Many of us fear that as we age we will need medical assistance. We strive throughout life to maintain insurance to pay for medical expenses while trying to save. Many of us also want to leave something for our children, so that they have an easier time in life than we did starting out. Perhaps the most meaningful asset to leave is the family home, for emotional as well as economic reasons.
Unlike Medicare, Medi-Cal is a government program for which you must qualify by having few assets and little income. However, certain assets, like a house, are considered “exempt” assets. In other words, your owning exempt assets will not disqualify you. Thus, you can have these assets and Medi-Cal will still pay for nursing home care. In fact, Medi-Cal pays approximately one-half of all nursing home expenses in the United States. However, the government wants you to repay the benefits at your death. Even exempt assets are subject to recovery by Medi-Cal upon your death. If you give assets away within three years of applying for Medi-Cal (30 months in California), typically that transfer will result in a period of ineligibility from Medi-Cal coverage. However, those assets are then no longer subject to recovery at your death.
In certain circumstances, you can transfer the family home during life and not risk disqualification:
- To your spouse.
- To your child who is under age twenty-one, blind, or disabled.
- To a brother or sister who has lived in the home for at least a year and already has a partial ownership interest in the house.
- To a child who has lived with you in the home for at least two years and has provided care to you that enabled you to stay at home and out of a nursing home.
If you live in California, but only California, you are not limited to the four categories above – you can transfer the house to anyone without jeopardizing your Medi-Cal eligibility – as long as your home was exempt at the time you made the transfer.
Rather than transfer the entire home, you can choose to transfer only the “remainder interest” and retain a “life estate.” This allows you the peace of mind to know that you have an absolute and unqualified right to live in the house as long as you live – even if you have a falling out with your children. In addition, at your death the children will get an income tax basis in the house equal to its fair market value at that time. In other words, if your children eventually sell the house, their gain will be determined by subtracting the value as of your death from the sale price. If you were to give the entire house to the child (not retaining the life estate), the child’s income tax basis would be the same as yours – typically much lower than the house’s value at your death.
A qualified estate planning and elder law attorney can help you arrange your affairs so that you can qualify for Medi-Cal assistance while still preserving assets for your family.
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.