Major Reform to CA Medi-Cal Estate Recovery – On June 27, 2016 Governor Brown signed the SB 833 legislation sponsored by State Senator Hernandez. SB 833 will greatly reduce the future scope of California’s Medi-Cal Estate Recovery against the estate of deceased Medi-Cal beneficiaries.  For Medi-Cal recipients who die on or after January 1, 2017, claims by California Medi-Cal Estate Recovery will be reduced to what is minimally required under federal law.

Federal law requires the state to seek adjustment or recovery from an individual’s estate for specified medical assistance, including nursing facility services regardless of age if the person was permanently institutionalized, home and community-based services, and related hospital and prescription drug services, if the individual was 55 years of age or older when he or she received the medical assistance.

Presently Medi-Cal Estate Recovery can, subject to limitations, seek recovery from the estate of the surviving spouse of a deceased Medi-Cal recipient if the surviving spouse’s estate includes assets which the surviving spouse had received from the Medi-Cal recipient’s estate (at death). Under SB 833, Medi-Cal will no longer be able to recover from the surviving spouse’s estate with respect to Medi-Cal recipients who die on or after January 1, 2017.  The surviving spouse of such a person will not have to transfer any assets received from a deceased spouse’s estate to safeguard them from recovery claims against the surviving spouse’s own estate, when the surviving spouse later dies. This is a major victory for those who advocated Medi-Cal Estate Recovery reform.

Under SB 833, Medi-Cal will only be able to proceed against assets that are part of the deceased Medi-Cal recipient’s “probate estate”. The probate estate is limited those assets that would be included in a probate were the deceased recipient’s estate to be probated.  Presumably this applies regardless of whether or not the deceased recipient’s estate is ever actually probated or not; that is, assets inside the estate of a decedent which is appraised at under the $150,000 probate threshold would presumably be considered to be a part of the decedent’s probate estate for Medi-Cal estate recovery even though no probate is required.

This offers a planning opportunity: Effective January 1, 2017, assets that transferred into a living trust prior to the deceased settlor’s death are, therefore, not subject to Medi-Cal Estate Recovery claims against the deceased settlor. The same is true for assets held as joint tenancy estates and or life estate assets, these pass automatically at death without becoming part of the decedent’s probate estate. Likewise, it would appear that the same outcome will also apply for real property transferred by means of the new Transfer on Death Deed.  This will likely motivate persons who receive Medi-Cal to consider how best to keep their assets outside of their probate estate (one way or another) to avoid Medi-Cal recovery against their estates and so protect their loved ones.

That assets held in a decedent’s revocable living trust will avoid both probate and Medi-Cal estate recovery simultaneously is important. Living trusts can provide more protections to decedent’s intended beneficiaries and offer more “what if contingency planning than is true of joint tenancy, life estate or TOD Deeds.

In addition, SB833 will also provide the following benefits: Persons will be able to request an itemized bill each year listing the cost of the Medi-Cal services received (for a $5 cost); Interest to be charged against the probate estate of deceased Medi-Cal recipient will be at a lower rate; Homesteads of “Modest Means will be exempt from Medi-Cal recovery; and acupuncture will added as an approved Medi-Cal service (now effective).

The foregoing is great news.  Of course, we do not have all the answers regarding the new legislation.  More remains to be seen in 2017 once the legislation begins to be implemented.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”