Protecting your assets from a Medi-Cal Estate Claim

Dear Len & Rosie,

I'm a 60 year old woman. I’ve been on Medi-Cal for two years and just received a letter from them about getting reimbursed after I die. I would like to understand this better and to protect my assets (which are fairly modest) as much as possible. I do now own a home, but I have about $170,000 in various investments that I want to protect.

Portia

Dear Portia,

If you are on Medi-Cal and you own $170,000 in countable assets, then you are receiving Medi-Cal as part of the Medicaid expansion adopted by California after the Affordable Care Act (“ACA” or “Obamacare”) was enacted in 2010.  The Medicaid expansion opened up eligibility for non-nursing home Medi-Cal benefits for people under age 65 with low income, regardless of how much they own in assets. That’s the good news. You now have health insurance that you would otherwise not been able to afford without spending your life savings.

The bad news is that California is required to assert recovery claims against the assets of Medi-Cal recipients for benefits paid after age 55 or at any age for nursing home care. The letter you received from Medi-Cal, printed on bright yellow paper, is automatically mailed out to every Medi-Cal recipient on an annual basis.

If you do nothing, then when you turn 65, you’ll be enrolled in Medicare and you will lose your Medi-Cal under the ACA. Then, upon your death, the California Department of Health Care Services will assert an estate claim for the money it has spent on you between the date you obtained benefits and age 65 when you will be disenrolled.

The amount of this claim can be substantial, even if you are healthy and you receive little to no medical care, because most Medi-Cal recipients are provided for by managed care agencies for which Medi-Cal pays a monthly premium for each recipient.

What can you do? Not much as this time, unless you are willing to create an irrevocable trust, with someone other than you as trustee, and transfer your assets into the trust now. This creates a dilemma. You can avoid the Medi-Cal estate claim, but only if you give up control over your life savings.

If you were terminally ill or if you need nursing home care, then that may be a good idea, but for now, while you are healthy and independent, we feel that for most people giving up control of their financial lives is too much to pay to avoid Medi-Cal estate claims. For now, we recommend that you have a good durable power of attorney that empowers someone you trust to create an irrevocable trust for you and transfer your assets to it if you should ever become incapaciated.

Len & Rosie

The importance of a proper estate planning

Dear Len & Rosie,

My mother is 85 and has Alzheimer’s disease. Her condition isn’t that good. She doesn’t recognize me. I could be any one of four people to her. A few years ago I prepared a power of attorney form and sent it to her. My daughter was supposed to get it signed and notarized, but she never got around to doing it. I have been paying my mother’s bills from her bank accounts, which are in both of our names. My problem is that I now need to sell her home to pay for her care, but I don’t know how to do it.

Terry

Dear Terry,

You are in an unfortunate situation, a real failure of estate planning. If your mother had executed a durable general power of attorney when she retained the ability to make decisions, you would be able to sell her home. With a properly drafted power of attorney, you could create a trust to avoid probate or even an irrevocable trust to shelter the home from the cost of her medical care. It would have been a fairly easy paperwork drill.

Now you have a problem. You do not have the legal authority to act on your mother’s behalf. It was OK for you to pay her bills out of the joint tenancy bank accounts, because you legally have access to this money, but you can’t sell her home without going to court.

You will need to hire a lawyer in the county where your mother lives and file a petition asking the court to appoint you as the conservator of your mother’s person (for medical decision) and her estate (her home and other assets). If you are the only child, and there’s no spouse, you have the highest priority to appointment. A conservatorship petition requires 30 days notice, but you can be appointed as temporary conservator on an emergency basis if there’s an immediate need to get things done.

Conservatorships tend to be much more expensive in relation to trusts and durable powers of attorney. On top of the court filing fee and probate investigator fee, you will have to hire a bookkeeper to prepare an accounting one year after your appointment as conservator, and every other year thereafter. This means you will have to keep meticulous records of everything you do on your mother’s behalf. You will also need to ask the court’s permission to sell your mother’s home.

It’s a lost opportunity for you, but if your mother had given you a power of attorney, and if she had created a trust to avoid probate, selling her home would have been a lot easier. You could replace her as trustee with one or two doctor letters instead of a court order, depending on the terms of the trust, and your lawyer could have prepared an Affidavit of Change of Trustee to transfer title of her home to you as trustee so you could sell it.

If you fail to plan you plan to fail. Don’t blame your daughter for this. The young do not frequently face the prospect of a death in the family, so they think they have plenty of time to deal with things like this when in reality they do not. In your case, with a conservatorship, you will be able to get things done, but you’re on a much tougher road because you didn’t help your mother create a proper estate plan.

Len & Rosie