Compliments of Our Law Firm
Written By: The American Academy of Estate Planning Attorneys
Almost half of all seniors eventually turn to Medi-Cal for help covering the high cost of long-term care. If you are one who may need to qualify for Medi-Cal at some point, will you be able to keep your real estate? Understandably, it’s a question that worries every senior who may need to qualify for Medi-Cal benefits in the future. The answer may surprise you! While you may already know that your primary residence is likely exempt from the Medi-Cal “spend-down” requirements, you may not know there are other types of real property Medi-Cal may also consider exempt.
Medi-Cal is a health care insurance program that is funded primarily by the U.S. federal government, although some states also contribute funding to their Medi-Cal program. Medi-Cal is administered at the state level, which means the eligibility requirements and benefits offered can vary slightly from one state to the next. The large number of seniors who depend on Medi-Cal for help with long-term care (LTC) costs is a result of the fact that neither Medicare, nor most private health insurance policies, will pay for LTC costs.
Medi-Cal Income and Asset Limits
Eligibility for Medi-Cal depends, in part, on an applicant’s income and the value of the applicant’s assets, or “countable resources.” Both must fall below the program limits. The “countable resource” limit is very low, typically just $2,000 for an individual applicant. If the value of an applicant’s countable resources exceeds the program limit, the applicant must “spend-down” those resources during a waiting period before Medi-Cal will start providing benefits. The length of an applicant’s waiting period is determined by a formula that takes into account the value of the applicant’s assets and the average cost of LTC in the state. During the waiting period, the applicant is expected to rely on his/her assets to cover LTC expenses.
What Real Property Is Exempt?
Fortunately, not all assets are counted when determining if an applicant meets the Medi-Cal asset test. Because each state determines its own eligibility guidelines, it is always best to consult with an experienced Medi-Cal planning attorney to be certain your real property is exempt. However, the following types of real property are typically exempt from your “countable resources” for purposes of determining eligibility for Medi-Cal:
• Primary residence – As a general rule, your primary residence, along with the surrounding land, is exempt from your countable resources when determining eligibility for Medi-Cal. Under the Deficit Reduction Act (“DRA”) the exempt value of the equity in the home is $500,000 (adjusted for inflation to $552,000 in 2016). States may expand that limit to $750,000 ($828,000 in 2016). This exemption applies as long as your house is considered a home. When is your house not a home? According to the Department of Health and Human Services, a house is no longer a home if the owner has no living spouse or dependents and
- Moves into a nursing home or other medical institution on a permanent basis without the intent to return,
- Transfers the home for less than fair market value, or
• Rental or other income producing property – Rental or other income producing property may be non-exempt and, therefore, considered a countable resource when applying for Medi-Cal. You may, or may not, be correct. Since states treat income producing property differently, it is not always a countable resource. In some states, for example, the value of the property is exempt, but the income produced from the property is not exempt. Other states will exempt the property if it is used directly in the course of the applicant’s business or employment. For instance, if you own a ranch and own a tract of grazing land that is separate from your primary residence, it might be exempt because it is used directly in the course of your business.
• Interest in a life estate – A life estate interest in real property is generally exempt from your countable resources unless you recently transferred the property and retained the interest after the transfer. Medi-Cal five-year look-back rule penalizes uncompensated asset transfers during the five-year period prior to applying for benefits.
• Jointly held property – If your name is on the title to real property, Medi-Cal will likely consider it your property. This most frequently creates a problem if you have co-signed for a mortgage and put your name on the title to property as a way to help out children or grandchildren. As far as Medi-Cal is concerned, even if someone else has made all of the mortgage payments, if your name is on the title or deed to the property it will be counted as a “countable resource.”
• Property owned by an irrevocable trust – Assets owned by an irrevocable trust are considered trust assets. As such, they are not considered when determining your eligibility for Medi-Cal. In fact, irrevocable trusts are often used in Medi-Cal planning to protect otherwise non-exempt assets.
The key to protecting your real property and ensuring you qualify for Medi-Cal benefits if you need them is to consult with an experienced estate planning attorney to include Medi-Cal planning in your comprehensive estate plan now.