A common fear for most Americans as they get older is being placed in a nursing home. Nursing homes can result in not only a loss of personal autonomy and privacy, but also an incredible financial burden. According to the Centers for Medicare and Medi-Cal Services, nearly 70% of all people over the age of 65 will need long-term care at some point. A survey conducted this year indicates that the average cost of nursing home care in California is approximately $83,950 annually. With these high costs, many people result to paying for nursing home care out of their savings until they are depleted. At that point, they may qualify for Medi-Cal to cover those costs.
What is a Medi-Cal Trust in Los Angeles?
A Medi-Cal Trust in Los Angeles is a special purpose trust that shelters your assets in order to allow the grantor to qualify for Medi-Cal to pay their nursing home costs. This allows you to leave your money to your children as opposed to spending it only on long-term care. A Medi-Cal Trust is like other irrevocable trusts, however, the grantor in this case can be the income beneficiary. The children or spouse of the grantor would be the residual beneficiaries. In other words, the grantor will receive income from the trust, up to the maximum amount allowed by Medi-Cal in order to retain eligibility for benefits.
Disadvantages of a Medi-Cal Trust.
A Medi-Cal trust offers the same asset protection as any other type of irrevocable trust. However, it has a few disadvantages that other irrevocable trusts do not. With a Medi-Cal Trust, the grantor is prohibited from using the trust assets for other health care purposes. The limits on income are also a disadvantage.
It is important to remember that Medi-Cal Trust must be created and funded at least 60 months (or 5 years) before you apply for Medi-Cal. This can be a great disadvantage, as few people anticipate their long-term care needs that far ahead. Also the trust must be created before the grantor becomes incompetent, otherwise the trust cannot be established.
Because a Medi-Cal Trust is must be irrevocable, the grantor of the trust loses complete control and access to the assets. Another disadvantage is the cost of establishing and managing the trust. The set-up fees can be substantial. Someone other than the grantor or the grantor’s spouse must be named as the trustee. In most cases, the grantor’s adult children are named.
Finally, the drafting of a Medi-Cal trust is usually very complicated due to the requirements of the Internal Revenue Code. Also, income, estate and gift tax consequences must also be carefully considered, when using this type of estate planning tool.
California’s Medi-Cal Assistance
California’s Medi-Cal program is known as Medi-Cal. Once a couple has qualified for the program, they must determine how much Medi-Cal will pay per month. In California, Medi-Cal assistance is considered a loan from the government, not a gift. The money must be repaid after the spouses die. Estate planning is extremely important when Medi-Cal benefits are anticipated. If you have questions or concerns about how to properly set up a Medi-Cal Trust for yourself or a loved one, contact an estate planning attorney for assistance.