Compliments of Our Law Firm
Written By: The American Academy of Estate Planning Attorneys
The longer you live, the greater the odds are that you, or a spouse, will need long-term nursing home care. To cover the cost of that care, you may find yourself turning to Medi-Cal for help. You may have heard, however, that in order to qualify for Medi-Cal you need to sell your home and use the proceeds to cover expenses first. Someone else may have told you that you can probably avoid selling your home when you apply for Medi-Cal; however, the state will take it after your death as reimbursement for the money Medi-Cal spent on you while you were alive. Perhaps the home has been in your family for generations and you hoped to pass it down to your son or daughter. Will you be able to keep your home and realize your dream of passing down the family home?
Medi-Cal Eligibility – Income and Asset Limits
Unlike Medicare, which only covers long-term care expenses under very limited circumstances, Medi-Cal will cover nursing home expenses for those who qualify for benefits. The problem for many seniors who apply for Medi-Cal benefits is that the program imposes both income and asset, or “countable resources,” limits. The income limits are linked to the Federal Poverty Level which changes each year. Seniors on a fixed income, however, may not have a problem with the income limit. It is the asset limit that often presents a problem for applicants who failed to plan ahead by including Medi-Cal planning in their overall estate plan.
The asset limit is typically as low as $2,000 for an individual and $3,000 for a couple. This means you cannot have “countable resources” valued over the limit. If your assets do exceed the limit, Medi-Cal will impose a waiting period during which you will be expected to “spend-down” your assets by selling them and using the proceeds to cover your nursing home expenses. While the asset limit poses a problem for many senior applicants who have amassed a sizeable retirement nest egg, your home is likely safe from the spend-down requirement. This is because certain assets are exempt from consideration when determining Medi-Cal eligibility.
Each state has its own slate of exempt assets, based in part on federal law. However, every state exempts the primary residence of the applicant, with certain requirements. Most states exempt the equity up to a certain limit, either $500,000 or $750,000, adjusted for inflation from 2005. Further, either the applicant’s spouse or dependent must continue to live in the residence, or the applicant must have an intent to return home to the residence. Therefore, the value of your home will likely not be counted when Medi-Cal determines your eligibility for benefits, meaning your home remains safe while you are alive. What happens when you die, though?
What Is Medi-Cal Estate Recovery and Do You Need to Worry about It?
As you can imagine, Medi-Cal expends a significant amount of money on participants of the program who need nursing home care. In an effort to recover some of those funds, federal law requires the individual states to make a claim against the estate of a Medi-Cal recipient after their death. Known as the “Medi-Cal Estate Recovery Program,” or MERP, this program is what your friend was referring to when they told you that you might lose the house after your death. Once again, however, there may be a way to save your home and pass it down to the next generation, as you had planned.
In general, the MERP rules allow the state to file a claim against the estate of the last surviving spouse. If it was your spouse who needed nursing home care instead of you, the state cannot pursue recovery from your spouse’s estate as long as you are still alive and living in the home. The state can, however, file a claim against your estate when you die.
As with the asset exemptions used when determining initial Medi-Cal eligibility, each individual state also determines the exceptions to the estate recovery program. Some common examples where the state will decline to pursue a claim against the estate of a Medi-Cal recipient (or spouse) include:
- There is a child under the age of 21 living in the home
- There is a disabled child of any age living in the home
- The value of the estate is below a specific value
- The Medi-Cal expenses are below a specific amount
- Pursuing a claim would cause an “undue hardship” on the heirs
If your home falls into one of the exceptions for your state, you will not need to worry about losing the home to the Medi-Cal Estate Recovery Program. Even if your home does not fall neatly into one of the exceptions, you may still be able to avoid losing the house through careful estate planning. Using a Trust, joint tenancy, and/or gifting may protect your home so it can be passed down to your daughter when you are gone.
The key to ensuring that your assets are protected and you qualify for Medi-Cal when needed is to work closely with an experienced estate planning and elder law attorney to include Medi-Cal planning in your overall estate plan.