Although people often overlook it, an important component of a comprehensive estate plan is Medicaid (Medi-Cal in California) planning. The need for Medicaid planning stems from the increased risk that you, or a spouse, will require long-term care services at some point as you age. Failing to incorporate Medicaid planning into your estate plan could result in a costly waiting period because of Medi-Cal’s transfer penalties. To help encourage you to consider adding Medicaid planning to your estate plan, a Los Angeles Medicaid planning attorney at Schomer Law Group, APC explains the Medi-Cal transfer penalty rules.
Will You (or a Spouse) Need Long-Term Care?
Unfortunately, none of us knows whether we will need long-term care (LTC) when we are older. What we do know, however, is that we all stand about a 50 percent chance of eventually needing LTC once we reach retirement age and that those odds increase as we age. We also know that the cost of LTC is high. Nationwide, the average cost of LTC ran over $100,000 per year as of 2021. California residents paid even more, on average for LTC at almost $150,000 per year for 2021. Knowing that the odds are favorable that you or a spouse will need LTC it is crucial that you have a plan in place to pay for that care.
Why Might I Need to Qualify for Medi-Cal?
Once you reach retirement age (65), you will likely depend on Medicare to cover most of your healthcare expenses. Unfortunately, however, Medicare will not pay for your LTC expenses (except under very limited circumstances and for a short period of time). Most basic health insurance plans also exclude LTC expenses, potentially leaving you faced with the prospect of covering your LTC expenses out of pocket. No one wants to watch their retirement nest egg disappear paying for LTC. Fortunately, California’s Medi-Cal program for the aged does cover LTC expenses. The catch is that you must qualify for Medi-Cal first.
Qualifying for Medi-Cal
Medi-Cal is California’s Medicaid program. Like all Medicaid programs, Medi-Cal is a “needs based” program, meaning that an applicant must demonstrate a need for the benefits to qualify. Medicaid uses both an income and an asset, or “countable resources,” test when determining eligibility. The income test may not be problematic; however, the countable resources test maybe a problem given that the limit is just $2,000 for an individual. Although some assets are exempt, your countable assets could easily exceed the limit causing your application to be denied and throwing you into the Medicaid “spend-down” program.
Medi-Cal Transfer Penalty Rules
Before you consider transferring excess assets out of your name (to an adult child, for example), you need to understand the Medi-Cal “look-back” period and corresponding transfer penalties. In all other states, the look-back period is 60 months; however, California only has a 30-month look-back period. Nevertheless, if you apply for Medi-Cal, this means that Medi-Cal will check your finances for the 30-month period leading up to your application date and any asset transfers completed during that time for less than fair market value could trigger a penalty in the form of a waiting period.
The length of the waiting period is calculated by dividing the value of your excess assets by the average monthly cost of LTC in your area. By way of illustration, imagine that you own assets that exceed the countable resources limit by $200,000. The average monthly cost of LTC in Los Angeles for 2021 was about $10,000. Dividing $200,000 by $10,000 gives you a 20-month waiting period. That means you would be responsible for covering your LTC expenses during the waiting period. Incorporating Medi-Cal planning into your comprehensive estate plan now is the best way to protect your assets and avoid a transfer penalty if you need to qualify for Medi-Cal down the road.