Effective January 1, 2017
Medi-Cal Recovery (SB 833)
For Medi-Cal recipients who die on or after January 1, 2017, there are significant changes in the law. The most significant impacts the limitations on recovery of funds by the state of California after the death of the Medi-Cal recipient.
For Estate Planning purposes, the best news is the following:
Recovery is limited to those estates that are subject to Probate under California law. As a result, assets transferred by Living Trusts, joint tenancy or survivorship will no longer be subject to recovery. The only problem with joint tenancy and survivorship arrangements, like pay on death accounts, is that if both joint tenants or owner and survivor die in the same occurrence, this protection is not available. Also, there is no Probate protection for a surviving joint tenant or surviving beneficiary of a pay on death account.
Therefore, the Living Trust becomes the purest and most enduring protection device under this NEW law - especially if there is a home involved.
Let's use some examples.
Example #1: Frances dies in 2017 owning a home valued at $400,000.00 which she left to her daughter in a Will. Frances had received $100,000.00 paid by Medi-Cal for medical services. Not only will the home go through Probate, but the state of California is entitled to recover the $100,000.00 since the home is part of the Probate estate.
Example #2: Frances has a valid Living Trust created under California law and properly funded with her home. This action removes the home from her Probate estate. As part of the Living Trust, she instructs the Trustee to distribute the home to her daughter at her death via the Trust. For the cost of a qualifying Trust, Frances just saved her daughter $100,000.00 plus Probate fees and costs.
Besides Medi-Cal and Probate protection of the home, any other accounts, investments, cash, etc. in the name of the Trust will receive the same protection. The Living Trust can also protect rental property from Medi-Cal recovery with proper planning. In essence, any and all assets properly transferred to the Living Trust will be protected from the NEW Medi-Cal Recovery laws.
Trust Amendment: Presently, we include provisions for planning under the long-term/catastrophic illness laws encompassed in the Deficit Reduction Act (DRA).
Based on the NEW law, we will be amending our provisions in our Trustee Powers section of the Trust to enlighten and instruct the Successor Trustee on the planning importance and strategies of using these NEW laws appropriately for asset protection from Medi-Cal Recovery.
These new provisions, plus our Protective Inheritance Trust (PIT) provisions will add another layer of protection in our Living Trust in protecting Trust assets from potential losses in the value of inheritances intended for your Trust heirs or beneficiaries.
For those of you who do not have Living Trusts, I cannot over-emphasize the importance and opportunity these NEW laws provide in protecting your estate, especially your home, from Medi-Cal Recovery should you incur long term care expenses paid for by the state. This is especially true for those who do not have long term care insurance.
Should you be interested in addressing these issues in your Estate Plan, please contact my office manager, Lizzie, at (858) 792-0909 for an appointment.