RETIREMENT SECRETS: Protecting Your Home in a Health Care Crisis

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karl kimBy KARL KIM

In California there is much confusion about protecting the family home in a health care crisis for those age 65 and older. Much of this misinformation is from a lack of understanding of the differences in current California regulations versus federal law.

When faced with a $7,000-per-month nursing home bill, the average Californian can exhaust their life savings in a short time. According to a June 2012 national study by the Employee Benefit Research Institute, for those that had been in a nursing home for six months or more, median household wealth was only $5,518. Median housing wealth falls to zero within six years.

Contrary to popular belief, many think that their home has to be sold and the proceeds spent down before someone can qualify for Long-Term Care Medi-Cal (LTC Medi-Cal). The myth is that someone has to be flat broke before Medi-Cal will help pay the nursing home bill. In California this is absolutely not true.

The family home does not need to be sold to qualify for Medi-Cal benefits. The home is an exempt asset and does not count in the calculation for LTC Medi-Cal benefits if the “intent to return home” is established.

The intent to return home can be established by checking the “yes” box on the application. If the “no” box is checked, then Medi-Cal will require that the home be sold and the proceeds spent down before an application is approved.

What is intent? It could be thought of in the following way: “I would if I could, but I can’t so I won’t.” Even if it is impossible for the applicant to ever return home, the key is “would you go home if you could?” Establishing the intent to return home is key in crisis planning.

Your home could be a boat, mobile home, tract home or a mansion. As long as it is where you lived, it is your home regardless of value. (After SB 483 is implemented, an equity maximum will apply.) Your home cannot be your adult child’s home if that is not where you lived.

Here is what you need to know. The home does not count for Medi-Cal approval; however, it is not exempt from recovery. Think of Medi-Cal as a loan to help pay nursing home costs while someone is alive. But after that person passes away, the State of California wants their money back. They want to “recover” against the estate of the deceased Medi-Cal recipient.

Fortunately, there are simple, legal and straightforward methods for avoiding recovery. But you have to know about and plan for recovery ahead of time.

The first step to avoiding recovery is that while the person on Medi-Cal is alive, their ownership interest in the home needs to be transferred to either the at-home spouse, in their name only, adult children or other beneficiaries. Simply put, the Medi-Cal recipient’s name needs to be taken off of the deed.

Because the intent to return home was established in writing when the application was filed, the home is an “exempt asset.”

This is important because exempt assets can be transferred to anyone at any time with no penalty.

And this is important because if the Medi-Cal recipient’s name is not on the deed at time of death, the state cannot recover against the home. In addition, Medi-Cal cannot go after the home even it is in the at-home spouse’s name only, the adult children’s name only or other beneficiaries.

To be sure that the quit claim deed is done properly, an attorney should do the transfer. Please consult with the attorney or your tax advisor for tax consequences.

Let’s take a look at an example. A person can qualify for Medi-Cal with a home (exempt) regardless of its value and have less than $2,000 in the bank. Let’s say that mom had been on Medi-Cal for 10 years and Medi-Cal has paid $300,000 of her nursing home costs. At the time of her death, she owns a home worth $300,000 and has $100 in the bank.

The recovery section in Sacramento sends her son a recovery notice for $300,000. He has 60 days to pay the bill.

Does he have $300,000 lying around? Probably not.

If he can’t pay the bill, Medi-Cal will place a claim on his mother’s home because her name was on the home when she died. He is now forced to sell her home and send Medi-Cal the $300,000.

This is not what Mom had planned for her home. She wanted it to go to her son.

How could have this been avoided? Let’s suppose that Mom had quit claimed her home to her son while she was alive and on Medi-Cal. The home is now in her son’s name and not Mom’s.

Now when she dies, the only asset in her estate at time of death is her bank account valued at $100. Her son uses this $100 to help pay her funeral expenses and saves the invoice.

He gets a recovery notice from Sacramento for $300,000 for his mom’s nursing home costs. He sends the recovery technician a copy of her last bank statement showing the $100 balance and a copy of the funeral expenses.

Her estate at time of death after funeral expenses is now $0.00. Medi-Cal then sends him notice that they will not pursue a claim against her estate.

Isn’t this a better ending? Mom was able to at least leave her home to her son after her passing.

This is a simplified example. Every situation is different. The main point is that recovery avoidance must be planned for when dealing with the family home. The earlier you plan, the more successful you will be.

Karl Kim, CFP, CLTC is the president of Retirement Planning Advisors, Inc. and a Medi-Cal specialist. His office is located in La Mirada. He can be reached at (714) 994-0599 or at www.RetirementCrisisPlanning.com. Karl has submitted over 1,000 Medi-Cal applications over the past 20 years with a 99.9% success rate. This is meant to be an educational article. Do not make any decisions solely on the information in this article. Consult your tax advisor, financial advisor or attorney before taking any action. We are not responsible for any inaccuracies or misinformation.

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