Revocable Trusts and No Asset Medi-Cal

The revocable living trust has become increasingly important for California residents who receive Medi-Cal benefits. Medi-Cal has a variety of different programs, including the Modified Adjusted Gross Income (“MAGI”) Medi-Cal for persons between 18 and 65 years old, various different Community Based Medi-Cal programs (for the aged, blind, disabled, medically needy, and working disabled), and long term care Medi-Cal (residential Skilled Nursing Facilities).

Medi-Cal involves three basic areas: Eligibility, Share of Cost (once eligible), and Estate Recovery (after death). Let us discuss how the revocable living trust assists in each of these areas.

Prior to January 1, 2024, to be eligible for Medi-Cal (excluding MAGI Medi-Cal, based on income only) required that the combined value of all of the applicable available non-exempt assets (e.g., bank accounts, second homes, second vehicles, etc.), whether or not owned in the person’s living trust, be under a limit. For decades, $2,000 was the countable asset limit for an individual, $3,000 for a married couple. That asset limit temporarily increased to $130,000 on July 1, 2023.

MAGI Medi-Cal set the way to abolish the Medi-Cal asset test with an income limit only test (presently, $1732/month). Accordingly, assets whether or not held in one’s living trust, no longer directly prevent otherwise an eligible person from participating in community based Medi-Cal or skilled nursing home Medi-Cal. This sets California apart.

Nonetheless, anyone receiving Supplemental Security Income (“SSI”) remains subject to the stringent $2,000 available countable asset limit. Persons on SSI benefits automatically qualify for Medi-Cal even if they are not aged (65 or older). A living trust, therefore, does not assist SSI recipients as it does Medi-Cal recipients. SSI recipients, therefore, benefit from irrevocable special needs trusts.

Medi-Cal’s income rules still determine eligibility and Share of Cost to its various programs. A person who receives Medi-Cal with a Share of Cost, therefore, must pay something towards their own health care costs. Beneficiaries at a skilled nursing facility always pay a share of cost.

Share of Cost counts income that is actually available to meet certain essential needs. If a Medi-Cal beneficiary’s available countable income exceeds their maintenance needs level (presently, $1,732/month) then an otherwise eligible Medi-Cal beneficiary has a share of cost.

A trust, whether revocable or irrevocable, minimizes a person’s available countable income and share of cost. Income received by a trust (with income producing assets) does not count as income to the trust beneficiary for determining Medi-Cal share of cost.

However, direct distributions by the trust to the beneficiary – of either trust income or principal (i.e., anything not income) – count as available income. But, if the trust were instead to pay a portion of a person’s support and maintenance needs, called, “in kind support and maintenance” (“ISM”), but not 100% of any ISM cost (e.g., rent), then such ISM payments do not count for Medi-Cal share of cost. Also, if the trust were directly to pay for other expenses and purchases other than certain necessities of life (e.g., buying a vehicle) then such other trust purchases do not count as income for share of cost.

Thus having a trust, whether revocable or irrevocable, allows a Medi-Cal beneficiary to reduce their Share of Cost or to have income below the income limit for eligibility related to certain Medi-Cal programs.

Next, a deceased Medi-Cal beneficiary’s estate can still sometimes be subject to Medi-Cal estate recovery, for Medi-Cal services provided, if the beneficiary’s estate is probated and the decedent was not survived by a spouse. Currently California law requires a probate when the total gross value of a decedent’s probate estate exceeds $184,500. If the Medi-Cal beneficiary’s estate avoids probate, due to being small or using non probate assets (e.g., trusts and/or death beneficiary assets) then there is no Medi-Cal Estate Recovery.

Trusts both avoid probate and Medi-Cal estate recovery at the same time. With no more Medi-Cal eligibility asset test, many more California residents are now eligible to receive either community based Medi Cal or long term care Medi Cal. Thus, the living trust is even more important than before.

The foregoing discussion is not legal advice. Consult a qualified attorney for guidance. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.