Keeping assets for use of ill person & spouse
Below are quick resources for reading more about Medi-Cal asset limits & Medi-Cal asset protection. Click on any topic to jump straight there (no scrolling necessary).
California Medi-Cal planning goals
In helping plan for California Medi-Cal eligibility for you or your family member, SAN DIEGO LAW FIRM™ works to help keep as many assets as possible for the use of the ill person, their spouse, and any dependant children. We also help you plan so that assets can be passed to the children before the death of the ill person and their spouse. Medi-Cal considers its payments to be a loan, and if this is not done, it will otherwise seek to recover its payments from any assets that remain in the estate after the death of both spouses.
For detailed information about another benefit of Medi-Cal planning services at SAN DIEGO LAW FIRM™, see, “Medi-Cal & Protecting Income.”
Medi-Cal asset limits
Medi-Cal views an ill person and their spouse as owning two types of assets. The first type is “countable” or liquid assets such as bank accounts, stocks, and bonds. The second is “exempt” assets, which Medi-Cal either does not count at all, or only counts above a certain limit. Here’s how it works:
1. Countable asset limits
Medi-Cal will only pay for the ill person’s nursing home care if they and their spouse have “countable” (liquid) assets below Medi-Cal’s limits during at least one day of the month that they apply for Medi-Cal payments. Total countable assets must be worth less than:
1) $2,000 if the ill person is unmarried
2) $3,000 if both spouses are in a nursing home
3) $115,920 (for 2013) if the spouse of the ill person remains at home.
After the application is granted, the ill person is still subject to these limits, but the well spouse can obtain more countable assets (such as by inheritance or investment) in their own name without affecting the ill person’s Medi-Cal eligibility. The chart below shows assets that are “countable” for California Medi-Cal:
Countable assets under California Medi-Cal assets easily converted to cash: 1 – Bank accounts, Certificates of Deposit, Stocks, Bonds, Mutual Funds, Promissory Notes 3 – Whole life insurance over $1,500; Annuities that do not comply with current Medi-Cal laws 2 – Assets in living trusts and other revocable trusts Extra value of exempt assets: 4 – Value of jewelry over $100 belonging to a unmarried ill person, except for wedding / engagement rings & heirlooms 6 – Value over $1500 of revocable burial trusts & burial plans 5 – Equity of over $750,000 in home by ill person who is unmarried; no limit if spouse lives in home Assets easily sold: 7 – Second homes, non-business property, other real estate (limited exceptions exist) 8 – All cars except for one
2. Exempt asset limits
Some assets are “exempt” either up to a certain value limit, or with no value limit, from Medi-Cal’s calculations when it determines eligibility.
Exempt assets under California Medi-Cal rules
|Household items, clothes, personal belongings, recreation|
items (TVs, collections, etc.), musical instruments
engagement rings, heirloom jewelry; plus other jewelry
if ill person is married & spouse is not on Medi-Cal
|Other jewelry if ill person unmarried||$100 fair market value|
|Irrevocable burial trusts & prepaid|
burial plans; burial plot
|Revocable burial trusts & prepaid burial plans||Up to $1500 plus accrued interest, per person|
|Livestock, poultry, crops||No limit|
|Life insurance||$1500 face value, plus accrued interest and dividends, per person|
|Long-term care insurance policy with|
benefits satisfying California “partnership policy” law
|Pension plans, IRAs, KEOGHs, etc. in name of spouse||No limit|
|Pension plans, IRAs, KEOGHs, etc. in name of ill person||No limit if making payments of principal & interest; if not, these become a countable asset|
|One car||No limit|
|Tools & other items used in a trade or business||No limit|
|Main home||$750,000 in equity if the ill person
is unmarried and has checked the box “Intent
to Return Home” on Medi-Cal
Application; no limit if spouse, disabled child, or child
under age 21 lives in home
|Proceeds from sale of main home||Exempt for up to six months if proceeds used to buy
|Real estate used in trade or business||No limit. However, ordinary rental property
usually will not qualify.
|Real estate that has been actively marketed at a fair price but has not yet been sold||No limit; will be subject
to limit in next box below when it is sold.
|Other real estate, mortgages, notes, & trust deeds secured by real estate||$6,000 in “equity” (defined
by special rules), but only if it produces 6% or
more income on that equity – if not, it is usually not
How SAN DIEGO LAW FIRM™ Medi-Cal planning protects your assets
A. Convert countable to exempt assets
SAN DIEGO LAW FIRM™ will work closely with you to develop a plan that allows you to meet Medi-Cal asset limits on assets while keeping as many assets as possible for the use of the ill person and their spouse. Your Medi-Cal plan will be a roadmap for converting “countable” assets that fall above Medi-Cal asset limits to exempt assets. This usually includes:
1. Buying exempt assets. “Countable” assets above Medi-Cal asset limits can be used to buy a larger residence, better car, home furnishings, a qualified annuity, clothes, personal items, or other exempt assets for the ill person or spouse. Sometimes assets can be invested to expand or even create a legitimate business owned by the ill person or their spouse: for example, an artist could set up a business to license their own designs for sale. SAN DIEGO LAW FIRM™ will tailor your plan to meet your needs and desires as closely as possible, while working to bring you within Medi-Cal asset limits.
2. Paying bills and loans. Excess countable assets can be used to pay or pre-pay bills, loans, mortgage debt, insurance premiums, medical or dental costs, and other expenses.
3. Petitioning to keep extra assets for spousal income. If the income of the ill person and spouse together are not enough to meet the spouse’s basic needs, we will file a petition to keep extra countable assets to generate enough income to fill the gap. See, “Keeping income for the use of the at-home spouse.”
