New Law: Medi-Cal To Dramatically Scale Back Estate Recovery

There are big changes coming. Gov. Jerry Brown just signed the state’s Budget Bill, which included special provisions dramatically scaling back Medi-Cal’s right of recovery after the death of a Medi-Cal beneficiary. This change will help minimize the devastation faced by some families when later forced to sell the family home to settle up with Medi-Cal.

Health Care Services Historically Subject to Recovery

Historically, this right of recovery applied to the following: (1) All health care services received by a Medi-Cal beneficiary after age 55, and (2) a Long Term Care (nursing home) subsidy received by a Medi-Cal beneficiary of any age.

Current Rule: Recovery Applies to All Assets Owned By Beneficiary

Under current law, when an individual receives a Medi-Cal subsidy for the cost of long-term care, Medi-Cal has the right — after the passing of that individual and his/her surviving spouse – to recover the value of benefits paid, unless the individual is survived by a disabled child.  That right of recovery has historically applied to ALL assets in which the beneficiary had an interest, regardless of whether they are held in a Living Trust, Joint Tenancy or Pay on Death (“POD”) accounts.  Until now, the only way to protect against recovery was for the beneficiary to engage the services of an Elder Law attorney to proactively plan for recovery avoidance by, for example, making carefully structured lifetime gifts of the home and other assets to family members, creating specially designed Irrevocable Trusts, and the like.  Until now, the garden-variety “Living Trust” did nothing to protect against recovery, nor did holding assets in Joint Tenancy or POD accounts.

New Rule: Recovery Will Apply Only To Assets Subject to Probate

Under the new law, Medi-Cal’s right of recovery will only apply to assets which pass from the beneficiary to others by probate or by a probate summary procedure.  By way of example, assets held in the individual’s own name, alone, and designed to pass by Last Will, would typically be subject to probate and would still be exposed to recovery.  However, assets held in a Living Trust will soon be immune from recovery, as the trust is designed to pass ownership upon death without a probate.  Likewise, assets held in Joint Tenancy form or in Pay On Death (“POD”) form will also usually be immune from recovery, as they are likewise designed to pass ownership to the survivors without probate.

The new law will only be effective for individuals dying after January 1, 2017.  Thereafter, it should be relatively easy to avoid Medi-Cal recovery by merely holding assets in a format which avoids probate, such as in a Living Trust or in Joint Tenancy or POD account formats.  Indeed, given the prevalence of Living Trusts, and the use of these beneficiary-type accounts, it may soon be the rare family that experiences Medi-Cal recovery after the death of a loved one. Caution:  the new law does not expressly address whether the new Transfer of Death Deed will also be immune from recovery.

The new law has some other helpful features:

(1) There will be no recovery, in any event, if the beneficiary is survived by a surviving spouse or domestic partner;

(2) There will be no recovery, in any event, against a home of modest value, defined as a home worth less than 50% of the average price of homes in the county in which the home is located;

(3) Upon request, Medi-Cal must furnish, at least once per year, an itemized statement for a $5 fee; and

(4) Interest charged on Voluntary Post Death Liens will be limited.

Proactive planning will still be necessary for those persons who are at risk of dying before the new law takes effect, but for others recovery can usually be avoided by merely holding assets in a form which avoids probate.