This year, Governor Brown signed a law, which will significantly change Medi-Cal estate recovery laws beginning Jan. 1. The new law essentially limits estate recovery to the bare minimum required by federal law and will apply to Medi-Cal recipients who die after Jan. 1, 2017.

Federal law requires that states recover Medicaid (Medi-Cal in California) benefits paid to an individual for nursing home care. After a Medi-Cal recipient dies, recovery occurs against assets owned by the recipient at their death. An asset that is frequently used to pay back Medi-Cal is the recipient’s home, which is not counted against eligibility during the recipient’s lifetime.

However in 1993, California adopted an optional expanded recovery program under federal law. Among other things, the expanded recovery requires the state to recover Medi- Cal benefits paid for all health services to an individual over the age of 55 which includes hospital stays.

This expanded program required a complicated and sometimes unsuccessful transfer of home and other assets out of a person’s estate in order to prevent recovery at death.

Some of the key changes brought about by new law include:

1. The state cannot recover when there is a surviving spouse or surviving registered domestic partner

Current Law: When a Medi-Cal recipient dies leaving a surviving spouse or registered domestic partner, the state will seek recovery but wait until the surviving spouse dies to enforce their claim.

New law: The state’s recovery claim will be waived indefinitely when there is a surviving spouse or registered domestic partner. If a Medi-Cal recipient dies prior to 2017, leaving a surviving spouse, it is unclear whether there will be recovery once the surviving spouse dies. Of course, if the surviving spouse was also on Medi-Cal, there may be recovery at least for the benefits the spouse receive

2. Recovery is limited for Medi-Cal recipients 55 years of age or older to nursing home and home- and

Community-based services.

Current Law: The amount of recovery is equal to the payments received for all health care services by a Medi-Cal recipient over the age of 55.
New Law: Only benefits paid out for nursing facility services, home- and community based services, and related hospital and prescription drug services are recoverable when a Medi-Cal recipient is over the age of 55.

3. Only assets that go through probate will be recoverable

Current Law: Upon a Medi-Cal recipient’s death, the state is required to recover against all property in which the recipient had any legal title or interest. This includes assets passing through probate and assets conveyed through non-probate methods.

New Law: Limits recovery to the Medi-Cal recipient’s probate estate.  Thus, there can be no recovery unless there is a probate proceeding in court. There will be no recovery against non probate transfers such as assets transferring through a revocable living trust or joint tenancy with right of survivorship.

There are some unresolved issues with this provision that have yet to be clarified. For example, it is unclear whether a Probate Code section 13100 small estate affidavit transfer or if a Heggstad petition under Probate Code section 850 to transfer property to a trust without a probate will avoid estate recovery.

4. Waiver of recovery claim for “homestead of modest value”

Current Law: There is no waiver of claim for a homestead of modest value.

New Law: The state will waive recovery on a “homestead of modest value,” which the new law defines as a home whose fair market value is 50 percent or less than the average price of homes in the county where the homestead is located, as of the date of decedent’s death. “Fair market value” would generally mean minus encumbrances. A methodology for determining the average price of homes in a county should be put in place by Jan. 1.

As you can see, a Living Revocable Trust can now be used to avoid Medi-Cal claims. Peter Vlautin will be glad to discuss this and other estate reasons for having a Living Revocable Trust.