Long-Term Care CostBy Jim Gianelli
Did you know you can lose your home to the state as a result of the state paying your long-term care costs? Unfortunately, this is a common occurrence. Let’s discuss the problem and ways to avoid it.
Consider this real case (the names have been changed). Mr. Jones, 87, is in the mid-to-late stages of dementia. His wife, 86, has cared for him for the past five years but can no longer manage without help. The couple has a modest estate: a home that’s paid for, a modest pension, and a bank account of nearly $100,000.
They cannot afford the 24-hour live-in care that Mr. Jones now needs because of his deteriorating medical condition. His wife has heard that she may receive state aid in the form of Medi-Cal, which will cover the costs of a skilled nursing facility.
Q: Is Mr. Jones eligible For Medi-Cal?
Yes. Medi-Cal requires that an applicant (and his/her spouse) have limited resources. He can have a home (considered to be exempt under most circumstances), and certain other assets. For married couples, this is known as the “CSRA amount” of $109,560 (as of 1-1-09). For a home to be considered exempt, Mr. Jones must intend to return home – an intent that can be declared by his representative, Mrs. Jones in this case.
Q: How much of the skilled nursing facility costs will Medi-Cal pay?
Generally speaking, if Mr. and Mrs. Jones’ income from all sources (including pension, social security, interest, etc.) does not exceed $2,739 per month (the “effective maintenance needs allowance,” effective 1-1-09), then Medi-Cal will pay all of Mr. Jones’ skilled nursing home costs! This is remarkable. Costs of a skilled nursing facility in Tuolumne County vary widely, but the average is $7,500 per month. Through Medi-Cal, the State pays it all!
Q: What’s the catch?
It is this: After Mr. Jones dies, the state may make a claim against the home, unless Mrs. Jones is still alive (but they will lien the estate after her death), or unless the home passes to a minor child, or a blind or disabled child of any age.
Laws passed in 1993 expanded the definition of “estate” from which the state can seek recovery. California now may seek recovery from any real or personal property, or any other legal assets held at time of death, including but not limited to the home of Mr. and Mrs. Jones. The “estate” is composed of what is in the Jones’ estate at the time the second of them dies.
An estate includes living trusts, joint tenancies, tenancies in common, life estates that are considered “revocable,” and assets received by a surviving spouse by distribution or survival, e.g., assets left by a will or community property. Many people place their property into living trusts, thinking it will protect it from an estate claim. However, property placed in a living trust can be subject to recovery; unless the property has been transferred out of the beneficiary’s name during life, there will likely be an estate recovery claim.
Q: How do the Jones’ avoid an estate claim and save their home for their children?
The Jones should have nothing in their estate at the time of death of the second of them. The state can only claim for the amount of Medi-Cal benefits paid or the value of the estate, whichever is less. The Jones’ home is their main asset, as is often the case. To protect the home from recovery, the couple must transfer the home title out of their name. However, there are a number of ways to transfer property and still retain some control over it. Any such transfer should be discussed with a qualified estate planning attorney, to avoid complications (both tax-wise and liability-wise) created by doing these transfers without legal help. Contrary to popular myth, there is no 30-month “waiting period” for transferring a home which is an exempt asset.
I recommended that the Jones transfer the home to their children as tenants in common, and retain an “irrevocable life estate interest” in the home. This provided tax benefits and liability protection. In the end, the home was saved for the children and not subject to state Medi-Cal recovery lien.