Sheltering your assets from Medi-Cal Claims

Dear Len & Rosie,

My mother who is 94. I was caring for her at home until she got too frail and was moved to a residential care home. Everything was going great until she fell and broke her hip, was sent to the hospital and things just went downhill from there. She was discharged to a skilled nursing facility for recovery but it hasn’t gone well.

I just found out that her Medicare payments will stop because she’s not making progress. The care home can’t take her back because she requires too much care. The private pay cost for the nursing home almost $10,000 a month! My mom has retirement income of $2,900 a month, some savings, an IRA and the house that I’m living in which is in a revocable living trust. Do we need to spend everything before Medi-Cal will step in to help? And what’s going to happen to the house? I’ve heard the State will put a claim on it. Is it protected because it’s in a trust? I’ve heard there’s a five year “lookback” and unless she planned ahead there’s nothing that we can do now. 

Grace

Dear Grace,

Your situation is very typical. Medicare pays for up to 100 days of nursing home care, but only if your mother needs rehabilitation or skilled nursing care and shows continual improvement. It’s not unusual for someone as old and frail as your mother to find it hard to recover from such a traumatic event.

You won’t have to completely deplete your mother’s assets before she can get Medi-Cal assistance. The IRA and any other retirement accounts are exempt as long as your mother is taking her minimum required distribution. As far as the savings goes, there are strategies available to save some or most of it, such as conversion (putting money into things Medi-Cal doesn’t count) and gifting, which is allowable and won’t cause ineligibility if done correctly. 

You’re completely right to be concerned about her house. It will be exempt for qualification purposes as long as you state she has an intention to return to it. You don’t have to prove that she’ll actually be able to return. You just need to check a box on the Medi-Cal application to satisfy this requirement. 

However, the State of California will make a claim against your mother’s home after her death if you’ve done nothing to shelter it. Fortunately that’s a lot easier than it used to be. Since January 1, 2017, all your mother will need to do to shelter her home is get it out of her probate estate, ideally by creating an ordinary revocable trust. Alternatively, she can create a more specialized irrevocable trust if the plan is to rent out the home or sell it, as such a trust would prevent the rental income or the proceeds of the sale of the home from affecting her Medi-Cal eligibility.

The bottom line is that while you should review your situation with an attorney who does Medi-Cal work, it looks like you’re in pretty good shape and won’t have to do much to qualify your mother for benefits.

leave an inheritance to the drug addicted beneficiary

leave an inheritance to the drug addicted beneficiary within a discretionary trust 

Dear Len & Rosie,

I have a sister who is a drug addict and is usually out of contact with us. My other sister and my stepbrother and I are the beneficiaries of my step-father’s living trust. Is there anything I can do ahead of time to ensure that we don’t have to find her when my step-father dies?

David

Dear David

When an ordinary revocable trust becomes irrevocable upon the deaths of the settlors  (the persons creating the trust), then the trustee is required to provide notice of the existence of the trust to certain persons, including all of the beneficiaries, other trustees, and the people who would inherit from the trust settlors had they died with no estate plan at all.

If your step-father created the trust on his own, presumably after your mother’s death, then you have nothing to worry about. Your sister, his stepdaughter, isn’t entitled to any notice regarding the existence of the trust unless she’s named as a beneficiary.

If your step-father’s trust was created by him and your mother, then your drug addicted sister is entitled to notice of the trust under California Probate Code section 16061.7. If you know where she resides, then the trustee’s attorney can mail the notice to her after it is signed by the trustee, with a cover letter explaining that she’s not entitled to anything. If she cannot be located after a diligent search, then that’s OK too. The trustee does not have to send the notice if your sister cannot be located.

Alternatively, it may be possible for your stepfather to revoke the trust he created with your mother, and transfer everything to a trust he creates for which your sister will not be entitled to notice.

It’s difficult to deal with a drug addicted loved one in an estate plan. Frequently, it does more harm than good to leave a substantial sum of money to someone suffering from an addiction. There are generally two ways of dealing with this challenge. The easiest way is to disinherit the drug addicted child, but that can be harsh.

An alternative would be to leave an inheritance to the drug addicted beneficiary within a discretionary trust in which the trustee has the absolute right to withhold most distributions unless the beneficiary passes a drug screening test. The trust would be there to pay for drug rehabilitation, but not the drugs themselves. The problem with this alternative is that the person serving as trustee becomes his brother or sister’s keeper. The trustee is the person who has to say no to the drug-addled demands of a suffering beneficiary.

That’s why many families take the easy way out by disinheriting the drug addicted child, leaving everything to the other children, and rely on a legally unenforceable handshake promise from the family to help out the drug addicted child when it’s appropriate.

Rosie