4. Help with gifts. Gifts and transfers without fair payment that are made during the five years before “countable” assets fall below the Medi-Cal limits can result in a penalty period during which Medi-Cal will not pay unless severe hardship is shown. If you’ve made gifts or transfers in that time, or want to make them, SAN DIEGO LAW FIRM™ will evaluate each gift for its effect on your Medi-Cal eligibility and advise you on your best approach. The ill person might choose to make transfers to persons who can receive them without penalty – for example, a transfer to the well spouse or to a dependant or disabled child. Or if finances are substantial enough, an ill person could choose to make a disqualifying gift that leaves enough money left over to pay cash for nursing home costs (and/or perhaps buy an annuity for a well spouse) during the penalty period. We’ll help you evaluate each option.
5. Help with annuities. In California, any annuity now purchased by an ill person or spouse must make equal monthly payments based on the recipient’s life expectancy according to special tables, and the State must get any “remainder interest.” Annuities not set up correctly (even so-called “Medi-Cal Qualified” annuities) are “countable assets” that can result in Medi-Cal denial. These may need to be converted into the correct type of annuity, or, if they can’t be, surrendered for their cash value. However, exceptions exist for some annuities purchased under previous Medi-Cal rules. Because California Medi-Cal annuity rules are very complicated, and the laws change frequently, SAN DIEGO LAW FIRM™ will carefully review each annuity you have or are consider buying and advise you on your best course of action.
B. Transfer assets to spouse, children or family members
Medi-Cal considers its payments of medical bills and nursing home costs to be loans. After the ill person dies, Medi-Cal will collect its payments from the ill person’s remaining assets. An important exception is that Medi-Cal will delay collecting against a home the ill person owned or partly owned at death until a spouse still living in the home has also died. At that time, Medi-Cal will collect against the estate up to the value of the interest that was transferred to the spouse by will, living trust, joint tenancy, or other means of inheritance when the ill person died. But if the ill person’s minor or disabled child was living in the home when the ill person died, Medi-Cal is forever barred from making a claim.
SAN DIEGO LAW FIRM™ can create your Medi-Cal plan to provide a way for an ill person to pass assets to an at-home spouse, children or other family members rather than have Medi-Cal collect against them after death. Unless there is a good reason to make an earlier transfer, transfers are made after the Medi-Cal application is granted, so they don’t create a penalty period during which Medi-Cal will not pay benefits.
1. Transfer of home to spouse. The home can be transferred into the name of the at-home spouse while the ill person is still alive. The home then belongs only to the spouse, and Medi-Cal cannot later collect a claim from it. The spouse can even sell the home and use the proceeds for his or her own benefit with no effect on the ill person’s Medi-Cal eligibility, or transfer the home to a child or family member. In a sale or transfer, the at-home spouse will have to renegotiate, refinance, or pay off any mortgage on the home.
2. Transfer of home to family member. If the ill person is unmarried, the home can be transferred outright to certain persons listed in the law. These include disabled or under-age-21 children, siblings who have lived in the home for a year and also own an equity interest in the home, and adult children who have lived in the home for at least two years whose care allowed the ill person to live at home.
The home can also be transferred to any adult children or family members while reserving a “life estate” for the ill person in the home. This procedure also may create a stepped-up basis in the recipients upon the donor’s death. Again, any mortgage will need to be renegotiated, refinanced, or paid off. (Although California has the legal right to collect its Medi-Cal claim to the extent of the value of an ill person’s life estate in a home, it currently is not attempting such collections because of the difficulty valuing the life estate.)
3. Transfer of exempt assets. Assets such as a car or other personal belongings may be transferred directly to the children or other family members.
4. Transfer of countable assets. Countable assets can be transferred into the sole name of the spouse or a dependant or disabled child without penalty. Also, after Medi-Cal eligibility is granted, the at-home spouse may freely transfer assets that he or she later acquires (such as through earnings, gifts, or inheritance) without jeopardizing the ill spouse’s Medi-Cal eligibility.
C. SAN DIEGO LAW FIRM™ services
In addition to working with you to develop a good plan for asset transfers that will satisfy California Medi-Cal laws, SAN DIEGO LAW FIRM™ also:
• Prepares the legal documents to transfer ownership properly to avoid Medi-Cal penalties.
• Prepares the legal documents needed to revoke a living trust owned by the ill person so that assets can be transferred and creates a new living trust for a well spouse that will leave funds to a “special needs trust” to help care for the ill spouse, with no effect on Medi-Cal eligibility, if the well spouse passes away first.
• Prepares specific Medi-Cal planning powers of attorney and right-to-make gifts trust provisions. These let a family member transfer an ill person’s property for the ill person, with the ill person’s consent.
• If the ill person is incapacitated and has no MediCal-compliant power of attorney, our firm petitions the court for a conservatorship and authorization to transfer property for Medi-Cal planning.
• Arranges for a change of legal title to assets that are transferred out of the ill person’s name, as required by California law.
• Advises whether a gift tax return and gift tax payments may be needed because of a transfer. We can also refer you to an accountant if you need one to prepare a return.
• Advises on potential property tax increases that will result from transfers.
• Advises on capital gains tax and loss of “stepped-up income-tax basis” resulting from property transfers before death. We can also advise on the potential to obtain a stepped-up basis when real estate is transferred by reserving a life estate in the ill person and/or spouse.
• Advises on whether total tax losses are likely to be less than Medi-Cal’s potential claim against the property once the ill person and spouse have died.
• Advises you on other Medi-Cal law relevant to your particular situation and assets.
Ready to talk about Medi-Cal & asset protection? We’re here to help.
If you are struggling with California Medi-Cal eligibility, we can help you. For more information or to schedule an appointment, click the button below, or call SAN DIEGO LAW FIRM™ at (619) 794-0243.
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