News & Insights

New Medi-Cal Recovery Laws; another Reason Why Proper Estate Planning is Needed

by Ellen Li, MSBA, CFP® on 5/24/2017

Long –term care in nursing homes, assisted living facilities, and home care can be very expensive. If you don’t have substantial assets or a good long term care insurance policy, the cost of care may deplete your assets over time.

What happens then?

If you qualify for Medi-Cal, (California’s version of Medicaid), it will pay for the cost of care, subject to recovery (repayment) from the estate when the recipient dies. In the past, the aggressive recovery program  put an inordinate burden on the heirs and survivors who were sometimes  forced to sell the family home to pay the estate claim or forced to sign a “voluntary lien” which accrued at 7% annual interest.

Medi-Cal Recovery Reforms

Thanks to new laws effective January 1, 2017, Medi-Cal recovery has been restricted and ensures:

  • No recovery on the estates of surviving spouses or registered domestic partners.
  • Recovery is limited to what is required by federal law.
  • Estates that quality for hardship waivers will not be subject to recovery. For example a home whose fair market value is 50 percent or less of the average price of homes in the county where the homestead is located would qualify as a hardship waiver.
  • The “Estate” from which the state can recover is limited to the probate estate – thus, living trusts, joint tenancies, and property received via survivorship will not be subject to recovery.
  • Interest on liens will be capped at the annual average rate earned on investments in the Surplus Money Investment Fund, (currently at 0.588%) or 7% whichever is less.
  • Beneficiaries  subject to recovery are entitled to receive an itemized billing of what the state is trying to recover once a year for a $5 fee.

Visit here for more information:New Medi-Cal Recovery rule

Proper Estate Planning is the Key

Note that the state recovery program cannot recover from exempt assets that are not subject to the probate estate REGARDLESS of value.  Please see examples below:

Example 1: Mrs. Jones had a home (total value of $1,200,000), and left it to her daughter in her will. Medi-Cal paid $350,000 for Mrs. Jones’ nursing home services, the state can recover $350,000 from the estate so Mrs. Jones’ daughter may need to sell the home to pay the claim.

Example 2: Mrs. Jones left the home in the Jones Family Trust. Since the house is in a living trust, it is not subject to probate in California so there can be no recovery from the estate.

Take-Aways

Proper estate planning is always recommended for anyone regardless of their net worth. The new changes regarding Medi-Cal recovery make estate planning even more important for modest size estates.

You have worked hard to build up a nest egg for yourselves, your spouse, and your heirs; don’t lose out because of a lack of proper estate planning.

posted in BlogGeneralPersonal Finance

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Disclaimer

Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.