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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. 18 | April, 2007


Protection of the Home Under the Deficit Reduction Act (D.R.A.)

On February 8, 2006, President Bush signed into legislation the 776 page Deficit Reduction Act of 2005 which includes Medicaid eligibility and nursing home coverage regulations we previously wrote about. The new legislation requires that the states bring their laws into conformance with the federal law, and the states have been granted a grace period to do this. It is unclear how long the grace period is, but it is anticipated that California will adopt certain provisions of the new law on or after November 2007. The California legislature is reviewing possible changes at this time.

Some of the changes in the new federal law are as follows:

Value of the Home: The home is presently exempt under California law, or not counted for Medi-Cal eligibility. Under the new federal law, a home with equity exceeding $500,000, or in the alternative, $750,000, is a countable asset. The states are required to choose one of these two values. However, the home will still be exempt if the nursing home resident’s spouse, child under age 21, or blind or disabled child is living in the house. We do not know what California will do regarding this new regulation.

Protection of the Home. Under the new federal regulations, methods for the protection of the home from a state lien after the death of the nursing home resident are presently unclear. At the present time however, in California, we can still create transfers of the home to the nursing home resident’s children, and reserve a life estate for the resident. We can also transfer the home to a grantor irrevocable trust. These methods remove the home from the estate of the nursing home resident under real estate law, but retain certain ownership rights to the resident, thus preserving preferable capital gains treatment upon death. We do not know if our state legislature will change these rules.

Increased Look-back Period: Under the new federal law, transfers of non-exempt assets, whether to trusts or to individuals will be subject to a five-year look back period. There is presently a three year look back period for transfers to individuals and five years for transfers to a trust not created through a court action. As a result, five years of documentation may be required for Medi-Cal eligibility.

Postponement of Start Date for Penalty Period: Under the new federal regulations, the penalty period of ineligibility begins when the person moves to a nursing home and would otherwise be eligible for Medi-Cal. That is, the penalty begins when an individual has spent down to $2,000 and is out of assets. Under the present rules in California, the penalty begins at the time of transfer of the asset. Under the new federal regulations, the ineligibility period begins when the person moves to the nursing home and is out of assets.

Planning: As a result, any planning under the existing more liberal rules in California should be completed as soon as possible, especially with regard to protection of the home.

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