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Protecting the Residence from Medi-Cal Estate Recovery

Very few of us can afford the cost of nursing home care. It can be $7,000 to $12,000 per month. If we have adequate long-term care insurance, the challenge is substantially addressed. If we do not, we can either pay out of our own pockets – until assets are exhausted – or we can look to the California Medi-Cal program.

To qualify for Medi-Cal when an individual is in a skilled nursing facility, she can have no more than $2,000 in “countable” assets. The residence is an “exempt resource,” which means that its value is not counted in determining eligibility. This means that a person can be in a skilled nursing facility, receive Medi-Cal benefits so that Medi-Cal pays the cost of nursing home care, and still retain ownership of the residence. This is a colossal mistake.

When a Medi-Cal recipient dies, the state of California has a right to get its money back. If the Medi-Cal recipient still owns or has any interest in a residence, the state can assert a claim against the property to recover all Medi-Cal benefits that have been paid. This could be $5,000 or it could be $400,000.

In virtually every situation, the residence can be protected. We typically recommend that the residence be transferred into a very sophisticated irrevocable trust. This transfer does not interfere with Medi-Cal eligibility. The house is therefore protected from the Medi-Cal estate recovery claim. There is also a “stepped-up basis” at the time of death so that the property can then be sold without exposure to capital gains tax.

This is a classic case of “having your cake and eating it too.” It is all a matter of good planning.