi-Cal lawyers to determine if the exceptions apply in your case.
An exception to estate recovery for undue hardship
Another exception that may apply is based on undue hardship. If it can be shown that estate recovery efforts would result in an undue hardship on the heirs, then estate recovery would be improper. For example, if a surviving dependent makes a living from an estate asset, such as a family business or farm, then those assets cannot be recovered.
Download our FREE estate planning checklist today! If you have questions regarding irrevocable Medi-Cal trusts or any other Medi-Cal planning matters, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!
- Understanding the Importance of the Simultaneous Death Act - September 25, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - September 23, 2023
- National Make-a-Will Month - September 21, 2023