New Case Alert: Pratt v. Ferguson

CunninghamLegal – The Living Trust Lawyers

Case Analysis, by Jim Cunningham:

When writing a trust that contains a spendthrift provision, a client should consider using a trust protector as well as being able to decant the trust.

This means that the trust protector can move the trust site out of the state of California and create a new trust in a jurisdiction that does not permit invasion of the trust.

New Case Alert Summary: Filed September 6, 2016, Fourth District, Div. Three

Cynthia Vedder was entitled to all income and mandatory and discretionary distributions from her grandparents’ trust. The trust contained a spendthrift clause, as well as a “shutdown” clause prohibiting certain periodic mandatory principal distributions when those payments become subject to enforceable claims of creditors. Cynthia’s ex-husband obtained judgments against her for wrongfully-taken community property funds and unpaid child support. He petitioned for an order requiring the trustee to pay the child support judgment from trust income and principal, and to impose a lien on the trust to satisfy the community property judgment. The trial court denied the petition based on the shutdown clause.

The court of appeal reversed. A spendthrift clause does not defeat the claims of a support creditor. The shutdown clause does not apply to discretionary payments of income or principal, but only to mandatory principal distributions. Regardless of the nature of the distributions, the shutdown clause cannot defeat the claim of a support creditor. A trustee cannot refuse to satisfy an enforceable child support judgment for an improper purpose, and the court has discretion under Probate Code section 15305 to order a trustee to make distributions to satisfy a support judgment to the extent that it is equitable and reasonable to do so under the circumstances. On remand, the trial court must determine the amount of the income and principal distributions to satisfy the support judgment and future support obligations. The court also reversed as to the community property judgment, which can be satisfied by payment of up to 25 percent of discretionary distributions to a beneficiary.

New Case Alert Source: The State Bar of California

Major Changes for Medi-Cal Estate Recovery

CunninghamLegal – The Living Trust Lawyers

This year, Governor Brown signed into law SB 833 which will bring major changes to Medi-Cal estate recovery laws beginning January 1, 2017. Generally speaking, the state is required to seek reimbursement for Medi-Cal benefits paid out to an individual over age 55 or to an individual of any age who is an inpatient in a nursing facility.

Federal law requires that states maintain a Medicaid recovery program but federal law does not require certain expanded estate recovery provisions which California adopted in 1993. The changes in California’s estate recovery laws are essentially limiting estate recovery to the bare minimum of what Federal law requires.

Some of the key changes brought about by SB 833 include:

  • No recovery when there is a surviving spouse or surviving registered domestic partner;
  • Limited recovery for those Medi-Cal recipients 55 years of age or older to nursing home and home and community based services expenses;
  • Recovery only against assets in the probate estate;
  • Waiver of recovery claim for “homestead of modest value.”

What follows is a more detailed explanation of each key change along with how the current law stands.

No recovery when there is a surviving spouse or surviving registered domestic partner

Current Law: When a Medi-Cal recipient dies leaving a surviving spouse or registered domestic partner, the survivor’s estate is subject to recovery upon his or her death for the benefits paid to the Medi-Cal recipient.

SB 833: Recovery is prohibited when there is a surviving spouse or registered domestic partner. If a Medi-Cal recipient dies prior to 2017, leaving a surviving spouse, it is unclear whether there will be recovery once the surviving spouse dies. Of course, if the surviving spouse was also on Medi-Cal, then there may be recovery at least for the benefits he or she received.

Limited recovery for those Medi-Cal recipients 55 years of age or older to nursing home and home and community based services

Current Law: The amount of recovery is equal to the payments received for all health care services by a Medi-Cal recipient over the age of 55.

SB 833: Only benefits paid out for nursing facility services, home and community based services, and related hospital and prescription drug services are recoverable for a Medi-Cal recipient over the age of 55.

Recovery only against assets subject to California probate

Current Law: Upon a Medi-Cal recipient’s death, the state is required to recover against all property in which that individual had any legal title or interest. This includes assets passing through probate and assets conveyed through non-probate methods such as trusts, joint tenancy, and survivorship to name a few.

SB 833: Limits recovery to the Medi-Cal recipient’s probate estate. Therefore, there is no recovery against out of probate transfers. However, there are some unresolved issues with this provision. For example, it is unclear whether a Probate Code § 13100 small estate affidavit transfer or if a Heggsted petition under Probate Code § 850 to transfer property to a trust without a probate will avoid estate recovery.

Waiver of recovery claim for “homestead of modest value”

Current Law: There is no waiver of claim for a homestead of modest value.

SB 833: No recovery on a “homestead of modest value” which the new law defines as a home whose fair market value is 50% or less than the average price of homes in the county where the homestead is located, as of the date of decedent’s death. “Fair market value” would generally mean minus encumbrances. A methodology for determining the average price of homes should be put in place by January 1, 2017.

For those who want more information on the new changes and to see the text of the new law, you can visit (please note that this web address is case sensitive).

Stephen M. Wood is an attorney at CunninghamLegal in Camarillo, where he handles estate planning, trust administration, elder law, and probate matters.