Long-term health care is expensive and can deplete a senior’s estate, leaving only a financial burden for heirs. An irrevocable Medi-Cal Asset Protection Trust can save the estate while allowing them to qualify for Medi-Cal long-term health care assistance.
A Medi-Cal Asset Protection Trust is a specialized trust that permits an individual or married couple to transfer some of their assets into a trust that will hold and manage the assets during their lifetime. Upon their death, the assets will be transferred to the heirs in accordance with the provisions of the trust.
The best way to explain how this works is by presenting a common scenario. A retired couple spent their lives working and saving, just as they should. They were able to acquire a variety of savings and retirement accounts valued at $300,000. They also own their residence, finally paying off the mortgage. Their current living expenses are covered by income from their investments plus Social Security and pensions. However, if one of them ever gets admitted to a skilled nursing facility, they will not have enough income to cover both living and medical expenses. They would have no choice but to dip into their savings and home just to make ends meet. Eventually, there would not be enough for both and they would be left destitute. Medi-Cal would kick in after their estate was exhausted but anything Medi-Cal pays out would be subject to reimbursement at death, claiming any remaining equity in the home, insurance proceeds, and other assets in the estate.
This scenario can be avoided by transferring all or a portion of their assets into a Medi-Cal Asset Protection Trust. Under the terms of the trust, the income would be paid to the couple during their lifetimes. Should one of them need to be placed in a nursing home, the income would be paid to the other spouse, allowing them to continue to live. The nursing home and other medical care would be paid by Medi-Cal. When both of the spouses dies, the assets would be out of reach of Medi-Cal reimbursement and would be distributed to their heirs.
However, a Medi-Cal Asset Protection Trust is not a simple trust to put together. There are numerous issues involved with creating one. First of all, the assets are irrevocably transferred into the trust. Unlike a typical revocable trust, they cannot be recovered by the contributing couple. In fact, this irrevocable aspect of the trust is what makes it work. Second, there is a loss of control that many people find disconcerting. That’s why it is important to choose a trustee that will keep your best interests in mind. Finally, the creation of the trust can result in a period of ineligibility for Medi-Cal benefits. The length of time of ineligibility will vary and be based on the value and date of transfer of the assets. So transferring the assets sooner rather than later is ideal. But if an application to Medi-Cal is anticipated within the next several years, it may be wise to retain a portion of the assets to cover medical expenses during the ineligibility period.
Deciding whether a Medi-Cal Asset Protection Trust is right for you is a complex process that must take into consideration many factors, including your assets, income, family, health, life expectancy, and personal wishes. An experienced attorney can provide guidance through the decision making process and provide a Medi-Cal eligibility plan to maximize eligibility and protect your estate from unnecessary spending.