Qualifying for Medi-Cal

Dear Len & Rosie,

It looks like my mother needs nursing home care soon, probably in the next year. I asked a lawyer friend of mine if there’s anything that can be done to protect my mother’s home and her $200,000 in savings. He said he heard that it would take five years to qualify my mother for Medi-Cal benefits. But he also said he doesn’t do elder law like you (he’s into securities) so I should someone who works in the field. Is there anything my mother can do to protect your assets.

Kelli

Dear Kelli,

Your friend was right to send you to an elder law attorney. The rules regarding Medi-Cal are very strange. On February 8, 2006, the federal government enacted the Deficit Reduction Act of 2005 (“DRA”). Under DRA, when someone like your mother applies for Medi-Cal benefits, she will have to disclose any gifts she has made in the five years prior to the date of application. Each gift triggers a transfer penalty period during which your mother won’t qualify for nursing home Medi-Cal benefits.

The length of this penalty is calculated by dividing the total amount gifts your mother made in the last five years by the Average Private Pay Rate (the average monthly cost of nursing home care in California), which is $8,092 for 2015. If she were to give away $200,000 all at once, there will be a 28 month penalty (rounded down from 28.2 months) unless your mother waits five whole years before applying for Medi-Cal, and this penalty will start when your mother applies for benefits.

Except that it doesn’t work that way at all. The California Department of Health Care Services (“DHCS”) has not yet implemented the federal rules imposed by DRA, even though it’s been more years since its passage. But that should come as no surprise. DHCS failed to implement any of the rules created by the Omnibus Budget Reconciliation Act of 1993. Even more surprising, Medi-Cal’s current eligibility rules, with few exceptions, are based on temporary emergency regulations published in 1990. We are not kidding. Under the current rules, your mother could make multiple gifts within one month, and the transfer penalties will run at the same time instead of being added together. When will the new rules under DRA come into effect? Nobody knows.

So for now, people like your mother who may need nursing home care in the foreseeable future don’t have to worry about a five year look back period. Only gifts made in the thirty months prior to applying for benefits trigger transfer penalties. Also the penalties are retroactive. They start running on the first day of the month in which the gift was made. There are many planning opportunities available for your mother. You and she should see an elder law attorney soon. Not only is it possible to shelter a large portion of your mother’s life savings, her home can be protected from Medi-Cal estate recovery claims as well.

Len & Rosie

Benefits of a Dynasty Trust

Dear Len & Rosie,

We have three grown children with children of their own and we have a trust. We want our children to be the beneficiaries but want to set it up so that, should they divorce, the spouse would not have a right to the inheritance. I know that an inheritance comes into the marriage as separate property but I thought that, if the pool is used for community expenses, mortgage, etc. that the whole thing could become community property. Yuk. Is there a way to ensure that it will stay separate property? We don’t mind if our children purposely use the funds for their families, but would like to set it up so that they can keep the remainder of the inheritance should they divorce. What should we be looking for?

Patricia

Dear Patricia,

Most parents think the way you do. They don’t want to look down from above and see their ex-son-in-law driving a Lexus bought and paid for with their daughter’s inheritance. Normally, you do not have to worry about your childrens’ spouses inheriting anything from you. They will get nothing upon your deaths, unless you specifically say so in your wills or trust. What you have to worry about is what happens to the inheritance once it’s in the hands of your children.

An inheritance is separate property, but many children, either by mistake or on purpose, commingle their inheritance with community property assets, or even transmute their inheritance to community property. There are a couple of options available to you to help your children not do this.

The first is education. The trick to keeping separate property separate is to keep it separate. While that may not make much sense, it can be pretty simple. Your children should know to put any inherited assets into brand new accounts in their names alone, preferably at different financial institutions. Then, they need to know that they should never put anything else into these accounts that may be community property. If your children create trusts to avoid probate, these accounts should be identified as being their sole and separate property.

But some children just won’t listen to their parents. They’ll listen to their spouses instead when late at night they hear “Honey, if you love me you’ll put your inheritance in both of our names.” If you are worried about that happening, there’s a better alternative than trusting your children to look out for their own interests. You can leave them their inherited assets within dynasty trusts. Depending on the circumstances, you can make each child the trustee of his or her own dynasty trust. Each trust will make payments to your children for their support and education. The trustee won’t be able to transmute the inheritance to community property. If there’s a divorce, your son-in-law won’t walk away with your money.

There are other benefits to dynasty trusts, including protection from the creditors of your children, and estate tax avoidance on the deaths of your children. And you can also put restrictions on the ability of your children to give away the family legacy when they die. You can make them leave it all to their children when they die, allowing you to keep your accumulated wealth in your family for generations to come.

Len & Rosie