Compliments of Our Law Firm
Written By: The American Academy of Estate Planning Attorneys
For many people, owning a small business remains part of the “American Dream.” If you are one of those people and you have managed to make your small business a success, you are to be congratulated. Getting a business off the ground is challenging enough. Actually turning a profit is nothing short of impressive. What happens to your business though if you (or your spouse) need to qualify for Medi-Cal to help cover the high cost of long-term care (LTC)? Understandably, the idea of losing your business after you’ve invested so much of your time and money into it doesn’t sit well with you. However, the Medi-Cal eligibility guidelines are based, in part, on an applicant not having “countable resources” in excess of the program limit – a limit as low as $2,000. Will you have to sell your business in order to qualify for Medi-Cal? The good news is that you will likely be able to keep your small business and still qualify for Medi-Cal!
Why Would You Need to Qualify for Medi-Cal?
As you grow older, the odds that you will eventually need LTC increase. If you are married, those odds apply to your spouse as well, making it even more likely that one of you will eventually need LTC. If you do need LTC, the cost of that care will be high. Nationwide, the average cost per year for LTC was about $80,000 in 2016. Moreover, neither your basic health insurance policy nor Medicare are likely to help you with the costs involved in LTC. Consequently, over half of all seniors in long-term care end up turning to Medi-Cal for help because Medi-Cal does cover LTC costs. The problem for many seniors, however, is that unless they planned ahead by including Medi-Cal planning in their estate plan early on, their assets could be at risk as a result of the need to qualify for Medi-Cal.
Medi-Cal Eligibility and the Spend-Down Requirement
Because Medi-Cal is considered a “needs based” assistance program, eligibility is based, in part, on an applicant’s income and assets. To qualify, you cannot have “countable resources” valued at over the program limit. If your assets do exceed the program limit, Medi-Cal will impose a waiting period during which you will be expected to “spend-down” your excess assets. In essence, this means you will need to sell assets and rely on the income received in the sale to cover your LTC expenses during the waiting period. The length of the waiting period is determined using the amount of excess assets you have divided by the average cost of LTC in your state. For example, if you have excess assets valued at $80,000, and the average monthly cost of long-term care in your state is $7,000 per month, your waiting period would be 11 months.
Is Your Small Business Subject to the Medi-Cal Spend-Down Requirement?
Like most small businesses, your business likely has both business assets and an operating account. Understandably, you are concerned about losing either, or both, of those assets as a result of the need to qualify for Medi-Cal. Fortunately, some assets are exempt when determining your eligibility for Medi-Cal. The value of your primary residence, for example, is typically exempt, as is the value of a vehicle. Thanks to an amendment to the Social Security Act, all “income-producing property used in a trade or business” is also excluded for the purpose of determining your eligibility for Medi-Cal. There is also an unlimited exemption for “liquid resources used in a trade or business.” That means the funds you have in the operating account for your business will also be exempt when calculating the value of your assets for the purpose of determining your eligibility for Medi-Cal.
Is There Anything Else I Need to Consider with Regard to My Small Business?
So far, you’ve learned that assets owned by your small business and operating funds for your business are exempt with regard to Medi-Cal eligibility. There are, however, a couple of other things you might need to know. First, the income earned from your small business is not exempt. Remember, there is both an asset and an income limit imposed by Medi-Cal. As such, the income you earn from your business will likely be counted when determining whether or not your income falls below the program limit. Second, although your small business is exempt from your Medi-Cal eligibility determination, it may not be exempt from the Medi-Cal Estate Recovery Program (MERP). MERP allows individual states to attempt to recover funds spent on you through Medi-Cal by filing a claim against your estate during probate.
If you are concerned about your future eligibility for Medi-Cal, consult with your estate planning attorney now about including Medi-Cal planning in your overall estate plan.