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"How to get Medi-Cal coverage for your nursing home care... without selling your home or leaving your family without a dime... Surprising ways to pay for your assisted living and long term care costs."

Elder Law Today Newsletter | Vol. 10 | August, 2006


Medi-Cal and the Home - Avoiding California's Recovery System: Part Deux

This topic was the subject of our May 2006 newsletter, and has been discussed in brief in other newsletters. We receive more calls on this topic than on any other.

My Friend Told Me to Sell My Parents’ Home
Last week, a woman who identified herself as the daughter of elderly parents who may go on Medi-Cal, called us, stating that a friend told her that the first thing they should do is sell her parents’ home. Her friend told her that by doing this, the state could not put a lien on her parents’ home to recoup Medi-Cal costs after her parents’ died.

The daughter is right about the lien, but I told her that she should not listen to her friend, and that if her parents were to sell their home, they would most likely generate hundreds of thousands of dollars of cash from the sale. It would then be extremely difficult to qualify them for Medi-Cal. In addition, they would probably have to pay substantial capital gains on the sale, in that they had owned the home in Walnut Creek since the 1970’s.

As previously discussed, under present law, the home is generally exempt for Medi-Cal qualification. The problem, as the caller knows, is that in order to avoid a recovery against the home, title must be removed from the Medi-Cal recipients’ names prior to their deaths. There are certain techniques that can be used to safely transfer the home within the family, but this is a treacherous area and consideration must be given to issues regarding capital gains, reassessment and the possible loss of the step up in basis, which would normally be afforded to a surviving spouse or from parents to children.

Transfer to Bad Children
It is possible to transfer title from parents to children, while reserving an interest such as a life estate or right of occupancy to the parents, in order to avoid capital gains and reassessment issues. However, if certain of the children have liens against them, those liens will attach to the property when the deed records, thereby adversely affecting the title for all of the children.

Transfer to an Irrevocable Grantor Trust
Another technique is to transfer the title to an asset preservation trust known as an Irrevocable Grantor Trust. The children are named as the beneficiaries of the trust, and receive title when the parents pass away. The parents can retain a right of occupancy or life estate over the property. They also retain a “power of appointment” which is the power to change the beneficiaries among the children. This has a tendency to keep the children “good”, in that, as a law school professor once said, “… the parents retain the right to appoint and to disappoint” the children. If a child is “bad” for any reason, he or she can be removed as a beneficiary by the parents.

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