The high cost of long-term care has made planning a critically important issue for most middle class seniors and their families. In fact, most seniors will likely require some form of long-term care. Sadly, many of them are unprepared for the significant financial burdens it places on their family’s hard earned savings. Financial devastation looms large for a family facing the prospect of paying ongoing nursing home care at a rate of $10,000 or more per month.
Long-Term Care Options
While some seniors are able to afford private-pay care, the cost of long-term care will wipe out savings of all but the wealthiest of families in a matter of years. Those who have planned ahead by purchasing long-term care insurance have a degree of certainty and peace of mind, knowing that they have a lesser need to rely on other sources in the future. Unfortunately, many can’t afford the high cost of long term care insurance or worse, because of age or a medical condition cannot qualify them for long term care insurance altogether. If you do have long-term care insurance, you should be aware of what your policy covers. Many policies have high deductibles or provide for only a short period of care in facility. In fact, many who have long-term care insurance still have to resort to Medi-Cal to pay for their care.
Medi-Cal Eligibility Planning
The other option to pay for care in California is Medi-Cal. A joint federal-state program, Medi-Cal, provides medical assistance to low-income individuals, including those who are 65 or older, disabled or blind. Medi-Cal is the single largest payer of nursing home bills in America and serves as the option of a last resort for people who have no other way to finance their long-term care. Although Medi-Cal eligibility rules vary from state to state, federal minimum standards and guidelines must be observed.
While Medi-Cal eligibility with respect to long-term care was not as difficult in the past, there has been a steady drift towards more complex and restrictive rules, the latest being the Deficit Reduction Act of 2005 which went into effect in 2006. These changes have resulted in complex eligibility requirements for those in need of Medi-Cal benefits. It’s no longer as easy as merely reviewing one’s bank statements. There are a myriad of regulations involving look-back periods, income caps, transfer penalties and waiting periods to plan around.
Basic Medi-Cal financial eligibility rules state that a single applicant may not have “countable assets” worth more than $2,000 or a married applicant may not have “countable assets” worth more than $115,920. Certain assets are exempt, meaning that their value is not included in the eligibility calculation. Exempt assets include:
- Primary residence (with equity limitations)
- Other real property, depending on its value, mortgage encumbrances, and usage
- Household goods and personal effects
- One vehicle used for transportation
- Term life insurance (no cash value)
- Whole life insurance policies with a total face value of $1,500 or less
- IRAs and work-related pensions are exempt when: (a) in the spouse’s name, and (b) are exempt when in the applicant’s name if the applicant is receiving periodic payments (“in pay status”)
Based on the asset limitations placed on Medi-Cal eligibility, many single people and married couples need to make advance financial plans to ensure Medi-Cal eligibility when they reach age 65 or become otherwise eligible. Certain legal procedures, including trusts, may be used to transfer assets so that they will not count against the asset limitation. To eliminate any appearance of deception or fraud, such advance Medi-Cal eligibility planning should be managed by a qualified elder law attorney.
Income Planning for Medi-Cal Co-Payments
Another area in which assistance from an elder law lawyer is helpful is income planning to minimize the Medi-Cal beneficiary’s monthly co-payment (“cost of care”) for long-term care. Monthly income is irrelevant to eligibility for Medi-Cal, but the Medi-Cal program does examine income when calculating how much money the beneficiary must pay every month as a co-payment for services received. Because the regulations allow the beneficiary’s spouse to retain a high percentage of income earned by the beneficiary, these monthly co-payments can be minimized with careful advance planning.
When Your Home is Exempt
Medi-Cal eligibility requires that an applicant (and his/her spouse) have a limited amount of assets. Your home is exempt from consideration as a resource when you or your spouse is on Medi-Cal under any of the following circumstances:
- If during any absence, including nursing home stays, the beneficiary intends to return home, and states so in writing. If the beneficiary is mentally incapacitated, a family member or someone acting on her or his behalf may so state this intent.
- If the beneficiary’s spouse, child under age 21, or “dependent relative” continues to reside in the home.
- The residence is inhabited by the recipient’s sibling or son or daughter who has resided there continuously for at least one year prior to the date the recipient entered the nursing home.
- There are legal obstacles preventing the sale and the applicant/beneficiary provides evidence of attempts to overcome such obstacles.
- The home is a multiple dwelling unit, one of which is the principal residence of the beneficiary.
Exempt During Life, but Estate Claim After Death
Note that while a home maybe “exempt” for Medi-Cal eligibility purposes, it is not exempt from estate recovery. Any assets left in a Medi-Cal beneficiary’s name at the time of death will be subject to an estate claim.
