The Basics of Medi-Cal Planning for Long Term Care

Hello. My name is Kyle Krasa and I’m an estate planning attorney in Pacific Grove, California. I’m certified by the state bar of California, as a legal specialist in estate planning trust and probate law. The purpose of this video is to give you general information about an important aspect of estate planning law so that you can be prepared when working with your own attorney. Watching this video does not establish an attorney client relationship. The law is far more complex and nuanced than can be explained in a few short minutes. As a result, before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. With that understanding, I hope you enjoy my video and you find it informative. Thank you.

When thinking about options for paying for long-term care, one thing that’s really important to understand is that Medicare will not pay for a prolonged period of long-term care. Medicare will pay for a short stay after a hospital visit and other limited circumstances. But if you need long-term care for a prolonged period of time, Medicare is not the solution. So really it comes down to two options in terms of paying for long-term care. One option is to privately pay. So that’s when it comes out of your own pocket. And if you have a long-term care insurance policy, you are privately paying. I mean, that is privately paying you paid for the care policy. And of course, as you probably know, if you have a long-term care policy, that policy will in most circumstances, not cover all of your long-term care needs. It’ll pay a portion of it, but won’t pay a hundred percent of it. 

So the only other option other than privately paying, coming out of your own pocket, whether it’s directly out of your own pocket or combined with a long-term care insurance policy is to qualify for Medicaid. So Medicaid is distinct from Medicare and in California, we refer to the program as Medi-Cal. Now what’s important to understand is that Medicaid is a federal / state partnership and where the general concepts and big picture might be very similar in different States, the way that different States apply the rules is totally different. And so every state has their own version of Medicaid. They have their own kind of cute name that they come up with. And as I mentioned in California, our, our term is called Medi-Cal. So the rules are going to be totally different. 
in the other 49 States, and I’m licensed to practice law in California, and I’m familiar with the California rules. So I’m going to focus on Medi-Cal. So if you don’t live in California, the rules could be totally different than what I discuss here. But maybe some of the general principles of kind of the big ideas might give you some, some indications so you can be better prepared when you meet with your own attorney who’s licensed to practice in your state. And if you’re in California, again, like with all of these videos, there’s just not, it’s just not possible to teach you everything you’re going to need to know in a short video. So you still need to consult your own attorney, even if you’re in California as well. This is just scratching the surface here, but we’re going to focus on, on Medi-Cal. 

So the two options privately pay or Medi-Cal or Medicaid. And when the average cost of a nursing is $10,000 or more per month, no matter what the size of your state is, privately paying for long-term care. Even if you have a long-term care, policy, a long-term care insurance policy, is going to drain your state pretty quickly. So when we think about Medicaid and we’re thinking about whether or not we need to qualify for Medicaid, first thing we have to understand is that Medicaid or Medi-Cal in California is a means-tested program. In other words, they’re going to look at your resources and if your resources are too high, you’re not going to be eligible. So if you need Medi-Cal then you need to be below $2,000 in countable assets. So if you’re the Medi-Cal person, so we’ll say MP, Medi-Cal person, you need to be below $2,000 in countable assets. 

If it’s a married couple and you are the spouse, you’re a well spouse, you don’t need Medi-Cal, but your spouse needs it, then the resource limit for the spouse is higher, much higher. It’s $128,640 as of the date of this video. And this figure does change, um, on an annual basis. So, um, these are the two asset limitations. Now what’s important is these are of countable assets. So this is a term that’s very important when it comes to Medi-Cal planning: we’re only worried about countable assets and as you’ll see, a lot of assets are non countable. So these resource limitations of $2,000 for the Medi-Cal person and $128,640 for the spouse of the Medi-Cal person are actually higher than they appear because of this, this dichotomy between countable assets and noncountable assets. 

So when we’re doing an analysis of a client’s financial picture here, and whether or not Medi-Cal would be appropriate, uh, for them to think about one of the first things we want to do is take inventory of all of the assets and we’re going to count them. We’re going to divide them into two categories. So we’re going to put, what I usually do is I draw on the board here countable, and then I point noncountable and, um, then I draw a line down the middle here. Um, so we’re only worried about the resource limitations on the countable assets. We’re not worried about the resource limitations on the noncountable assets. 

