Last month we discussed generally how trust planning can be very useful in Medi-Cal Long Term Care planning. This month we’ll focus on specific types of trusts that can be useful in planning relating to Medi-Cal Long Term Care.
Medi-Cal Gifting Trust: This irrevocable trust is used to preserve clients’ assets while still letting them qualify for Long Term Care Medi-Cal. With this trust, the person who creates the trust and puts his or her assets in the trust can’t access the trust’s principal. Depending on how the trust was funded, there may be a penalty period which could be up to 30 months, but after the penalty period has expired, the assets in the trust are not counted toward Medi-Cal eligibility. In addition, the trust shelters asset in it from recovery by the Department of Health Care Services after the death of the Medi-Cal benefits recipient for Medi-Cal benefits paid. The trustor may be able to retain a certain measure of power by retaining the authority to change the trustees as well as the remainder beneficiaries — who are usually the creator’s children — at any time. With the assistance of planning from an experienced and qualified elder law attorney, it may be possible to avoid some or all of the 30 month penalty.
Medi-Cal House Trust: This irrevocable trust is used to protect a Medi-Cal beneficiary’s personal residence. Although the home is considered exempt, or “not countable”, when applying for Medi-Cal benefits, a problem often arises if the family wants to either sell or rent the property while the owner is receiving Medi-Cal benefits as the proceeds of a sale and/or rent will likely negatively affect the beneficiary’s eligibility or co-pay requirements. Transferring the home to a “house trust” prior to the sale or renting of the property, offers protections not available without out. When drafted properly, it can also preserve important capital gains tax protections in the event of the sale of the property. Like a gift trust, the trust assets also are sheltered from recovery by the Department of Health Care Services after the death of the Medi-Cal benefits recipient. These trusts require special planning and language and should only be done with the assistance of an experienced and qualified elder law attorney who is fully aware of all the Medi-Cal requirements relating to the treatment of a home.
Income-only trusts: This trust allows the creator to protect the principal of the trust while allowing him or her to retain the income from the assets to help pay his or her monthly expenses. At present, these trusts are frequently used in California because, under California’s current Medi-Cal rules, the above-noted gifting trust and house trust work better. However, with more stringent rules coming to Medi-Cal, the income-only trust will likely become a more popular choice.
Testamentary Special Needs Trusts enable a person with a disability to maintain eligibility for Medi-Cal benefits. This trust is most often used for Medi-Cal planning in the situation where it is possible the “well spouse” may predecease spouse in the nursing home. In that circumstance, leaving unprotected assets to the “insitutionalized spouse” will cause him or her to lose eligibility for Long Term Care Medi-Cal benefits. It is very unwise to leave unprotected assets to the institutionalized spouse, as he or she would immediately become ineligible for Long Term Care Medi-Cal and would have to spend the inheritance before once becoming eligible for Medi-Cal coverage. Protecting the spouse’s eligibility and the assets to use for the benefit of the spouse and to later be distributed to the children generally makes for most families.
As mentioned in Part 1 of this article, the revocable living trust commonly created for estate planning purposes, does not, by itself, typically allow for effective Medi-Cal Long Term Care planning. However, it is still a critical part of such planning if it contains provisions we call “Long Term Care Planning Tools”. In our firm, we regularly include such tools in the majority of our trust plans.
Unfortunately, the living trusts created by others, e.g., website, CDs, non-lawyers and even many attorneys, do not include the necessary provisions to provide these tools, which can have the effect of frustrating or even preventing effective Medi-Cal Long Term Care planning. If you know of family members or friends who might have such deficient estate plans, you may want to recommend that they have their plans reviewed by an experienced and qualified elder law attorney.
- Joint Tenancy: Watch Out for the Perils – Part 2 of 2 - December 7, 2022
- Joint Tenancy: Watch Out for the Perils – Part 1 of 2 - December 5, 2022
- Getting Started in Estate Planning – The First Meeting with Your Attorney - December 3, 2022