Transfer of Interest in Your Home
We strongly suggest that you consult with an attorney experienced in Estate Planning for Long Term Care before any transfer is made. Real property transfers usually involved tax consequences, which may outweigh the benefits of the transfer. Contrary to popular myth, there is no 30-month “waiting period” for transferring an exempt asset–even a home. In fact, under federal law, title to the principal residence may be transferred to the following persons at anytime without affecting Medi-Cal eligibility:
- A spouse;
- A son or daughter under age 21 or who is blind or permanently disabled;
- A sibling who has equity in the home and who was residing there for at least one year immediately prior to the individual’s admission to a nursing home;
- A son or daughter who was living there for at least two years immediately prior to the individual’s admission to a nursing home and who provided care which enabled the parent to live at home;
- To anyone so long as the home was exempt at the time of transfer.
Note: Even if no one lives in the home, as long as the Medi-Cal applicant checks “yes” on the application concerning intent to return home, the home is exempt and can be transferred. If the home is transferred while the Medi-Cal beneficiary is alive, there is no estate claim on the home.
Transfer of the Home to a Spouse
The law allows transfer of a home to an at-home spouse without affecting Medi-Cal eligibility. This applies whether the transfer occurs prior to or after your spouse enters a nursing home.
If our spouse in the nursing home no longer has any interest in the home, anything you do with the house will not affect your spouse’s Medi-Cal eligibility. You can move out of the home, rent it, or sell it, all without affecting our spouse’s Medi-Cal eligibility.
However, there is an important timing issue here. For eligibility purposes, as an at-home spouse you are only allowed to keep up to $115,920 (as of January 1, 2013) in non-exempt assets. If you sell the home before your spouse applies for Medi-Cal, the proceeds from the sale will count towards that limit, since cash is a non-exempt asset.
Thus, if you intend to sell the home, it is generally best to wait until after your spouse is on Medi-Cal and the home is in your name only. Once Medi-Cal eligibility is established, assets acquired by the at-home spouse are not counted.
Medi-Cal Estate Recovery
After the death of a Medi-Cal beneficiary, the Medi-Cal program will attempt to recover some or all of the cash value of benefits paid from the decedent’s estate who was 55 years of age or older at the time he or she received Medi-Cal, or of any age, if the person received Medi-Cal in a nursing home, unless there is a surviving spouse, a minor child, or a blind or disabled child of any age. This can come as an unwelcome shock to surviving family members and can interfere with the decedent’s own plans for distribution of his or her assets after death.
Federal and state laws passed in 1993 expanded the definition of “estate” from which the state can seek recovery. California now may seek recovery from any real or personal property or any other assets in which the individual had any legal title to or interest in at the time of death.
This includes living trusts, joint tenancies, tenancies in common, life estates that are considered “revocable,” and assets received by a surviving spouse by distribution or survival, e.g., assets received by a surviving spouse by distribution or survival, e.g., assets left by a will or community property. Many consumers place their property into living trusts, thinking that this will protect it from an estate claim. However, property placed in a living trust can be subject to recovery, and, unless the property has been transferred out of the beneficiary’s name during life, there will likely be an estate recovery claim.
Right to a Hearing
If you receive an estate claim, you may be entitled to have the claim waived. California has established notice and hearing procedures for waiver of estate claims if recovery would work an undue hardship.
Estate claims can be complicated, and the State has made many errors in their implementation. If you receive notice of an estate claim, contact your attorney.
How to Avoid an Estate Claim
The best way to avoid an estate claim is to have nothing in the Medi-Cal beneficiary’s estate at the time of death. The State can only claim for the amount of Medi-Cal benefits paid or the value of the estate, whichever is less. The “estate” is composed of what is in the beneficiary’s name at the time of death. Minimizing the estate at the time of death will minimize the amount of of the claim. The main asset in the estate is often the home. Protecting the home from recovery often entails transfer of title out of the beneficiary’s name. However, there are a number of ways to transfer property and still retain some control over the property. Any such transfer should be discussed with a qualified estate planning attorney knowledgeable about Medi-Cal and the tax considerations related to real estate transfers.
A comprehensive Medi-Cal eligibility plan will include legal strategies to minimize or eliminate the amount of money Med-Cal will be able to recover from the beneficiary’s estate.
Medi-Cal provides welcome benefits for the elderly, as well as for disabled individuals. Unless you engage in careful planning and guidance from a knowledgeable elder law attorney, however, you may lose access to the full range of benefits you would otherwise be entitled to.
The Littorno Law Group has the experience and the expertise to help avoid the financial ruin associated with the high cost of long-term care. Contact us today to start the process of understanding the issues surrounding Medi-Cal eligibility and to implement the planning and application process.
Please contact our offices to request a free consultation and receive more information.