In previous blogs, we have discussed how we can establish the home as an “exempt asset” for qualification for Medi-Cal. Your elder law attorney can help you take the steps necessary to exempt your home and help you qualify for Medi-Cal. However, if your home is in your estate when you pass away after having been on Medi-Cal, the state can pursue a recovery lien against your home. The state will want to recoup the funds they have paid to the nursing home on your behalf.
Keep in mind however that the state cannot pursue a recovery lien against your home if your home is not in your estate when you die. The remedy for this may be for you to transfer your home to a child or other family member after you have established the home as an exempt asset for qualification for Medi-Cal. But beware, there could be a tax problem. If you make such a transfer to a child, the child will assume your tax basis on the property. This means that if the child then sells the property, he or she may have to pay capital gains tax on the sale. This tax is basically calculated on the difference between the purchase price you the parent paid for the property, and the sale price the child obtained. The child would not be able to take advantage of the $250,000 capital gains tax exclusion on the sale that the parent had under Federal Tax Code Section 121.
To remedy this problem, the property could be transferred to a child with a reserved life estate in favor of the parent. The deed for this transfer from the parent to the child would create a split interest on the record, wherein the parent retains a life estate in the property, and the child is the grantee of the remainder interest in the property. After the parent dies, the child should receive a full step up in basis on the property under IRS regulations. The child could then sell the property at the time of the parent’s death, without incurring capital gains. The home would not be available for Medi-Cal recoupment after the home is transferred to the child with the reserved life estate in favor of the parent. This procedure is recognized by Medi-Cal provided that the prescribed procedure is used, and the correct language is utilized in the deed. There are of course other issues you will need to consider regarding the transfer of the home. Your elder law attorney can help you through this process if it is appropriate for your situation.
This information is not to be taken as legal advice, and you are encouraged to see your Walnut Creek Elder Law Attorney. At the Law Offices of Michael J. Young, at 1931 San Miguel Dr., Ste. 220, Walnut Creek, CA www.WalnutCreekElderLaw, 925-256-0298, lawyoung1@gmail.com we practice Elder Law and we help Baby Boomers, Seniors and families through their Elder Care Journey. We help families with long-term care planning, asset-protection plans, comprehensive estate planning, wills, trusts and powers of attorney. We also help Baby Boomers and families get their “Ducks in a Row” in order help them qualify for Medi-Cal and the VA Aid & Attendance Improved Pension benefit.