Avoiding California Recovery System

Medi-Cal and the Home: Avoiding California’s Recovery System

In 1993, the California legislature allowed the State Department of Health Services’ Recovery Unit to beef up its ability to recover Medi-Cal assets expended by the State for nursing home beneficiaries. The result has been that California has become one of the most aggressive States in this regard. Recovery can be made by the State against the estate, including the home, of the deceased nursing home recipient under certain circumstances. Effective estate planning should be utilized where possible to avoid this consequence.

The Home: The treatment of the home for Medi-Cal purposes is one of the main areas of Concern for our clients, especially in this geographic area. Under the new Federal, Deficit Reduction Act, a home with a net market value equity exceeding $500,000, (and possibly $750,000, if adopted by California), shall be a countable asset for Medi-Cal qualification.

Taking this into account, the home is generally exempt if during any absence, including nursing home stays, the individual intends to return to the home and states so in writing. Also, it is exempt if the individual’s spouse, child under the age of 21, or dependent relative continues to reside in the home. There are other exceptions and rules which may apply. As long as the individual’s spouse lives in the home, it will continue to be exempt. We find this to be the situation with many of our clients.

However, just because the home may be exempt for Medi-Cal eligibility purposes, it is not exempt from estate recovery. If the home is in the beneficiary’s name at the time of death, it will be available to the State through an estate claim. The State can recover against joint tenancies, tenancies in common, living trusts, life estates, and other arrangements. The State can also recover assets of the surviving spouse of a Medi-Cal recipient who receives assets through probate or by community property.

Transfer of Title: At times, in order to avoid a recovery against the home, title is removed from the Medi-Cal recipients name prior to that person’s death. And, the home can be transferred to an at-home spouse without affecting Medi-Cal eligibility. There are a number of ways to transfer title, including the use of special trusts, which retain some control over the property. Please keep in mind however, that the rules regarding transferring title are treacherous, and severe capital gains tax consequences can result which could far outweigh any Medi-Cal recovery efforts, if the transfer is not completed correctly.

The laws and rules in this area are complex, and are changing continually, and as a result, this newsletter is not meant to be a legal treatise on these laws and regulations, and should not be relied upon for planning purposes. It is recommended that you seek the counsel of an attorney familiar with this area of the law in the preparation of your estate plans, and in attempting to qualify for Medi-Cal.