Elder Law Update: California Living Trusts and the New Medi-Cal Eligibility Rules
As of 2024, California has updated its Medi-Cal rules for long-term care eligibility (AB 133), making it easier for more people to qualify. Here are the key changes in simple terms:
Asset Rules
No Asset Limit: Previously, Medi-Cal had strict limits on the amount of assets (like savings and property) you could own to qualify. Now, there's no asset limit. This means you can have more savings and property without being disqualified from receiving Medi-Cal for long-term care. Now, under the new Medi-Cal rules, we are concerned about income.
No Lookback: A lookback period applies only to Medi-Cal benefits in a skilled-nursing facility, and only if the transfer was made prior to January 1, 2024, but within 30 months of the application date. Transfers occurring after January 1, 2024, will not be penalized.
Estate Recovery: As before, Medi-Cal still cannot recover from or be reimbursed from your assets that avoid probate. Estate recovery reaches probated assets only. Thus, it is important to ensure that your California living trust is properly funded and that all of your assets otherwise avoid probate.
Income Rules
Income Limits: While there is no asset limit, there are still income limits. The income limit for Medi-Cal long-term care in the community is set at 138% of the Federal Poverty Level (FPL). In 2024, this is about $1,732 per month for an individual.
Share of Cost: If your income exceeds the limit, you can still qualify through a "share of cost" system. This means you would pay a portion of your income towards your care, similar to a deductible, and Medi-Cal would cover the rest. However, there may be ways to minimize or prevent any SOC! Keep reading for a short summary.
Key Points
Simplified Process: These changes aim to simplify the eligibility process and reduce the need for complex asset planning.
More People Qualify: By removing the asset limit, more people, especially those who have saved for retirement or own homes, can access Medi-Cal for long-term care without having to spend down their assets.
Income Matters: It is critical that you understand the income rules and how funding your California living trust can help ensure Medi-Cal covers every dime for your care costs.
Example
Imagine you are a single person needing long-term care in a skilled nursing facility. In the past, if you had more than $130,000 in assets, you wouldn't qualify for Medi-Cal long-term care benefits. Now, you can have any amount of assets, such as savings or a house, and still be eligible. If your monthly income or an inheritance pushed the total value of your assets above $130,000, which would have exceeded the old asset limit, you would need to use some of that income and/or your assets for your care and “spend down” to below $130,000 (and you would need to spend down through certain methods, or else risk Medi-Cal claiming you made a disqualifying gift). But now, with the 2024 update, you can often qualify for Medi-Cal long-term care benefits, notwithstanding owning assets exceeding $130,000—or $1,300,000, for that matter!
These changes make it easier for Californians to receive the care they need without exhausting their life savings.
Now imagine this example. In 2024, Jane, a single individual, has a total net worth of $1,500,000, consisting primarily of her home worth $800,000, an investment account with $500,000, and checking and savings accounts totaling $200,000. Jane will not be “over asset”—there is no such thing as “countable” or “non-countable” assets now. In terms of assets, Jane will be eligible for Medi-Cal long-term care programs, such as care in a skilled-nursing facility. However, most Medi-Cal long-term care programs still have an “income limit” which means that, while Jane may be eligible under the program, if her income exceeds a certain limit, she unfortunately will be responsible for a “share of cost” or “shared monthly cost” for her care. In 2024, that income limit is $1,732.
It will be critical for Jane to understand the income rules and how a California living trust and a careful financial plan (by talking with her financial advisor) can minimize or eliminate any SOC issues, in the event she needs to qualify for Medi-Cal long-term care benefits in the future.
Good News for Trusts
The good news is that, while the rules might seem strange at first, Medi-Cal’s trust rules provide that, as long as a Medi-Cal applicant’s income stays inside the person’s trust, the income is not countable toward the $1,732 income limit—in other words, trust income could be an issue only if the trustee distributes income from the applicant’s trust. However, as long as distributions of income from a trust are (1) spent on things that do not constitute “in-kind support,” such as car or home repairs, or (2) paid to third parties for in-kind support such as food or clothing, but not as full payment for the items, then those income distributions will not be counted toward the income limit.
Medi-Cal’s trust and income rules are nuanced and you should consult with an elder law attorney if you want to consider planning for potential long-term care needs in your future. Medi-Cal may not be the end all and other options may be available, depending on your and your family’s financial circumstances. Perhaps paying out of pocket, living with a family member, or paying for home health care may be appropriate for a period of time. But consulting with an elder law attorney to review your current estate planning documents and discuss your future goals is a very good idea.
Caution: Do You Need to Update Your Trust?
In light of the new Medi-Cal eligibility framework, here are a couple of “yellow flags” that may indicate you should consult an experienced estate planning or elder law attorney:
Mandatory Income: If your trust, whether revocable or irrevocable, mandates distributions of income to you as the beneficiary, you may have an “over income” problem. A Medi-Cal case or eligibility worker will review your application materials and may determine that the terms of the trust require that all annual income be distributed out of the trust to you. This income would be paid to the nursing home!
B Trusts/QTIP Trusts: If you are a surviving spouse and you are a beneficiary of a trust that you and/or your deceased spouse created, you may or may not have a mandatory income interest under that trust. The answer will depend on the terms of the trust and an experienced estate planning or elder law attorney should be retained for review.
Paying for In-Kind Support Items in Full: Perhaps you are a trustee for a family member already receiving Medi-Cal long-term care benefits for skilled nursing care. Perhaps you have been distributing income from the trust to pay the full costs of your loved one’s food, clothing, housing, or utilities. This may create an SOC problem. Instead, an attorney should help you create a cash flow plan that minimizes or altogether avoids any SOC problem, often by simply not paying for the entire value of an item of need.
Medi-Cal’s trust rules and income rules are complex and nuanced, but can be—and should be—used by you and your family to create a clear, comprehensive cash flow plan and care plan for your future that affords you and your loved ones peace of mind today. If you are married, the MediCal trust and income rules can still be used to minimize or eliminate any SOC, so do not delay planning for the future today.
