Know the Law before Transferring an Asset
Estate Planning is often a necessary task. It is most commonly known as a way to direct your assets to those you wish to provide for after your death. But, did you know that part of the estate planning process could also help with providing for your care or the care of a loved one upon disability? A well thought out estate plan can prove especially useful where a beneficiary may need government assistance, such as SSI or Medi-Cal. A hasty transfer of assets can mean the difference between receiving the government’s help or being on your own.
Each state determines its own requirements. In order to qualify for Medi-Cal benefits, the applicant must generally be elderly, disabled or blind and have insufficient income and resources to pay for his or her medical expenses. However, a medically needy applicant with sufficient income and resources, who meets all other Medi-Cal eligibility requirements, can still qualify. The excess income and resources must be used towards medical expenses to qualify.
Spend Down Strategy
A properly executed “spend down” strategy may be successfully used to qualify. As indicated by its name, this requires the applicant to spend excess income on medical or other various expenses in order to meet Medi-Cal thresholds. Examples of legitimate uses include:
- Paying down or paying off a mortgage;
- Purchasing home furnishings;
- Making home improvements;
- Purchasing a new car or making necessary car repairs;
- Prepaying real estate taxes (if non-refundable);
- Paying for legal services relating to qualification for government assistance.
This list is not exhaustive. However, it is important to note that states are not required to allow applicants to spend down excess resources. Therefore, the success of a spend down strategy depends upon the applicant’s state of residency and the requirements the state has adopted.
Transfer of Assets
Applicants with excess resources may also think all that is needed to qualify for assistance is to transfer excess resources to a family member or friend in order to fall within the Medi-Cal limits. Unfortunately, this strategy may prove fatal, as certain transfers will result in complete disqualification.
Medi-Cal includes what is called a “look-back period” where the applicant’s actions are scrutinized to determine eligibility. The look-back period can be 36 or 60 months (dealing with transfers to certain types of trusts) from the time an applicant submits an application for government assistance. Once the application is made, all asset transfers that occurred for less than full and adequate consideration within the look-back period are considered when determining Medi-Cal eligibility. Therefore, a strategy that requires the applicant to make gifts of assets, or to sell assets below fair market value, will result in the disqualification of the applicant from Medi-Cal assistance for a certain period of time. The amount of time the applicant will be disqualified is 36 or 60 months from the time of the transfer, or for a period of time it would have taken the applicant to spend down the monthly nursing home cost, if less.
However, not all asset transfers within the look-back period are ignored for determining eligibility. Transfers to a spouse and transfers to blind or disabled children are excepted from the look-back period. Nonetheless, if you’re thinking you can transfer excess assets to a spouse or blind or disabled child who will then transfer the assets to a third party for less than adequate consideration, the government may be one step ahead of you. Many states ignore transfers of this sort for eligibility purposes, and treat the transfer as if it was made directly by you to the third party.
Consult with a Qualified Estate Planning Attorney
The laws dealing with Medi-Cal eligibility and Special Needs Planning are complex. Without the proper advice, an otherwise simple transaction, (such as making a gift to a relative), can result in the temporary disqualification from valuable Medi-Cal benefits. Consult with a qualified estate planning attorney who is familiar with Medi-Cal planning. Otherwise, your well-being or that of a loved one may be at risk.
Tab Artis is a member of the American Academy of Estate Planning Attorneys and has been engaged in the practice of law for the last fourteen years. For more information or to attend an upcoming seminar, click HERE to be directed to The Artis Law Firm’s Workshops page.