In June 2016, California Governor Brown set major reforms to California’s Medi-Cal Estate Recovery into motion when he signed the SB833 legislation. This legislation reduces the scope of Medi-Cal recovery against the estate of deceased Medi-Cal beneficiaries who die on or after January 1, 2017.
Learn more about this legislation, living wills and probate from Stuart Furman, Esq., an elder law attorney in California for over 35 years and author of “The ElderCare Ready Book” and “The ElderCare Ready Pack” – who has worked with many families that have had a Medi-Cal recovery lien needlessly placed on their home when they thought their home was an exempt asset.
Legislation Changes in the U.S.
Furman explains that across the country there are two aspects to Medicaid (Medi-Cal in California):
- Eligibility: The circumstances under which you can receive Medicaid.
- Recovery: The right for the government to get reimbursement for their Medicaid costs, often through a Medicaid Lien on a deceased person’s assets.
“In the 1980’s a normal revocable living trust was exempt from Medi-Cal recovery,” Furman says. “However, California signed legislation expanding the definition of a decedent’s estate for purposes of recovery, which allowed the state to recover not just probated assets, but also assets passing through living trusts, joint tenancies, life estate-remainders, or any other similar instrument. The average American was in great need of estate planning to protect their assets from Medi-Cal recovery, but were unaware of how far reaching the recovery statutes were,” he says.
Now, the legislation simplifies recovery once again, bringing it closer to the original definition used in the 1980s.
What this means for California’s seniors is that they don’t need to worry about going through the process of divesting their home to avoid Medi-Cal Estate Recovery, or stress about the tax implications of doing so. They must, however, take action so that the assets do not transfer to their heirs through the decedent’s “probate estate.”
Medi-Cal Estate Recovery Legislation Protects Seniors
According to Furman, with the new legislation, assets are better protected.
For instance, before SB833, if a married couple held their assets as joint tenants, and the husband was in a nursing home incurring $50,000 worth of care through Medi-Cal, when he passed away the assets would transfer to the wife. No problem so far. But many families were woefully misinformed as to the Medi-Cal claim that would follow the husband’s assets, transferring to the wife. Thus when she passed away, the state would lien and recover the assets (traced back to those that the husband transferred to the wife) that were then transferred to the heirs. This had serious implications on the estate left to the couple’s heirs.
Now that it is the probate estate subject to recovery, simple estate planning can avoid this problem entirely.
Furman points out that in addition to being beneficial for seniors in terms of protecting them from the recovery statue, SB833 is also helpful in that it:
- Allows small estate affidavits up to $150,000 that are not probated to be transferred to heirs, and still be exempt from Medi-Cal estate recovery
- Better protects people who are 55+ years old in a nursing home who are using community services
- Life insurance and retirement plans that are paid directly to heirs and are not payable to the decedent’s estate (causing a probate) are no longer recoverable
- Restricts the interest that the state can charge in liens
SB833 also has a broad hardship waiver provision. This means that the size of the estate versus the recovering claim is taken into consideration. Specifically, “if a home is deemed to be 50% or less than market value then the state is required to waive the claim as a hardship waiver and the house would be 100% exempt from Medi-Cal Recovery,” Furman explains.
Why Estate Planning Remains Essential to Probate
Although there are fewer assets that are subject to the Medi-Cal estate recovery with SB833, resources in probate are still subject to recovery. “The legislation really forces estate planning in a good way for people who have even a modest amount of assets,” Furman says. “Estate planning is still necessary, but it has changed and simplified for Medi-Cal planning in California. However, seniors still need to plan for Medi-Cal eligibility and plan their estate in a way that it is still protected from Medi-Cal recovery.”
What is probate?
Probate is a public process, through the courts, that “proves up” a will and effectuates the transfer of a decedent’s assets to the heirs named in his or her will.
Any assets that are transferred through the probate process are subject to Medi-Cal recovery. For example:
- Annuities where there is no living beneficiary after the death of the parents.
- Joint tenancy assets where the second spouse has died will trigger a probate of the estate.
- Life insurance and retirement plans payable to the decedent’s estate, that are being probated, are subject to Medi-Cal recovery.
Keep in mind that the transition period for SB833 “is make or break,” Furman says. “If you die before 2017 the old law applies and in or after 2017, the new law applies.”
Why You Should Plan to Keep Your Parents and Yourself in California if Possible
Furman notes that California is the only state not acting under the Deficit Reduction Act of 2005 (“DRA”), which is unique. This means that if your parent lives in California, but you live in another state, then you should really consider trying to keep your parent in a California nursing home for as long as possible.
The moment you move your parents from California, the Medicaid eligibility and recovery rules change.
“The California Medi-Cal laws are applicable only to people in nursing homes in California. You may be declined eligibility for Medicaid in another state due to planning that was done in California, if you are admitted into a nursing home in another state,” Furman warns. Of course, keeping your parent in California isn’t always possible, so if you do need to move your parent or spouse from California, it’s best to consult with an elder law attorney first to understand the estate, financial and legal implications.
This new legislation, although complicated, is ultimately good news for families in California. Though, a visit to an elder law attorney to ensure that an estate is well laid out to avoid probate, minimize taxes, reduce recovery and include other legal considerations is an absolute must.
Do you have an estate plan prepared to avoid probate? What tips do you have for others that are just beginning this process? We’d love to hear your thoughts in the comments below.