So let’s first focus on what’s, noncountable, that’s a little bit easier. So your home or your residence, um, is typically non countable, uh, so long as you have a subjective and intent to, to return to the home, as long as you say, that’s my home, that’s designated as my residence, um, on the Medi-Cal application, there is a question about whether there’s an intent to return home and the answer is pretty much always. Yes. Uh, so you would always check that box. A lot of people, they see that question on the Medi-Cal application and maybe the person, the Medi-Cal person, um, is, is in really dire physical, uh, um, straits. And, uh, there’s they just don’t think there’s any way that the person is ever going to be able to go back home. They’re probably going to be in the nursing home for the rest of their lives. So a lot of people mistakenly don’t check this box. “Oh, no, there’s no intent to return home.” But what that question is really asking is if the person were able to be at home, would they choose to go home or would they choose just to hang out in the nursing home? And I think most people would say, yeah, they would choose to go home. So the residence, the home, as long as there’s that subjective intent to return home and it’s subjective. 
So it can’t be questioned. You can check that box. Then that home is exempt. 

I’m going to put a star here in certain cases, other real property, besides the home might be exempt. There are very strict limitations. Uh, the details of which are beyond the scope of this video, but, uh, there might be ways to get other real property in this noncountable column here. Personal effects. 

So things around the house, um, you know, your household goods, uh, furniture, uh, clothing, um, knickknacks, those kinds of things. Uh, for the most part, there are certain asset limitations there, but for the most part, personal effects are going to be exempt. Um, most jewelry, um, is going to be exempt as well. Again, in certain circumstances, there might be some, um, uh, value limitations here, but for the most part, jewelry is typically considered noncountable or exempt. 

One car, it doesn’t matter the value, but one car is also a noncountable or exempt asset. So it doesn’t matter whether it’s a Hyundai or a Ferrari, one car will be exempt. 

Certain life insurance can be exempt as well. Now, if it’s term life insurance that’s automatically exempt. If it’s whole life insurance, then it has to have a cash value, typically of $1,500 or less. So a life insurance within certain limits. 

Burial plots are exempt and then certain retirement plans under certain circumstances are exempt as well. So if you think of like an IRA, for example, um, as long as you, the rule says, as long as you’re taking regular, regular periodic payments of distributions of income and principal it’s exempt. So in other words, if you are taking the required minimum distributions in your IRA, then it’s probably going to be exempt. 

So what’s countable? Well everything else. So cash certainly is going to be countable, stocks, you know, bonds, other investments would be countable as well, unless they’re held within the, uh, noncountable retirement account, um, additional cars. So if you have more than one car, if you have a car collection, all your other cars are going to be countable. Um, other real property, if we don’t meet the strict rules on the noncountable side. So under certain circumstances, other real property. Life insurance, whole life insurance, if it exceeds $1,500 cash, uh, value there. Um, so as you can see, we divide anyone’s estate into these two sections: countable and noncountable. 

Now, if we divide this, and if the total countable is below the resource limitation, $2,000 for the Medi-Cal person, or $128,640 for the spouse of the Medi-Cal person. And if the countable assets are below those resource limitations, then we’re good. We’re golden. We can apply for Medi-Cal. We know the person’s going to be eligible for it. But in most cases, we’re not quite there yet. 

Even when we divide the assets into these two different categories, countable assets still exceed the resource limitations. So what does that mean? Does that mean we just have to give up and go home? And the answer is no, there are ways that you can still plan for it and do some Medi-Cal planning. One of the easiest things to do is to see about whether you can convert countable assets into noncountable assets. And probably the easiest example to demonstrate here is let’s assume that you have a situation where all the person has is a house and $30,000 in cash, and that house needs a new roof. Well, if that person took their cash and paid for a new roof, basically what they’re doing is they’re converting the countable asset – cash – into the noncountable asset, their residence, they haven’t really lost it. 

Maybe they lost the use of the money. Perhaps it’s not as liquid as it used to be, but they, that the family has not lost the value of that cash. They’ve just converted it into a noncountable asset. And that would be perfectly fine. So as long as you’re getting something in return of equal value, like if the, if the repair on the, you know, getting the new roof is really worth that $30,000, you’re good. It’s okay. There’s not a problem with that kind of transfer. So another way you can do it, if you’re not able to easily convert, um, countable assets into noncountable assets, like the example I gave with the converting the cash into, into the residence, by buying a new roof or making other repairs, uh, one thing that’s very common is you can do something called a care contract. So again, the rule is if you’re transferring money, but you’re getting something of equal value in return, that’s not going upset your eligibility rules at all. 

