New budget law incorporates changes to the Medi-Cal estate recovery program

Dear Readers,

 On Monday, June 27, 2016, Governor Jerry Brown signed the new state budget bill for the next fiscal year. The new budget law incorporates changes to the Medi-Cal estate recovery program that will be of significant benefit to the families of Medi-Cal recipients.

If you follow this column, you should already know about Medi-Cal estate recovery. When a Medi-Cal recipient dies, then the California Department of Health Care Services (DHCS) is required to assert a claim against assets owned by a Medi-Cal recipient upon his or her death.  The amount of the estate claim is the amount of money Medi-Cal spends on nursing home residents, at any age, and other Medi-Cal recipients, for benefits paid after they turn age 55. This hasn’t changed.

What has changed is that for Medi-Cal recipients dying on or after January 1, 2017, there will be no estate claim against the estate of the surviving spouse. This means that there will no longer be estate recovery when a married recipient dies and when that recipient’s surviving spouse dies (unless the surviving spouse gets Medi-Cal benefits of his or her own).

In addition, and this is big, DHCS Medi-Cal estate claims will be asserted only on estates subject to probate. Any property held by joint tenancy deed, or held within an ordinary revocable trust, will be exempt from estate claims. This means it will be a lot easier for the families of Medi-Cal recipients to avoid having to reimburse the State of California for benefits paid on behalf of their parents or loved ones.

Since 2002, we have prepared specialized irrevocable trusts for our Medi-Cal clients. While these trusts may no longer be necessary to avoid Medi-Cal estate claims, they are also very useful. For example, if a Medi-Cal recipient sells his or her home, the proceeds of the sale will disqualify that person from continued benefits. However, if the home is sheltered within an irrevocable trust, the home can be sold and the proceeds of sale would be protected. Also, any rental income earned by property sheltered within an irrevocable trust won’t have to be paid to a nursing home as part of a Medi-Cal recipient’s monthly share of cost.

What this new law really does is to provide families with new planning opportunities for long term care to help them avoid the hardship of having to spend the accumulated savings of a lifetime on medical care instead of passing it on to their families. If you or a loved one is on Medi-Cal benefits, or faces the prospect of long term care, you should consult with an elder law attorney experienced in Medi-Cal planning.

Keep in mind, however, that the new law comes into effect on January 1, 2017. Until then, the current rules apply, and Medi-Cal recipients who own homes should definitely look into creating an irrevocable trust.

Len & Rosie

Fiduciary Duty of a Trustee.

Dear Len & Rosie,

Both of my parents have recently died. I am named as the trustee of their trust, which is worth only $700,000 including their home. My two sisters, brother and I get equal shares of everything. One of my sisters is a sue-happy harpy who never lent a hand to our parents but she’s the first one with her hand out now. Once, she even sued her friend when she tripped on the sidewalk in front of her friend’s home. I need to know what to do, and I don’t want to get sued. Please help.

Kathleen

Dear Kathleen,

You can’t prevent your litigious sister from suing you. Everyone gets a day in court if they want one. What you can do is to make sure that if you get sued, you win. As trustee, you owe your siblings a fiduciary duty. Think of it in this way - a fiduciary duty means that if anything goes wrong, it’s likely your fault. Your first priority is to cover yourself. Hire an attorney to represent you.

Keep meticulous records. Keep all account statements, all receipts and bills. Don’t conduct any business in cash without a receipt. Don’t fall into the trap of paying your children our spouse to clean up and paint your parents’ home to get it ready for sale. Your sister may fight you over every last dime you pay them. Hire a bookkeeper to prepare a trust accounting unless all three siblings waive their right to an accounting in writing. The last thing you want to do is to distribute everything and get sued six months later by your sister who told you at the time that everything was fine.

Treat all beneficiaries fairly, especially yourself. If you are going to distribute a portion of the trust before your parents’ home sells, keep enough cash to fix up the home if necessary to get it ready for sale. When making a distribution, everyone gets the same amount of money. You cannot favor one beneficiary over another.

You may even go so far as to file a court petition to approve the sale of the home, so your sister can’t argue later that you sold it for less than what it’s worth. If you plan on doing this, don’t sign a sales agreement without talking to your lawyer first, because it takes time to get court approval of a sale.

If your sister won’t waive the accounting and won’t approve it either, you should petition the court to approve of the trust accounting. The legal fees won’t make anyone happy, but the goal here is to protect you.

After the home sells and the accounting is waived or approved, you can distribute the bulk of the trust, but you’ll want to keep a reserve large enough to deal with the trust income tax return to be filed in the year after the home is sold. Remember, once you distribute the money, you ain’t getting it back even if you really need it.

One of the benefits of trusts is that if the trustee and all of the beneficiaries get along really well, you can cut corners and save time and money in administering the trust. That ain’t you. You have to do it the right way, not the easy way.

Len & Rosie