Joint Tenancy and Medi-Cal Recovery Claims

Dear Len & Rosie,

My wife and I and my recently deceased mother held title to a house in joint tenancy that all three of us bought together about seven years ago. My mother was on Medi-Cal for five years. Does Medi-Cal have a legal claim against this property? I was under the impression that joint tenancy property was immune from their claim but Medi-Cal’s claim form seems to indicate otherwise.

Richard

Dear Richard,

You and your wife will probably have to break out your checkbook. Joint tenancy property was once exempt from Medi-Cal estate claims, but that hasn’t been the law since October 1993. Prior to then, state Medicaid agencies could assert estate recovery claim against estates probated in the courts. Any asset that avoided probate, such as a home held in joint tenancy or within a revocable trust, was once exempt from Medi-Cal estate recovery.

That changed in October, 1993, when Congress enacted the Omnibus Budget Reconciliation Act, or “OBRA ‘93”. This law made significant changes in the way Medi-Cal estate recovery claims work. Under the federal government’s definition of the “expanded estate”, Medi-Cal is legally required to assert an estate claim against any assets owned by a Medi-Cal recipient upon his or her death. Since your mother owned one-third of your home when she died, that third is subject to Medi-Cal’s estate claim. The two-thirds you and your wife own together is protected from the estate claim.

There are exceptions to Medi-Cal recovery claims. If your mother was survived by a spouse, the claim would be deferred until after her husband’s death. If she was survived by a blind, disabled, or minor child, Medi-Cal has no claim at all. There is also a means of asserting a hardship waiver, but these waivers are difficult to come by and are most frequently granted only when you can show that care you provided to your mother at home kept her out of a nursing home, saving the state money. Unfortunately for you, it’s more than likely that you and your wife will have to pay off Medi-Cal’s claim.

It is too late for you and your wife, but any living person who is a recipient of Medi-Cal benefits can act now to protect his or her home and other exempt assets from Medi-Cal estate claims. One way of doing so is simply to give the property away to the children. However, this is usually a bad idea because an outright gift would result in a loss of the step-up in cost basis that happens when property is inherited. When the children sell the home, they’ll have to pay a great deal of capital gains tax that they would avoid if they were to inherit the property instead of receiving it as a gift.

Fortunately, it’s possible for a Medi-Cal recipient to shelter his or her home while preserving the step-up in cost basis by transferring the home into an irrevocable trust. These trusts are very different from most irrevocable trusts found in estate planning, and should be prepared only by an attorney experienced in Medi-Cal planning.

Len & Rosie

Husband Died Two Months Before Our Divorce Was Completed

Dear Len & Rosie,

My husband died two months before our divorce was completed. Before his death, he wrote a will naming his divorce lawyer as his executor and his children as the beneficiaries. I fear this lawyer is biased and will not execute the will in a fair manner. I appeared in court and the judge told me to file a written objection.

I am concerned about my children’s rights because the will leaves everything to his children, and nothing to mine. There is also an insurance policy that name me and both of our children as beneficiaries, but the will leaves this policy to his children.

Medha

Dear Medha,

It’s unfortunate for you that your husband had the benefit of a good divorce attorney. While it’s to your disadvantage that your husband created a new will, it’s was good legal advice for his attorney to have advised him to do so.

You will probably lose in your effort to have someone else named as the executor of your husband’s estate. Unless your husband’s will was not properly signed and witnessed, it’s a valid will, and the court will appoint the lawyer as executor. The only way to successfully fight this is to show that the lawyer cannot be trusted to impartially represent the estate.

The fact that he represented your husband against you in the divorce is actually to the lawyer’s benefit. His job as executor is to represent the interests of the beneficiaries of your husband’s will, not you. Your children from your previous marriage have nothing to do with it, because they are not your husband’s heirs.

But there is good news. If you and your husband did not enter into a marital property agreement dividing up the marital property before his death, you may have a claim against a portion of your husband’s estate, regardless of what his will says. You are entitled to your half of the community property, even if it was solely in your husband’s possession when he died. On the other hand, his estate may have a claim against you, if you were holding community property in your name alone. You should review the case with your family law lawyer before you consider filing a claim against your husband’s probate estate.

The other silver lining in your cloud is that your husband did not change the beneficiaries of his life insurance policy. Doing so probably would have been a violation of the Automatic Temporary Restraining Orders that are issued when either spouse files for divorce. Lucky for you, insurance policies that have named beneficiaries pass outside of probate. The beneficiary form he signed leaving the policy to you and all of the children trumps his will. You should be able to collect the portion of your husband’s insurance policy for which he named you the beneficiary.

Len & Rosie