By Timothy P. Murphy
© 2016 All Rights Reserved
Editor’s note: This is the second installment of an occasional series about common misconceptions by consumers about the Medi-Cal Long Term Care program which provides financial assistance in paying for care in a skilled nursing facility.
As many of our clients already know, we regularly assist families who are facing care issues for a family member who may need long term care including advice and assistance in obtaining benefits available under certain Veterans and Medi-Cal programs.
When we first meet with families about their planning options, they often arrive with a large amount of bad information obtained from their friends, the media, the internet, uninformed advisors, and, regrettably, even employees of agencies charged with administering these benefit programs. In this series of reports, we will explore and correct some of the more common myths and misconceptions.
In our last report about Medi-Cal Myths, we explored the common, but wrong, belief that you can only obtain Medi-Cal Long Term Care benefits if you are broke. In this two-part report, we focus on the great fear that Medi-Cal will take your home either before it will give you benefits or after you die. As we will show, the loss of one’s home will only be realized by those who don’t do adequate planning.
Let’s begin at the beginning. You cannot get Medi-Cal benefits without applying for them. In your application, you must disclose your assets. If you have too many “countable” assets, your application will be denied.
Fortunately, there are several assets commonly owned by Medi-Cal applicants that are not countable. They are deemed to be “exempt”. Among those assets is the applicant’s personal residence. This can be a traditional home, a mobile home, a motor home, and even a boat if that is your personal residence. An entire multi-unit building also can be exempt if you occupy one of the units.
Under current Medi-Cal rules in California, there is no limit to the value of your home that is protected. That will change when some upcoming changes to the rules are implemented. As of this date, however, the start date of the new rules has not been announced.
Getting Medi-Cal approval does not solve all planning problems with respect to the home. A common situation that arises after a person has qualified for Medi-Cal Long Term Care and has moved to a skilled nursing facility is that the family decides to either rent or sell the now-vacated home.
These decisions are due to a number of factors. One may be the continued availability of property insurance as vacant homes are at an increased risk for problems and sometimes coverage is cancelled by the insurer. Another problem that frequently arises for unmarried Medi-Cal patients is that, once approved, almost all of their income must be applied to their Medi-Cal “share of cost” (or co-pay) leaving insufficient funds to cover even the basic home costs such as taxes, insurance, utilities, upkeep and repairs.
Renting the home while on Medi-Cal is tricky because it can cause the loss of its “exempt” status. For example, if the house is leased to a tenant for a one year term, Medi-Cal will view this as changing the status of the home from an “exempt” personal residence to a “countable” income property. While it is possible to rent the home under some circumstances, you should consult with an experienced and qualified elder law attorney before attempting to rent the home to be sure you don’t run afoul of the technical Medi-Cal rules. He or she can advise how to correctly rent the property without losing exempt status or increasing the Medi-Cal share of cost.
For many, renting is not an option because they do not want to become a landlord and have to deal with tenant problems. However, when a home is sold without good planning, the sale proceeds are no longer considered “exempt” and could therefore nullify Medi-Cal eligibility due to excess “countable” assets. For example, if a home worth $500,000 is sold, that $500,000 of cash must be reported to Medi-Cal since it is now “countable”. To avoid a loss of Medi-Cal benefits, careful planning with an experienced and qualified elder law attorney must be done before the sale is undertaken.
Another bad choice often made by Medi-Cal recipients is to simply outright gift the ownership of their homes to others, e.g., their children, in an attempt to avoid future problems and “protect” the home. However, such a strategy often creates other problems. One such problem is the exposure to unnecessary capital gains taxes which could be in the tens of thousands of dollars if the property is given away during the owner’s lifetime and is done so without proper planning. Another issue is that the home gets exposed to the potential problems of the children such as creditor problems, tax problems, divorces, etc.
In our next report, we will continue our discussion about protecting the home while planning to obtain and keep Medi-Cal Long Term Care benefits. This will include the often overlooked steps that need to be taken to protect the home before a Medi-Cal recipient dies so that the State cannot force the sale of the home following the recipient’s death to repay the State for the benefits provided during lifetime.
If you missed the first installment of Medi-Cal Myths, please click here.