So let’s say you have some money. You’re the Medi-Cal person, and you’re giving that money to somebody else. So, let’s make this look a little bit better. You’re transferring money, you’re transferring money to somebody, a friend or family member. And in return, that person is going to promise to care for you. We call this a care contract and the contract is drafted in a very specific way. And it’s very clear that the value of the length of time that the person is committed to taking care of you, maybe for the rest of your life. And we look at some life expectancy tables to figure out how long it’s likely going to be. And we also look at what, what, what is the going rate for the nature of the care that the person is going to provide. And it all shakes out. It all equals out. Well, you’re getting something of equal value in return. That’s okay. So that’s one way you can lower, uh, you know, kind of, uh, kind of shift your countable assets out of your estate. 

There’s some gifting that you can do as well. Now it’s much easier to do gifting between spouses. So let’s first focus on a situation where we have a spouse. So again, let’s say we have a Medi-Cal person, and then we have the spouse of the Medi-Cal person, right? So we know that the Medi-Cal person has a $2,000 asset limitation and that the spouse has a much higher asset limitation, currently 128,640. So gifts between spouses are completely fine under the California Medi-Cal rules. We don’t have to worry about it. So the, the Medi-Cal person can shift the assets, put the assets in the spouse’s name. And if, if the total value, once we’ve done, that is still under the $128,640, then we’re good. We’re golden here. 

Now, one thing to keep in mind is your estate planning documents. It really should be comprehensive. And it’s really important that your estate planning documents cover a wide variety of situations and contingencies. And that’s why you see a big difference between a really basic estate plan that’s maybe only a few pages long and a more comprehensive and detailed estate plan, um, that, that covers a lot of and tries to anticipate a lot of these different situations. And so a good comprehensive plan will include a couple of key provisions. One would be gifting, uh, powers. So in other words, if the Medi-Cal person is not able, doesn’t have capacity anymore, to agree to that kind of gift, does that person’s successor trustee and power of attorney agent have a clear authority to make a gift on behalf on behalf of that person, whether it’s to the spouse or as we’ll see to other third parties in a moment here where that could still work. A lot of times estate planning documents don’t have those sufficient gifting powers. 

The second thing that that a good estate plan should have for a married couple would be what I call surviving spouse provisions. And so, you know, we focus here. It’s very common to try to shift everything from the Medi-Cal spouse to the well spouse because of this higher limitation here. But what if after you do this, the well spouse happens to pass away first, and then through the estate plan everything goes back to the Medi-Cal person? So we’re going to undo all this work we did. We don’t want that to happen. If we have key provisions in the trust, then instead of it going back unfettered to the Medi-Cal person, to the Medi-Cal spouse, they can go a special needs trust. Now that has to be done and drafted in a very specific way. It actually has to go through the deceased spouse’s estate through probate. Uh, so it’s a one time that we intentionally go through probate, but if there are provisions in there, it can handle that pretty well. 

Now let’s talk about making gifts to a non spouse. We know gifts between spouses are okay. We don’t have to worry about any kind of gifting limitations, but most people know just kind of general, uh, I’m reading that they do that there are some limitations in terms of gifting to a non spouse, and some people mistakenly think you can’t gift at all, and that’s not true. It’s just they’re very nuanced rules that you have to carefully navigate. First of all, 30 months in California is the gifting period or the lookback period, um, under federal law and under the laws of most States, it’s five years, but in California, it’s half of that – it’s two and a half years. 

So we’re going to look at gifts and the 30 months prior to when you applied for Medi-Cal and we don’t want the gifts to be too big under the rules. So basically the way the Medi-Cal rules work is you take the value of the gift and you’re going to divide it by a particular figure. It’s called the average private pay rate. This is a figure that’s published every year in California, and it’s supposed to represent the average cost of a nursing home, and as of the date of this writing, and again, every year, this is going to change. But currently that figure is $9,337. So, um, when you make a gift within that 30 month period, um, in order to determine whether you’re still eligible for Medi-Cal, we need to take the value of the gift and divide it by the average private pay rate. 

So let’s say that you had a hundred thousand – and I think a hundred thousand dollars is the maximum I would be comfortable planning around. If you have more than a hundred thousand dollars, maybe Medi-Cal planning is not right for you yet. Maybe you should be privately paying. But let’s say that you have a hundred thousand dollars to give away and you make a hundred thousand dollars gift. Well, the way that Medi-Cal is going to look at this is they’re going to divide that gift by the average private pay rate. And that’s going to work out to 10.71. Now, even though there’s 10.7 and then elementary school, you learned that anything, any 0.5 or higher you round up, under Medi-Cal rules, you always, always, always round down. So that’s going to be, that’s going to give us 10 now, what does that 10 mean? That means that there’s 10 months of ineligibility. 

