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Medi-Cal Planning with Trusts in California

Medi-Cal is California’s version of the federal Medicaid program, which provides health care services to low-income individuals, including seniors. As the costs of long-term care rise, many Californians are seeking ways to preserve their assets and still qualify for Medi-Cal benefits. One of the primary tools for Medi-Cal planning is the use of trusts. This article provides an overview of how trusts are used for Medi-Cal planning in California, with relevant legal citations.

1. Understanding Medi-Cal’s Eligibility Criteria
Before delving into trusts, it’s essential to understand Medi-Cal’s eligibility criteria. To qualify for Medi-Cal long-term care benefits, an applicant must meet certain income and asset thresholds with various exempt assets, such as a primary residence, certain personal belongings, and specific types of vehicles. As you of 2024, it is expected that the assets limit will be removed completely from Medi-Cal eligibility criteria. For those interested in learning more about the Medi-Cal eligibility criteria and the upcoming changes, I suggest watching this informative video:

2. Irrevocable Medi-Cal Trusts
This year, one common trust used for Medi-Cal planning is the Irrevocable Medi-Cal Trust. When assets are placed in such a trust, they are no longer considered countable assets for Medi-Cal eligibility purposes, provided they were transferred at least 30 months before the Medi-Cal application to avoid the look-back period. Relevant Legal Citation: The California Department of Health Care Services (DHCS) follows the federal Medicaid guidelines set forth in 42 U.S.C. § 1396p, which govern the treatment of trust assets.

3. Revocable Living Trusts
Contrary to some misconceptions, Revocable Living Trusts (often just called Living Trusts) do not protect assets from Medi-Cal’s eligibility calculations. Because the grantor maintains control over the assets in a revocable trust, they remain countable for Medi-Cal purposes. However, if the assets are property transferred to a Revocable Living Trust, they could become exempt from Medi-Cal estate recovery claims which is a huge benefit as further explained below.

4. Special Needs Trusts (SNTs)
For individuals who are disabled and under 65, assets can be placed in a First-Party Special Needs Trust without affecting Medi-Cal eligibility. This type of trust allows assets to be used for the beneficiary’s supplemental needs without disqualifying them from receiving Medi-Cal benefits.
Relevant Legal Citation: The use and parameters of Special Needs Trusts are governed by federal law, particularly 42 U.S.C. § 1396p(d)(4)(A).

5. Pooled Trusts
Another option for disabled individuals of any age is the Pooled Trust. Managed by non-profit organizations, these trusts pool the resources of many beneficiaries but maintain individual accounts for each participant. Like Special Needs Trusts, Pooled Trusts allow for the protection of assets without jeopardizing Medi-Cal eligibility. Relevant Legal Citation: The provisions for Pooled Trusts are found in 42 U.S.C. § 1396p(d)(4)(C).

6. The Importance of Timing
The timing of asset transfers is crucial. As mentioned earlier, there’s a 30-month look-back period in California. This means that any asset transfers made within 30 months before applying for Medi-Cal can be penalized, leading to a period of ineligibility. It’s essential to plan ahead and make trust transfers well before this window.

7. Other Considerations
While trusts offer a way to shield assets, they come with their own set of challenges. There can be tax implications, and once an asset is placed in an irrevocable trust, it can’t easily be accessed by the individual. Working with knowledgeable professionals, including elder law attorneys and financial advisors, is crucial when using trusts for Medi-Cal planning.

As the need for long-term care grows, so does the importance of Medi-Cal planning. Trusts provide a strategic way to protect assets while ensuring that individuals can still access the care they need. However, the complexities of trusts and Medi-Cal regulations necessitate careful planning and expert guidance.

When discussing the utilization of trusts for Medi-Cal planning, case law can provide illuminating examples of challenges, successes, and the nuances of implementing trusts in real-world scenarios. Below are a few case law examples that shed light on this subject:

1. Daley v. Secretary of the Executive Office of Health and Human Services, 477 Mass. 188 (2017) & Nadeau v. Director of the Office of Medicaid, 477 Mass. 195 (2017). While these cases are from Massachusetts, they set significant precedents relevant to many states, including California. In these cases, the Massachusetts Supreme Judicial Court ruled that irrevocable trusts containing provisions allowing trustees to use assets for the beneficiaries’ benefit could still be counted as assets for Medicaid/Medi-Cal eligibility purposes. This underscored the importance of careful drafting when setting up irrevocable trusts for Medi-Cal planning.

