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January 2017 Seminar Schedule – Released

CunninghamLegal – The Living Trust Lawyers

CunninghamLegal has just released it’s January 2017 Seminar Schedule and the first few weeks of the year are jam-packed with valuable, free education on Estate Planning, Living Trusts and Medi-Cal.

Learn how:

• Your Living Trust may fail to protect your valuable IRAs (401ks, Roth, 403(b)).
• Your Living Trust may fail to protect your family from losing their inheritance to greedy in-laws, divorce, lawsuits, creditors and government claims.
• If you had a Living Trust created before 2014, it may need to be revised for the new Estate Tax exemption.
• When you’re ill or disabled, the person you’ve chosen to handle your a?airs may have to go to Court and face unnecessary delays and fees.
• Your Living Trust may NOT avoid Probate Court.
• Your Living Trust may need special provisions so you and your family won’t get wiped out by nursing care bills.
• To address your firearms in Estate Planning.

…and more.

Seminars are scheduled in Northern and Southern California with several dates and times to choose from. Take a look: https://www.cunninghamlegal.com/attend-free-seminar/

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 goo.gl/5wQi1i (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.

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Avoiding a Medi-Cal Recovery Claim on a Personal Residence

CunninghamLegal – The Living Trust Lawyers

Avoiding a Medi-Cal Recovery Claim on a Personal Residence

In order to qualify for Medi-Cal, an individual must have limited income but may have unlimited assets due to the expansion of Medi-Cal under the Affordable Care Act. Medi-Cal expansion has made it easier for an increasing number of Californians to qualify for Medi-Cal. Although this is welcome news to many, it also presents an unanticipated consequence for many. Note that long term care Medi-Cal, which pays for care in a skilled nursing facility, is still an income and asset tested benefit, meaning that assets are still considered for eligibility purposes. For long term care Medi-Cal, some assets are considered “exempt,” meaning that Medi-Cal will not consider that asset in determining eligibility. For example, the personal residence is an exempt asset.

What is the unanticipated consequence for a Medi-Cal recipient? Medi-Cal recovery.  When a Medi-Cal recipient dies, exempt property remaining in the recipient’s name becomes available for Medi-Cal to seek reimbursement for benefits it has paid out during the recipient’s lifetime.  Not everyone who has received Medi-Cal is subject to Medi-Cal recovery, Medi-Cal only seeks recovery for benefits paid out when a recipient is over age 55, or when a recipient of any age is cared for at a skilled nursing facility or other similar institution.  Medi-Cal recovery claims are often very large and must be paid by assets left over in the estate.

Many people I speak with are surprised to hear that Medi-Cal recovery is avoidable with proper planning.  For purposes of this article, I will be focusing on avoiding recovery of the personal residence since it is typically the most valuable exempt asset and probably the asset Medi-Cal seeks recovery against the most. Perhaps the simplest way to avoid a Medi-Cal claim against the personal residence is to transfer it out of the estate before death or to do a retained life estate.  There are some downsides though to these methods.  In most cases, we advise transferring the personal residence to an irrevocable Medi-Cal Asset ProtectionTrust (“MAPT”) for the following reasons: (i) IRC Section 121 Exclusion; and (ii) Step-up in Income Tax Basis.

  • IRC Section 121 Exclusion

Oftentimes, the personal residence is sold during a Medi-Cal recipient’s lifetime for various reasons. If the home is in the recipient’s name, the personal residence will now be converted to a non-exempt asset, cash, and the recipient will no longer qualify for Medi-Cal. To overcome this result, the recipient may transfer the home to a loved one; however, if this is done, the sale will no longer qualify for the IRC 121 exemption for the first $250,000 of appreciation. The result is similar with a retained life estate as the portion of the sale attributed to the remainder beneficiary will not qualify for the exemption.

If the personal residence is sold after it has been transferred to a MAPT, the sale will not only qualify for the IRC 121 exemption, the cash resulting from the sale will also not be counted as an asset of the recipient.  Now the recipient has cash to supplement their care and the sale results in little or no capital gains tax.

  • Step-up in Income Tax Basis

Generally speaking, when an appreciated asset is transferred because of death, that asset will receive a step-up in income tax basis, meaning that the tax basis becomes the asset’s fair market value on the decedent’s date of death.  Conversely, if an asset is gifted away during lifetime, that asset keeps the same basis that the donor had.  With a MAPT, property will receive a step-up in basis on the recipient’s death.  A property with a retained life estate will also receive a step-up in basis.

For example, let’s say Suzanne bought her personal residence for $50,000 and it now has a fair market value of $500,000. If Suzanne gifts that property to her children to avoid a Medi-Cal recovery claim and her children then sell the personal residence for $500,000, the children now have to pay capital gains tax on the $450,000 of gain. If the property is transferred to a MAPT and Suzanne dies when the fair market value of the house is $500,000, the children will receive a stepped up basis from $50,000 to $500,000.

There are many other advantages of the MAPT, such as asset protection and retained control and flexibility by the recipient.  Planning for Medi-Cal and avoiding a Medi-Cal recovery claim is definitely not a one size fits all approach, it is very important to obtain help from an attorney who is knowledgeable about Medi-Cal rules and who has experience is this area. I have done this type of planning for many clients which has literally saved people hundreds of thousands of dollars in taxes and Medi-Cal recovery claims.

If you would like to discuss this strategy further, please don’t hesitate to contact me. We also offer free initial consultations for Medi-Cal planning.

–Stephen Wood