Medi-Cal: Will I Lose My House?

We often meet with clients who believe they are forced to choose between receiving Medi-Cal health care or keeping their homes for their child(ren). Is the government going to take your home when you die? It depends.

Federal law requires states to seek recovery from an individual’s estate for certain medical assistance received by the individual. Accordingly, the California Department of Health Care Services expressly states that California’s Med-Cal program must seek repayment from the estates of certain deceased Medi-Cal beneficiaries. This is called “Estate Recovery.”  However, Estate Recovery is applicable for certain deceased Medi-Cal beneficiaries, not all.

To determine which beneficiaries are subject to recovery, we look to California Legislation SB 833 which was signed into law in 2016 by Governor Jerry Brown and became effective on January 1, 2017. SB 833 overhauled the Medi-Cal recovery rules in favor of Medi-Cal recipients.  

Prior to 2017, California allowed claims on estates for any Medi-Cal benefits received. Those rules surpassed the federal requirements imposed upon states. Proponents of SB 833 argued that the former rules contributed to generational poverty.

The rules post-2017 have limited recovery to the following circumstances:

1) Repayment is limited to payments made for nursing facility services, home and community based services.

Under the new rules, the state cannot recover for basic health services such as a doctor’s visit or prescription drugs. The state can recover for nursing home care or home and community based services. Home and community based services include Assisted Living Waiver, Multipurpose Senior Services Program, Home and Community Based Alternatives, AIDS, Home and Community Services for Developmentally Disabled, Pediatric Palliative Care, and In Home Operations waiver programs. In addition, the state can recover for hospital and prescription drug services related to nursing home care or home and community based services.

2) Repayment is limited to beneficiaries who are 55 years or older.

Under the new rules, the state can recover for services received at a nursing facility or home and community based services if the beneficiary was 55 years of age or older.

However, if the individual is “permanently institutionalized” then their estate is subject to recovery regardless of age. An individual is determined to be “permanently institutionalized” when they are an inpatient in a nursing facility, are not expected to return home, and have had the opportunity for a hearing regarding their status.

3)  Recovery is limited to estate assets subject to probate.

Under the new rules, Medi-Cal is only able to seek recovery from a deceased Medi-Cal beneficiary’s “probate estate.” Probate is the legal procedure by which the court supervises the transfer of property from the estate of the decedent to his or her heirs. In California, probate occurs when someone dies owning more than $184,500 (aggregate fair market value) worth of assets in their estate. For example, if you die owning your home in your individual name, then your estate is mostly likely subject to probate and your property is an estate asset potentially subject to recovery.

Some means of avoiding probate is to have a beneficiary designation on file for your retirement accounts or life insurance policies, have a POD (payable upon death) or TOD (transfer upon death) designation on your bank accounts, or hold assets in joint tenancy.

However, most Medi-Cal recipients are not worried about their bank accounts. The main concern is the family home. This does not mean you should be transferring your home to your child(ren) or anyone else to safeguard your property. Nor should you think writing a Will is enough to avoid probate. Rather, the simple and most sound solution is to set up a revocable living trust.

If you transfer your property to your child(ren) during your lifetime, you risk triggering reassessment. In 2020, California voters narrowly passed Proposition 19 which went into effect February 16, 2021. Prop 19 severely limited parent-and-child transfer exclusions afforded by Prop 58 and Prop 193. Now, transfers of real property from parent to child will trigger reassessment unless the property is the principal residence of the parent and the child continues to use the property as his or her principal residence. Unless the transfer qualifies under these conditions, there will be property tax reassessment.

Another downside of transferring your home to your child(ren) during your lifetime is the loss of step-up-basis. The step-up in basis is an adjustment of the value of appreciated assets afforded by the federal tax code. When a homeowner dies, the value of their real property is based on the fair market value on the date of the homeowner’s death, not the price the homeowner originally paid for the property. This is a tremendous benefit if one considers how much the value of their home has increased since they initially purchased it. This means that if a child inherits the property and sells it, they’re spared capital gains taxes. However, if the home is transferred to the child during the homeowner’s lifetime, it will not receive a step-up in basis because the homeowner would not own the home at their death.

Setting up a revocable living trust allows you to retain ownership of your home during your lifetime, avoid probate at your death, and receive a step-up in basis at your death. Since your home will be owned by your trust, upon your death there will be nothing in your estate for the state to place a claim. Indeed, effective January 1, 2017, assets that are placed in a revocable living trust prior to the Medi-Cal beneficiary’s death are not subject to recovery claims.

SB 833 allows low-income individuals to receive health care and still ensure their home passes to their children.  You can still pass down generational wealth even if you are receiving Medi-Cal. All homeowners who receive Medi-Cal should have a revocable living trust.

So, is the government going to take your home when you die? Not if you have a trust.

Please contact Attorney, Lilit Minasyan, at DROBNY LAW OFFICES, INC. if you have any questions regarding Medi-Cal recovery.

This testimonial or endorsement does not constitute a guarantee, warranty or prediction regarding the outcome of your legal matter.