2. Gesner v. Estate of Kesner, 782 F.Supp.2d 924 (N.D. Cal. 2011). In this case, assets from a deceased’s estate were distributed to a Special Needs Trust (SNT) for a disabled beneficiary. The California Northern District Court confirmed that assets transferred to a properly drafted SNT, even after death, would not be counted as available resources for Medi-Cal eligibility.

3. Land v. Anderson, 51 Cal.App.5th 428 (2020). This California case clarified that assets held in a revocable trust by a deceased spouse could be considered recoverable by Medi-Cal for services provided to that deceased spouse, even if the surviving spouse was the beneficiary of the trust. This ruling highlighted the importance of understanding how assets in revocable trusts might be treated after the death of a Medi-Cal recipient.

4. In re Estate of Benz, 83 Cal.App.4th 1283 (2000). The court addressed the issue of whether a home transferred to an irrevocable trust was subject to estate recovery claims by Medi-Cal. The court held that the home was still an exempt asset and not subject to estate recovery, emphasizing the importance of properly characterizing and handling primary residences in Medi-Cal planning.

5. Department of Health Services v. Meyer (2005) 135 Cal.App.4th 1519. This case highlighted the nuances of the 30-month look-back period in California. A family had transferred assets and failed to disclose it during the Medi-Cal application. The court found in favor of the Department of Health Services, emphasizing that non-disclosure of such transfers during the look-back period can lead to penalties and periods of ineligibility.

These cases serve as a reminder of the complexities involved in Medi-Cal planning with trusts. Properly structuring and administering these trusts, and being aware of relevant case law, can be essential for ensuring Medi-Cal eligibility and asset protection. As always, working with an attorney experienced in Medi-Cal planning and trusts is paramount.

How living trusts are used in California to avoid Medi-Cal Estate Recovery Claims?

Medi-Cal, California’s Medicaid program, offers benefits to pay for a variety of medical services, including nursing home care. However, after a beneficiary’s death, the state can make a claim against the deceased beneficiary’s estate to recover costs it expended on their behalf. This process is known as “estate recovery.” To mitigate the impact of estate recovery, many Californians utilize living trusts. Below is an overview of how living trusts are used in the state to avoid Medi-Cal recovery claims:

1. Understanding the Pre-2017 Medi-Cal Recovery Rules:
Prior to January 1, 2017, the Medi-Cal recovery program had broader authority to recover from a deceased beneficiary’s estate, which included assets in a revocable living trust. For individuals who died before this date, the assets held in their revocable living trust could be subject to estate recovery.

2. The 2017 Changes:
Effective January 1, 2017, significant changes to the Medi-Cal recovery program went into effect in California. Under the new rules (found in SB 33), the scope of estate recovery was limited. Now, recovery is limited to assets that go through the probate process. Since one of the main purposes of a revocable living trust is to avoid probate, assets in such trusts are no longer subject to Medi-Cal recovery claims.

3. Placing the Home in a Living Trust:
The primary residence is often the most valuable asset a person owns. It’s also exempt from being counted as an asset for Medi-Cal eligibility. By placing the home in a revocable living trust, not only can the individual avoid probate, but since the new 2017 rules, the home (if it remains in the trust upon death) will also be shielded from estate recovery.

4. Other Assets in the Living Trust:
Just like the primary residence, other assets placed in a revocable living trust avoid the probate process. Since Medi-Cal recovery is now limited to assets that are part of the probate estate, these assets will also be shielded from estate recovery claims.

5. Ongoing Monitoring and Planning:
It’s essential to continue monitoring both federal and state legislation. Laws and regulations can change, and proactive management of the trust and other assets can ensure that an estate remains protected from future recovery claims.

6. Limitations of Revocable Living Trusts for Medi-Cal Planning:
While revocable living trusts are beneficial for avoiding probate and, consequently, Medi-Cal recovery under the post-2017 rules, they don’t protect assets from being counted for Medi-Cal eligibility purposes this year (this is likely to change in 2024). In other words, assets in a revocable trust are still “countable assets” when determining whether someone qualifies for Medi-Cal.

While the changes in 2017 significantly reduced the reach of Medi-Cal’s estate recovery program, Californians should continue to be proactive in their estate planning. Using a revocable living trust can help avoid probate, which now also means avoiding Medi-Cal estate recovery for assets within the trust. As always, consulting with a knowledgeable elder law attorney is essential to navigate the nuances of Medi-Cal planning.