More About Medical Estate Recovery Reform – In my prior article in July 2016, regarding the passage of Medi-Cal Estate Recovery Reform, I said that estate recovery will apply much less often with respect to Medi-Cal beneficiaries who die after January 1, 2017. As we approach the effective date more information regarding its implementation is becoming available.
Under the new law, California will only recover with respect to assets held in the “probate estate” of a deceased Medi-Cal beneficiary unless an exception applies, such as, they are survived by a spouse, a child under 21 years of age or a disabled child. The foregoing restriction to recovery against a probate estate and the exception when a spouse survives are major changes from current law. Presently Medi-Cal Estate Recovery applies to all assets in which the decedent retained a continuing interest at the time of death, including assets in the decedent’s living trust, unless the decedent was survived by a disabled or minor child in which case no recovery applies.
Probate is the court supervised administration of a decedent’s estate. Probates, generally speaking, are either testate, when the decedent’s will is admitted to probate, or intestate, when the decedent does not have a will. Having a will, therefore, does not avoid probate.
One thing that is new and exciting is that Medi-Cal Estate Recovery does not apply when the deceased Medi-Cal recipient is a survived by a spouse. Even if assets pass to someone other than the surviving spouse the foregoing exception to recovery applies. The exception regarding a surviving spouse mirrors the longstanding existing exemptions for surviving disabled or minor children. That is, the very existence of a surviving spouse, disabled or minor children (under age 21) exempts the decedent’s entire estate from Medi-Cal recovery, regardless of whether or not any of the decedent’s assets are received by such persons.
Next, what is included in a person’s probate estate, and thus potentially subject to recovery, will also be greatly reduced. As previously reported, under the new law assets passing outside of a formal probate will no longer be subject to Medi-Cal Estate recovery. Assets held in a trust, because they are not subject to probate, will also not be subject to Medi-Cal Estate Recovery. The same is true for joint tenancy assets, life insurance, annuities and pay on death bank accounts that pass by survivorship and without probate to a surviving owner or beneficiary. Thus it is important to make sure alternative death beneficiaries are named in order that a living beneficiary is likely to receive the asset outside of probate.
Of significant comfort to many persons receiving Medi-Cal is that small estates of California decedents’ under $150,000 in gross value are also excluded because they are not subject to formal probate proceedings. Previously, I had reported that such small estates would presumably be subject to Medi-Cal recovery but that is not the case. Likewise, court petitions to confirm title to real property belonging to a small estate are not probate proceedings and thus do avoid Medi-Cal Estate recovery.
Mobile and manufactured homes are already excluded from probate under California law and for that reason will not be subject to Medi-Cal recovery under the amended law. The same is true for unpaid compensation not exceeding $15, 000 that is due the decedent for services in the US Armed Forces.
From 2017 onwards, Medi-Cal beneficiaries can absolutely protect their assets from estate recovery by making sure that their estate is not subject to a formal probate. So long as less than $150,000 in gross value, excluding mobile homes or assets passing to a surviving spouse, remains in the decedent’s name (outside a trust or other non-probate asset) and is not transferred to beneficiaries under formal probate Medi-Cal Estate Recovery does not apply.