Sheltering Your Home from Potential Medi-Cal Estate Claims

 

Dear Len & Rosie,

I am 68 and I am married for the second time. My house, where my husband and I live, is still in my name, and there are no mortgages on it. My trust is written such that, after my death, my husband will have the right to live in my home until he dies, after which it will be divided amongst my three children. I would like to put the property in my children’s names now, so that if I should enter a nursing home, the government can’t take the home as payment. But I also want to keep control over the property as long as I can. What should I do?

Lorena

Dear Lorena,

You don’t have to do anything with your home to qualify for Medi-Cal. You are allowed to own your home and still receive Medi-Cal nursing home benefits. There is also no Medi-Cal estate claim for any benefits paid on you or your husband’s behalf until both of you have died. Sheltering your home is really for the benefit of your children, not you.

You could give the house to your children now, while retaining a life estate in your home for yourself and your husband, to last until the survivor between you dies. This means that you and your husband will be able to live in the house for as long as you both live. After you both die, your children will own the property.

But you will lose some of your control over the property. You would not be able to sell it or encumber it with a mortgage without the consent of your children and your husband. More importantly, if your children fail to pay their taxes or get sued, their creditors can record a judgment lien against your home. If one of your children dies before you, then his or her share of the home will pass to his or her heirs through probate. 

The best way to protect a home from potential Medi-Cal estate claims is to shelter it within an irrevocable trust, which will allow you greater flexibility in deciding how the trust will be distributed upon your death. But if you create an irrevocable trust for your home, you won’t be in charge any longer, because you cannot be the trustee. Also, your rights with respect to the trust would be severely limited, because otherwise your home would be subject to a Medi-Cal claim. You wouldn’t have much more than a right to reside in your own home.

It is important to understand that giving your home away, either outright to your children, or within an irrevocable trust is usually a bad idea if you are not already on Medi-Cal benefits or suffer from an ailment that is very likely to put you into a nursing home. Don’t do this just because you fear that you may need long term care some day. If you are healthy today but concerned about future medical costs, you could amend your trust and sign a new durable power of attorney and give permission to your children today to do this sort of planning for you in the future if you ever become incapacitated.

Len & Rosie

The Way A Trust Works

Dear Len & Rosie,

My family has a living trust with two properties that amount to around $1.5 million and also a few hundred thousand dollars in cash in various bank accounts. My Grandmother and Grandfather were the owners of the properties and money until they passed away a couple years ago at the ages of 94 and 96. My father is 75 and is the last living child (both his brothers have passed), and according to my grandparents’ trust has since acquired everything, although no paperwork has changed and everything still appears in my grandparents’ names.

My father is having a lot of heart trouble and is in the hospital as I write after suffering his 4th seizure this morning, he is ok for now. The living trust has the beneficiaries in order of my father, my oldest brother, my middle brother and then me. Both of my brothers have moved out of the state so my father and I would like to amend the trust to list me as the primary beneficiary. I am the one who will have to deal with everything anyway when my father passes.

Toby

Dear Toby,

It seems fairly clear from the context of your letter that your father never got around to seeing an attorney about his parents’ trust after they passed away. And you may also be a bit confused about the way trusts work.

We cannot be sure without actually reviewing your grandparents’ trust, but if the trust left everything to your father upon their deaths, then the properties and cash should be distributed outright to your father, unless his inheritance is supposed to be held in trust for your father’s lifetime benefit. If your father were to pass away, his interest in his parents’ trust will likely belong to his probate estate and shall then pass under the terms of your father’s will, if he has one.

What you and your father ought to do is to review his parents’ trust with an attorney to verify what ought to be done. He should also look into his own estate plan and should probably create his own revocable trust.

You also need to understand that there is a distinction to be made between who inherits a trust when someone dies (the beneficiaries) and who shall have the responsibility of administering the trust, paying the bills and taxes, and distributing what’s left to the beneficiaries (the successor trustees). It certainly makes sense for your father’s estate plan to name you as his successor trustee, if you’re the only child who lives nearby. But your father shouldn’t name you as his sole beneficiary unless he wants to disinherit his two other sons. There’s nothing preventing your brothers from inheriting California properties if they live out of state, or even out of the country. Unless that’s what your father wants. He needs to see a lawyer soon.

Len & Rosie