So if you made a hundred thousand dollar gift within that 30 month period of time before you applied for Medi-Cal and the average private pay rate at that time was $9,337. And we do the math and we round down to 10. That means for 10 months, you’re ineligible for Medi-Cal. You’re going to have to privately pay. You’re going to have to have family members or friends pay for, you’re going to have to figure something out. You’ve got this period of time. Now, after that 10 months is up, then you’re able to, uh, to, um, then you would be able to, uh, uh, to qualify for Med-Cal. 

Now, of course, the higher the gift, the longer the penalty period here, the lower, the gift, the lower the penalty period. So let’s say that you went really low. Let’s say that you decided instead of a hundred thousand dollar gift, you decided to give a gift of $9,000, something less than the average private pay rate. Well, if we do that math, we take $9,000. We divide it by the average private pay rate of $9,337, we’re going to get 0.96. And as we know, we always round down. So that’s zero. So if you made a $9,000 gift within that 30 month period leading up to the application for Medi-Cal, uh, you’re going to be fine. No problem. There’s no penalty at all. You can, uh, you can get Medi-Cal on day one. 

Now one feature that California has that, um, that I don’t think any other state has, is this concept of stacked gifting. So how does stacked gifting work? And this is a real huge planning opportunity here in California. It is basically, let’s say on day one, you make, um, a $9,000 gift to someone. And we know when we do the math, that rounds down to zero. On day two, you’re going to make another $9,000 gift to somebody. And that’s going to round down to zero. And on day three, you’re going to do the same thing. You can do this for as long as you want. So basically a gift to the same person on different days is calculated separately. You can stack these gifts. One on top of, of the other. Uh, they don’t, the Medi-Cal office does not collapse these gifts all as one. And we’re good. 

If on day one, you gave $9,000 to Person A and another $9,000 gift to Person B and another $9,000 gift to Person C, we’re still okay. Every single time we’re going to calculate this separately. Um, now it seems funny, but those are the rules and that’s okay to do it. Now, if you, if I’m doing this for a client, um, and we’re all ready to fill out the Medi-Cal applicaiton, the Medi-Cal office is going to ask for bank statements going back several months. So they’re going to see these withdrawals. And so what I’ll do is I’ll write a cover letter and I’ll explain I’ll detail exactly what happened, and I’ll do the math and I’ll show, hey that rounds down to zero. And so we will always want to be full disclosure above board, but the Medi-Cal person, the person in the Medi-Cal office is going to look at this and do the math. And they’re going to come to the same conclusion that these gifts, these stacked gifts, these separate gifts, are not causing a penalty period. 

Now this is just scratching the surface. I know this is a 20 plus minute video here, but even so we’re barely scratching the surface. And this again, with all of these videos, it’s just designed to give you some basic information. So you’re a little better prepared, a little more sure of yourself. 

And this is a little more familiar when you talk about this with your, uh, with your attorney, but it’s so critical that you don’t mistake these videos for legal advice. This is just giving a little nuggets, but it’s so nuanced. And there’s so many other rules and intricacies here, but this is just big picture. So you can kind of understand what the different options are with Medi-Cal planning. 

And another thing I’ll just want to point out before I end this video, is that when you divide your assets between countable and noncountable assets, even those noncountable assets, you do want to be careful, because if you still have them after you pass away, it’s possible that the Medi-Cal can recover against those assets. And so what’s key is to make sure those assets are not subject to probate. Preferably they’re held in a living trust. If they’re not subject to probate, then most likely there won’t be any Medi-Cal recovery. But if you leave them just titled to your name and they’re subject to probate, then they could be subjected to a Medi-Cal recovery. 

So I hope this gives you a good, big picture overview, as you can see, I’m trying to be as basic as possible with these rules. And yet, even though I’m being as basic as possible, this is a 22 minute video. So, um, but hopefully it’ll give you some familiarity. So when you work with your own attorney, you’ll have some idea of the different strategies that are out there and the different plays that your attorney might suggest would be appropriate to run in your situation. Thank you.

I hope you enjoyed watching my video. As I mentioned at the beginning, this is not intended to be a substitute for proper legal counsel. Before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. Thank you.