Attention all, effective January 1, 2017, California SB 833 overhauls the Medi-Cal recovery laws in California. More specifically, for Medi-Cal recipients who die on or after January 1, 2017, there are significant changes in the law. The most significant impacts the limitations on recovery of funds by the state of California after the death of the Medi-Cal recipient.
The Good News: Under the new law, recovery of Medi-Cal claims against the estate of the recipient is limited to those estates that are subject to Probate under California law. As a result, assets owned by a Living Trust, or other non-probate transfers such as joint tenancy or survivorship arrangements will no longer be subject to recovery. The only problem with joint tenancy and survivorship arrangements, like pay on death accounts, is that if both joint tenants or the owner and named beneficiary die in the same occurrence, this protection is not available. Also, there is no Probate protection for a surviving joint tenant or surviving beneficiary of a pay on death account.
So what am I driving at here? Under this new law, a revocable trust is the purest and most flexible tool to use to avoid claims against a Medi-Cal recipient’s estate – especially if there is a home included in the recipient’s estate.
Besides Medi-Cal and Probate protection of the home, any other accounts, investments, cash, etc. in the name of the Trust will receive the same protection from Medi-Cal claims asserted by California. The Revocable Trust can also protect rental property from Medi-Cal recovery with proper planning. In essence, any and all assets properly transferred to the Revocable Trust will be protected under the NEW Medi-Cal Recovery laws.
Important Steps to Take: If you have a revocable trust, please carefully review your current assets to ensure they are properly titled in the name of your trust. Often, clients will sign a trust but neglect to fund the trust by changing title to assets. In order to receive the protections under the new law discussed here, your trust must be properly funded. If you’d like to go over your assets with us to ensure you’ve funded your trust properly, please call our office to schedule an appointment.
If you do not already have a revocable trust, the passing of this new law is yet another reason of the many to establish a revocable trust. Take a read of the example below to see how this new law and establishing a revocable trust may help you and your family:
Example #1 – No Revocable Trust: Julie owns a home worth $500,000.00. Julie has a Will that leaves her home to her three children in equal shares after her death. While she is living, Julie receives $125,000 worth of medical benefits through Medi-Cal. Upon her death, Julie’s Will must be probated. Without a revocable trust, the home would be included in Julie’s probate estate. Additionally, her probate estate is subject to California’s claim of $125,000 for recovery of the Medi-Cal benefits Julie received. If there are not sufficient liquid funds in the estate to covery this California claim, the home may need to be sold to satisfy the claim instead of Julie’s three children owning the home as Julie wished. Moreover, the cost of probate would further reduce the inheritance received by Julie’s children.
Example #2 – With a Revocable Trust: Using the facts above, but Julie establishes the Julie Revocable Trust and transfers her home and bank accounts to the Trust. Julie receives $125,000 of Medi-Cal benefits and passes away on January 20, 2017. The assets in her Trust would be protected from California’s claim for Medi-Cal benefits and the home would be distributed to Julie’s children in three equal shares as she intended. That is an immediate savings of $125,000 to her beneficiaries. Also, and just as important, Julie’s Trust avoids the need for probate and the associated costs, which are exorbitant in California.
The opportunity to protect your assets resulting from this new law is obvious, but cannot be overstated. For those of you who do not have Revocable Trusts, I cannot emphasize the importance and opportunity these NEW laws provide in protecting your estate, especially your home, from Medi-Cal recovery claims should you incur long term care expenses paid for by California. This is especially true for those who do not have long term care insurance.
If you wish to discuss your existing trust, its funding, or establishing a new trust, please call our office at 858-792-0909 to set up a consultation. Take the time to protect your assets for the benefit of your loved ones.